Highlights
- The Boston Consulting Group predicts rare earth element demand will triple by 2035, driven by electric vehicles and renewable technologies.
- China currently dominates 80-90% of rare earth metal processing and magnet production, presenting significant global supply chain challenges.
- Experts recommend immediate upstream mining investments, public-private partnerships, and innovative strategies to address the impending supply gap.
The Boston Consulting Group (opens in a new tab) (BCG) [report (opens in a new tab)] in July 2023 warned of a severe rare earth element (REE) supply shortage, possibly delaying global carbon emissions goals and hindering the energy transition. Demand for magnet rare earths like neodymium, praseodymium, dysprosium, and terbium at the time was projected to triple by 2035, driven by electric vehicles, wind turbines, and other technologies. The prestigious consultancy’s report outlined five key steps to address this supply gap: fostering new mining projects, targeting upstream investments, improving transparency, forming regional and private partnerships, and developing recycling programs. BCG estimates a need for $100 billion in investments across the value chain by 2035, with $30 billion required for upstream mining alone. Could it be the case to overcome China’s near monopoly of processing/refining and magnet production far ore state-backed involvement will be needed in the West?
Core Findings and Challenges
While the report identifies clear steps, it assumes the feasibility of building a diversified supply chain outside China, which currently dominates about 80% to 90% of REE refining and magnet production. The technical and financial barriers to midstream and downstream capacity development are immense. Separating rare earth oxides and manufacturing permanent magnets are highly specialized processes requiring advanced technology, significant capital, and skilled labor—areas where Chinese companies hold a clear edge due to decades of investment and patent control. And the elephant in the room, of course, is state sponsorship. Consultants like BCG opt for market-based solutions when, in fact, this may not be feasible given the sheer magnitude of the effort, plus the actual dynamics in the real world.
The report also acknowledges a lack of investor interest, as current REE prices rarely meet the profitability thresholds needed to justify new projects.
Environmental concerns about water use, waste management, and energy intensity further complicate efforts to scale mining and processing operations in regions like North America and Europe, where stringent regulations slow progress.
Key Actions
Their underlying report is premised on government buy-in to the global 2050 carbon emissions targets. They may be eclipsed by a rare-earth supply-demand imbalance unless governments, investors, and companies take swift, aggressive, and purposeful action.
The BCG authors’ key imminent takeaways:
- The global demand for rare earths is expected to reach 466 kilotons by 2035, up from 170 kilotons in 2022, an 8% compound annual growth rate.
- Upstream mining operations should be initiated immediately because of the long lead times required for development. Quasi-government and multilateral entities could be effective vehicles for funding these rare-earth mines. About $30 billion is needed from 2022 through 2035.
- Collaboration—public-private groups, regional and private partnerships, and industry consortia—is key to improving transparency and sharing the effort and risk that development requires. There is only so much that countries and companies can do alone.
Key Assumptions and Questions for Investors
BCG assumes that demand for REEs will grow steadily, but factors like alternative technologies, evolving battery chemistries, or lower-than-expected EV adoption could disrupt this trajectory. Also, this was a couple of years ago, and perhaps the authors did not take seriously the return of Donald Trump to the White House.
Trump, of course, will cancel American participation in the Paris Agreement, cut electric vehicle mandates, and the like. The assumptions certainly change.
Investors must ask some of the following questions:
| Key Questions | Summary |
|---|---|
| Scalability | Can proposed projects achieve the scale needed to compete with China, especially for midstream and downstream operations? |
| Capital Access | Should interest rates rise again, how would this and economic uncertainty impact funding for costly, long-term REE initiatives? |
| Environmental Trade-offs | Can mining and refining projects meet strict environmental standards while remaining cost-effective? |
| Recycling Viability | Is REE recycling a practical solution, given its current inefficiency and high costs? Experts have informed Rare Earth Exchanges that this is likely not the answer in the short or intermediate run. How much state-backed capital would be needed (E.g. subsidies)? |
| Supply Chain Gaps | How will delays in downstream capacity affect returns on upstream investments? |
Vetting the BCG Recommendations
While the report rightly emphasizes the urgency of addressing supply bottlenecks, its proposed solutions rely heavily on government intervention and public-private partnerships, which face bureaucratic and financial hurdles. Only a different paradigm in government, and likely some form of emergency conditions, would governments in the West, such as the United States, be ready for the level of subsidy required.
For instance, the recommendation to rapidly launch over 20 mining projects by 2030 may be unrealistic given the 7-10 years typically required for permitting and development. Similarly, the emphasis on regional partnerships, such as Africa’s potential, overlooks the significant political and infrastructure challenges in those areas. Since the report a year and a half ago, more projects have been announced, but it’s not clear if this is anywhere enough to overcome this key concern.
Conclusion
BCG provides a roadmap to address the rare earth supply gap, but its reliance on rapid collaboration, capital inflows, and technological breakthroughs may underestimate the entrenched dominance of China’s REE industry. The experts we have spoken with, on condition of anonymity, suggest the consultancy underestimates the power of China’s tenacity to maintain control.
For investors, the pressing questions involve whether these initiatives can deliver timely, scalable results and how policy risks, market shifts, and technical barriers will shape the competitive landscape. Will the U.S. government provide the backing necessary for success for example? What demand drivers will change with incoming POTUS Donald Trump? The report underscores the need for a balanced approach, weighing environmental and economic factors while seeking innovative solutions to diversify the REE supply chain.
Authors were Emile Detry (opens in a new tab), Antoine Gauduel (opens in a new tab), Frédéric Geurts (opens in a new tab), Lisa Ivers (opens in a new tab), Michael McAdoo (opens in a new tab), Tycho Möncks (opens in a new tab), and Tom Butler.
Daniel
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