China Tightens Stranglehold on Rare Earths With Strategy To Prevent Western Expansion And Short Circuit Government Effectiveness
Summary
China dominates the production and processing of rare earth materials, controlling mining, refining, oxide separation, and magnet production.
Efforts to diversify rare earth sources outside of China have been limited, as investment opportunity in sizable refineries for processing rare earth minerals is threatened by plummeting rare earth prices
The supply for rare earth oxides and neodymium-praseodymium magnets, crucial for electric vehicles and renewable energy, is outpacing demand, preventing the need for strategic investments and supply chain diversification.
MP Materials, Lynas Rare Earths and other leading rare earth companies have exhibited negative growth in the past 1-year period.
As of 2024, the status of rare earth materials outside China remains a pressing concern for global supply chains. China continues to dominate the majority of rare earth production and processing, controlling 67% of global mining, 91% of refining activities, 87% of oxide separation, and 94% of magnet production. This level of control has triggered numerous international efforts aimed at diversifying rare earth sources, but progress has been slow.
Limited Progress Despite Growing Concern
While legislative initiatives like the Rep. Obernolte bill, which was presented to the U.S. Congress, aim to address these supply chain vulnerabilities, substantial action remains elusive. The bill is currently under review by the House Committee on Natural Resources, highlighting the ongoing delays in building an independent rare earth supply chain outside China.
For over a decade, concerns over China's dominance in rare earth materials have been a recurring topic. In 2010, China accounted for over 90% of global rare earth production and nearly all rare earth processing, which included separating rare earth ores into individual oxides, refining them into high-purity metals, forming alloys, and manufacturing critical components like permanent magnets used in both defense and commercial applications. Despite increased awareness and numerous discussions, the ability to build a sizable rare earth processing infrastructure outside China remains a challenge.
China’s Entrenched Dominance
Today, approximately 60% of the world's rare earth minerals still come from China. Myanmar, Australia, and the U.S. Mountain Pass mine provide alternative sources, but their ability to process rare earth minerals at scale pales in comparison to China’s refining capabilities. China’s overwhelming control—91% of global refining, 87% of oxide separation, and 94% of magnet production—continues to leave much of the world dependent on its rare earth supply chain.
China’s Strategy of Increasing Quotas to Drop Rare Earth Prices
China’s dominance in the rare earth industry has long been a strategic tool to control global supply and pricing. One of the most effective methods China employs is increasing its production quotas to flood the market, leading to a drop in rare earth prices. This strategy, often referred to as "quota dumping," allows China to maintain its grip on the global supply chain while stifling competition, particularly from emerging rare earth mining and processing operations outside of China.
Charts 1 shows the price trend of Neodymium since 2012.
Chart 1
By increasing mining and export quotas, China can artificially lower prices, making it economically unfeasible for other countries to develop and sustain rare earth operations. For instance, China's rare earth mining quota increased from 105,000 metric tons in 2017 to over 240,000 metric tons in 2023, representing more than a doubling of supply. In the first half of 2024, China announced an additional 12.5% increase in quotas, further increasing its output. This substantial increase in supply depresses global prices, particularly impacting producers in the U.S., Australia, and Europe who face higher extraction and processing costs due to stricter environmental regulations and more complex supply chains.
Chart 2 shows my analysis of supply-demand of rare earths between 2010 and 2024 according to my report Rare Earths Elements in High-Tech Industries: Market Analysis and Forecasts Amid China’s Trade Embargo.