Rapid growth in rare earth magnets needed to meet accelerating energy transition technologies.

The rare earths supply chain is at the forefront of geopolitical tensions in the critical materials space.  The central issue faced by the West is that despite recent investments, China still dominates rare earth mining, processing, and manufacturing.  While mine supply in Australia, USA and Myanmar have diversified the mining landscape slightly, over three-quarters of rare earths mined outside of China are still exported to China for processing.  It is principally for this reason that HREEs rank 3/40 and LREEs rank 5/40 in Project Blue’s Critical Materials Risk Index (CMRI) 2022.

While China continues to invest in its rare earth supply chain and has established NdFeB production capacity well ahead of forecast demand, the rest of the world remains slow to react – stuck debating strategies and geopolitical alignments rather than investing.   The Quadrilateral Security Dialogue Plus initiative (QUAD-Plus) has been established between Australia, India, Japan, the USA, and South Korea, and several other government-level strategies have been set up to help counter China’s REE dominance.  But at present, China holds all the cards, and having previously flexed its muscles in the rare earth industry through export bans and quotas, the country may do so again, with Chinese government officials having recently hinted at the possibility of export bans to countries deemed a threat to China’s national security.

Despite investments in advancing rare earth projects picking up pace, they remain dwarfed by the growth and consolidation in China, emphasised by the H2 2022 quota announcement.  In Project Blue’s view, wholly independent ex-China supply chains are not expected to be established anytime soon, so a reliance on Chinese products still needs to be acknowledged and built into long-term strategies.

The industry also needs to acknowledge enduring supply chain issues that have been displaced but not destroyed.  HREEs are largely mined from ionic clay deposits and are associated with poor environmental practices, health risks, and illegal mining.  Since China clamped down on domestic malpractices through environmental inspections, mine closures and consolidation, nearly 50% of global HREE supply has shifted to Myanmar, which now faces similar issues previously seen in China.

Project Blue forecasts growth in rare earth demand and supply to be driven by EV trends, which use high-power neodymium-iron-born (NdFeB) permanent magnets in the drivetrain.  Magnet demand growth is forecast at a CAGR of 6.7%, which will be supported by other energy transition technologies such as wind turbines and energy-saving applications, though units consumed will be dwarfed by those used in EVs.  

This huge demand growth will have knock-on supply and price implications.  Demand for neodymium (Nd) and praseodymium (Pr) for use in magnets has already worsened excessive oversupply of cerium (Ce) and lanthanum (La), which made up 73% of supply, but only 68% of demand in 2021.  REE supply is nuanced, complex and constantly evolving and more output targeting LREE NdPr and HREE DyTb will change dynamics for the whole suite of rare earth elements over the years to come.