West intensifies efforts to secure rare earths supply

The rare earths market has been recently experiencing dramatic shifts as supply outpaces demand, resulting in an oversupply that has driven prices into a volatile and unpredictable state.

The rare earth market is experiencing a significant shift in supply chain dynamics, driven by Western nations' efforts to lessen their dependence on China amidst rising demand, national security concerns, and the strategic importance of these materials, Caliber.Az reports citing the foreign media.

Over the past decade, global rare earth production has surged, with annual supply tripling from 142,000 tonnes in 2013 to a record 359,000 tonnes of rare earth oxide equivalents in the most recent year.

The sector is at a pivotal juncture, navigating the intersection of technological advancements and geopolitical tensions. While China has long dominated the rare earth market, its dominance is slowly diminishing. The country’s share of global production, which stood at 98 per cent in 2010, fell to 78 per cent by 2015 and further decreased to 67 per cent last year. This decline is attributed to increased activity from producers in Australia and the US, who are bolstered by significant government backing and are ramping up their production capabilities.

China is still dominant, although its market share is declining

Despite a reduction in China’s market share in upstream rare earth mining, the country’s absolute supply output continues to rise. More crucially, China’s dominance in the midstream to downstream stages of processing and manufacturing remains robust and challenging to displace. While rare earth elements are geologically abundant, their extraction and separation into individual oxides required for manufacturing is a complex and difficult process, rendering economically viable deposits scarce.

China’s state-controlled industry leads the world in rare earth processing and technology. In December, China further tightened its grip by imposing export controls on technologies related to rare earth extraction, separation, refining, and magnet production. This move could potentially hinder new development efforts outside China. To counteract this and expand market share beyond China, continued substantial financial support from Western governments will be essential.

Regional policies to boost domestic rare earths supply

The US is bolstering its domestic rare earths value chain through initiatives such as the Inflation Reduction Act, which funds research and project development. Australia has long supported rare earths projects with tax incentives and has recently enhanced these incentives in its 2024-2025 budget with a 10 per cent production tax credit and pre-feasibility funding for critical minerals. Meanwhile, Europe is advancing its supply chain through domestic targets outlined in the Critical Raw Materials Act. Both the US and Australia have also introduced new measures to counteract China's dominance: Australia has extended its tax incentives, and the Biden administration will impose a 25 per cent import tariff on Chinese rare earth magnets starting in 2026.

With global reserves of rare earth ore estimated at around 115 million tonnes, and new reserves likely to be discovered, resource shortages are not a pressing concern. Although rare earth elements are small in volume compared to the over 3 billion tonnes of metals mined annually, their unique properties are irreplaceable. The demand for these 17 critical metals has surged due to their essential role in energy transition technologies, defense, artificial intelligence, and consumer electronics. Permanent magnets, which rely on magnetic rare earths such as neodymium, praseodymium, dysprosium, and samarium, are a primary application and are expected to remain in high demand due to advancements in technology and the growing electrification of society.

The race between China and the West will continue

A dramatic rise in rare earth supply over recent years has significantly outpaced demand, leading to an oversupply of products. This surplus has created a volatile pricing environment where many producers are struggling with losses. Prices for rare earths are notoriously unstable, influenced by geopolitical risks and global trade disputes, making them difficult to predict. This erratic pricing poses challenges for early-stage initiatives and new entrants aiming to establish themselves in the expanding global supply chain.

As the technological and economic rivalry between China and the West intensifies, rare earths have emerged as a crucial battleground. The race for control over these essential materials highlights the strategic importance of securing a reliable supply amid shifting market dynamics and geopolitical tensions.