Highlights
- China dominates the rare earth elements (REE) supply chain across mining, processing, and intermediate production, controlling over 80% of global supply.
- The REE supply chain involves multiple stages from mining to end-user applications in electric vehicles, defense, electronics, and renewable energy technologies.
- Geopolitical risks, environmental challenges, and technological barriers pose significant obstacles to diversifying the global rare earth elements supply chain.
The rare earth elements (REE) supply chain is complex and involves multiple stages, from mining to the production of high-tech applications. Here’s an overview of its structure and key players.
Structurally the supply chain involves first and foremost the mining and extraction of the elements. Mining rare earth ores and extracting rare earth oxides (REOs) occurs at key locations including China, the United States, Australia, Myanmar, and Africa. However, China predominates via the state-sponsored consolidation of key players in that nation including China Northern Rare Earth Group (the world’s largest producer).
But also, Australia’s Lynas Rare Earths (opens in a new tab) and America’s MP Materials (opens in a new tab) in California are notable players.
When it comes to separation and refining, key to understanding this segment of the REE value chain is the conversion of rare earth oxides into individual rare earth metals or compounds. Key locations for this mission-critical segment of the value chain are dominated by China, with refining facilities in Malaysia (Lynas) and small capacities in other countries.
In the value chain of REEs are the intermediate products produced which are used as capital goods inputs to produce other high-tech related products. For example, the development of manufacturing alloys, magnets, phosphors, and other intermediate goods become paramount for the market. Specific applications include magnets for EVs and wind turbines, phosphors for LEDs, catalysts for industries and others.
Key companies producing these intermediate products reside in China, which continues its dominance through integrated processing companies like Baotou Steel Rare Earth. Notable companies outside of China include Shin-Etsu Chemical (opens in a new tab) and Hitachi Metals (Proterial (opens in a new tab)) out of Japan. In the United States and Europe other smaller, emerging players develop specialized products. Rare Earth Exchanges is committed to tracking this unfolding segment of the market.
What about the end user—the manufacturer that requires these inputs? Using rare earth elements in final products like electric vehicles, wind turbines, smartphones, and military equipment represent the key market demand for this segment of the REE value chain.
Applications that producers make include electric vehicles (using permanent magnets for motors), defense sector applications such as guided systems and lasers and electronics, from smartphones and displays to storage devices. Some key companies that could be market movers include Tesla, Apple General Electric, Siemens, and defense contractors such as Lockheed Martin.
What companies and nations are emerging as dominant?
As Rare Earth Exchanges has reported China continues to dominate mining, as well as processing and intermediate production. China has developed the policies and the focus on maintaining global dominance, such as export restrictions and control over pricing. As Rare Earth Exchanges has chronicled China has implemented this scheme as part of its “no shot fired” 2049 plan for complete dominance over the world economy, including the standard digital currency. See the Rare Earth Exchanges article “China’s Strategy of Complete Domination: Without a Shot Fired”.
Other nations are emerging however as the West seeks to incrementally disrupt the REE supply chain controlled by China. Rare Earth Exchanges has suggested this disruption may be accelerated, likely will so, with the incoming Trump administration.
Australia’s Lynas Rare Earths is the largest non-Chinese miner and refiner. The firm plays a key role in diversifying the global supply chain. As we have reported, in MP Materials, owner of the Mountain Pass mine in California, is the only rare earth mine in the U.S. of any material impact to date. Although we have reported several on their way toward production.
Myriad other players in the world include Canada and Africa, both emerging regions for mining. We have also reported on Brazil as a location for mining.
Meanwhile, downstream, both Japan and South Korea invest heavily in the processing and technologies for end-use products. Rare Earth Exchanges tracks with interest both university, government and corporate-lab breakthroughs that could lead to disruptive approaches as well as the startups now working on disrupting the REE supply chain.
What are some ongoing challenges across the REE supply chain?
First and foremost, as far as key challenges are the geopolitical risk represented by this heavily skewed market. Put simply, the heavy dependence on China poses a significant supply risk for many nations. But there are other risks with profound potential external impacts such as environmental risks. Mining and refining rare earths are resource-intensive and produce hazardous waste, leading to the prospect of negative externalities with significant environmental and even public health consequences.
Other concerns raised include technological barriers involving the advanced refining and processing capabilities, currently concentrated in China. Demand pressures are formidable, such as those for electric vehicles, renewable energy, and defense applications.
While these strain the supply chain Rare Earth Exchanges has suggested that the incoming Trump presidency may disrupt these factors and forces. For example, Trump will likely have the U.S. exit the Paris Agreement for example. His administration will also likely cut any mandates for electric vehicles, impacting the surging demand unless some other product demands mitigate the impact.
See “Will the Incoming Trump Administration Slow Down the Rare Earths Elements Sector?” For speculation of risks of provoking China in Myanmar see “Should Myanmar and Rare Earth Supply Chain Realities be Front and Center for Incoming Trump Administration?”**
Rare Earth Exchanges a Salt Lake City, Utah-based media startup with intrinsic biases favoring the USA and the West, suggest that should Trump move to remove most or all environmental requirements, including electric vehicle car mandates, the demand for REEs could in fact wane, at least in the short run. Market forces would likely respond, ceteris paribus, with lower prices giving less demand, which essentially disrupts many efforts outside of China, barring some form of state subsidy or industrial policy intervention in America, Europe, or other Western nations.
Overall Rare Earth Exchanges, while acknowledging intensive investment of the U.S., EU, and Japan, as well as increasingly India in diversification of the supply chain to mitigate Chinese dominance, suggests a key factor in any successful diversification will be the rate of sustainable technological change, given the need for recycling and alternative materials under investigation as potential mitigations for supply constraints.
So, what are some of the risks anticipated?
All sorts of risks are monitored as manifest in the publicly traded companies reports to investors. First and foremost, Rare Earth Exchanges argues that the actual fluctuations and uncertainties related to demand for and pricing of rare earth products could become far more volatile with the incoming Trump presidency as the administration will identify and implement bold measures to over time reduce Chinese dominance.
But we cannot avoid the uncertainties regarding the growth of existing and emerging uses for rare earth products and ability to compete with substitutions for such products, hampering company’s growth trajectories.
Also, we should not ignore mounting intense competition within the rare earth mining and processing industry, a competition that will put downward pressure on pricing.
Companies such as MP Materials Corp. must disclose the uncertainties, for example, relating to the firm’s commercial arrangements with Shenghe Resources (opens in a new tab) (Singapore) International Trading Pte. Ltd., an affiliate of Shenghe Resources Holding Co., Ltd., (opens in a new tab) a global rare earth company listed on the Shanghai Stock Exchange.
Also, don’t forget that we do not live in a static situation. The Chinese are shrewd, smart, and tethered not to short-term thinking, and potential changes in China’s political environment and policies could have a profound impact on the market. Should Trump excessively irritate the Chinese to the point of open hostilities, unexpected consequences based on unanticipated policy moves could ensue.
Should capital markets go south with a Trump ascendancy, sending interest rates higher, for example, we can likely anticipate unanticipated costs or delays linked to mission-critical projects and a general decline in programs, projects, and the pace of innovation.
Any real disruption will also involve proprietary technology components. With the state of various technologies at the dawn in many respects, we cannot be certain as to the risks associated with a successful transition over the next four years, at least despite so many promising breakthroughs.
We note that magnet production remains a Chinese affair for the most part and that less some industrial policy that forms under Trump, bringing coherence, orchestration, and measured execution of sound plans with a longer-term outlook, we cannot be certain as to how market forces may unfold in the next year, or two.
Rare Earth Exchanges reviewed MP Materials Corp investor disclosures (opens in a new tab), revealing substantial potential for all sorts of risks for the predominant miner and processor in the USA. Remember that much of the material from the California-based operation mines gets sent across the Pacific for processing.
At the micro-level of the firm, all sorts of risks prevail throughout the REE space, from regulatory and compliance requirements (and costs) to lack of sufficiently trained talent to the broader macro risks we anticipate with the incoming Trump presidency. We note that we envision opportunities with Trump as well, but one man’s opportunity could turn into another’s liability.
Put another way, the very policies Trump may consider implementing, while seemingly favorable to America, for example, in the short run, may ironically serve to further bolster and reinforce Chinese position in the aggregate over the longer run. While no one can predict the future, and only time and actual actions and policies, plus market responses, will tell, some fundamental precepts are reasonably foreseeable. The incoming administration should be measured, think carefully, and understand the long game on the other side.
Daniel
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