“The Middle East has oil, China rare earths,” said then-Chinese leader Deng Xiaoping in 1987 while touring Baotou, Inner Mongolia, home to one of China’s largest rare earth deposits.
Beijing recognized the strategic importance of these raw materials more than three decades ago by gaining a dominant position in the world’s production of rare earth oxides – the raw, mined product from which rare earth elements can be separated.
Others are trying to catch up. Non-Chinese production of rare earth oxides nearly quadrupled to 90,000 tonnes from 2015 to 2022, according to US data. By comparison, China’s rare earth production has doubled from 105,000 tonnes to 210,000 tonnes in 2022, far outstripping growth outside its borders in absolute terms.
Complex process and environmentally “costly”
However, the utilization of rare earths is a complex process. Mining is only the first step. Rare earth elements must be separated from the oxides, refined and forged into alloys in a complex, highly specialized, multi-step process before they can be made into magnets.
Here, too, there is much ground for other economies such as Europe to cover, although China currently controls every stage of this process through a coordinated, long-term industrial strategy, supported by state subsidies.
Already, China is attempting to consolidate its position with protective controls on imports and exports of rare earths (please read also the analysis titled “Global Recession, Trade War and Rare Earths“).
Demand for rare earths is growing because of their importance in making permanent magnets, a critical element in advanced key technologies for sustainable development, from wind turbines to electric cars, scooters and weapons systems. The value of the global rare earth market is expected to reach just $9 billion in 2023, but is projected to more than double in 10 years to $21 billion.
The European Raw Materials Alliance (ERMA) expects the EU’s mobility and automotive industries to -in which permanent magnets will play an important role- will increase to 400 billion euros by 2030.
The big deposits
There are known deposits of rare earths all over the world, but few countries have exploited their resources because they cannot afford to mine them. EU officials have spoken of the need to engage in “critical raw materials diplomacy” to cover any shortage of minerals from China.
Last year, China accounted for 70% of rare earth mining production up from 58% in 2021. The Bayan Obo mine in NE China contains 70% of the world’s known rare earth reserves and is the largest on the planet. By 2005 it represented 45% of world production and now 50%. Australia, with which the E.U. is currently negotiating a trade agreement, is an alternative source. The country currently supplies 6% of the world’s rare earth mining output. The Mount Weld mine is owned by the Australian company Lynas, which is backed by the Japanese government.
The US, with ambitious plans to develop a domestic rare earth supply chain, is another option. The owners of California’s Mountain Pass mine—currently the country’s only rare earth mining and processing facility—just restarted a separation plant that allows the U.S. to process rare earths within its borders (please also read the analysis titled “The So Far Wrong U.S. Policy on Rare Earth Production“)
Between 1965 and 1995, Mountain Pass supplied most of the world’s rare earth materials. It closed in the early 2000s due to competition from Chinese suppliers, but reopened in 2018. Last year it supplied 14% of the world’s rare earth mining output.
Europe has a rare earth separation facility for magnet production in Estonia, operated by Canada’s Neo Performance Materials. Belgian chemical group Solvay plans to expand its operations in La Rochelle, France. Also in January 2023, Sweden’s state-owned mining company LKAB announced that it had discovered Europe’s largest deposit of rare earth metals in Kiruna, Lapland.
However, any company seeking to exploit reserves in Europe will need to overcome some additional hurdles, such as environmental concerns, opposition from local communities at deposit sites and lengthy permitting processes.
Can Europe break free from China?
The E.U. proposed the Critical Raw Materials Act (CRMA) in March to strengthen its own supplies of raw materials, with measures such as streamlining permits, designating strategic projects as eligible for funding, and setting targets for domestic sourcing, production and recycling . It also includes measures to create permanent magnet production centers, 94% of which come from China, according to CEPS data.
Neo Performance Materials received almost 19 million euros from EU funds. to build a factory in Estonia near the Russian border. But industry figures say Brussels needs to go further. And that’s because Beijing subsidizes its industry, keeps prices opaque and controls the market through export quotas – in addition to having a technological advantage.
The CRMA is likely to be approved by the end of 2023, in an ultra-fast process under Brussels terms. However, experts say it will not help the EU much. to reduce her dependence. Few believe that Europe can completely replace China. Diplomats, experts and industry executives say the truth is that while Europe can slightly diversify its supply chain, it cannot achieve its climate goals without China.
