A December ban on Chinese critical mineral exports to the US was another escalation of the tit-for-tat trade tariffs and controls between the two countries. The US is attempting to control China’s access to the semiconductor chips that fuel today’s cutting-edge technologies, while China is leveraging its control over the supply and refinement of the 17 chemical elements known as rare earths.

Rare earths are used in the manufacture of many things we use or rely on every day, from smartphones to wind turbines, and China is home to over half of the world’s rare earth reserves and accounts for almost all of global rare earth refining capacity. Other countries are increasingly looking to wean themselves off dependence on China, but it is not an easy process.

“Rare earths keep a lot of the world in motion,” says Guillaume Pitron, author of The Rare Metals War: The Dark Side of Clean Energy and Digital Technologies. “Without them, so many of our technologies would cease to function and China is at the heart of the whole industry.”

Rare earths by numbers

China’s foray into rare earths meaningfully began during the 1980s, and at the time, then-leader Deng Xiaoping was clear about the importance of the commodities to the country’s economy, remarking that while “the Middle East has oil, China has rare earths.” Since then, China has grown to lead the world both as a commodity source and a destination for refining, with market leader China Northern Rare Earth High-Tech Co. around seventeen-times larger than its next biggest international competitor by market cap.

According to CSIS, China extracts around 60% of the world’s rare earths, and although that is down from around 90% in 2008, the country remains firmly ahead of anywhere else, with very few signs that that will change in the near future.

“China is blessed with the largest proven reserves in the world,” says Philip Andrews-Speed, Senior Research Fellow at the Oxford Institute for Energy Studies. “The core of the volume is in the North of the country, and that produces mainly light rare earths, while smaller reserves in the South have clays that contain heavy rare earths, which are rare in their occurrence. They have made good use of both of these advantages.”

After acquiring a number of processing technologies from France during the 1980s, China also began to work on becoming a processing superpower. Almost 90% of global rare earths processing is now done in China, with the country producing 70 kilotons of refined rare earths in 2023.

“Processing rare earths is fairly complicated and China has been working on improving its ability to do this for two decades,” says Andrews-Speed. “The country now easily leads the world in processing technology and in terms of volume. But unlike in critical mineral processing [such as cobalt] where they import most of the volume, for rare earths China’s refining ability is also backed by its massive reserves, giving them a huge advantage.”

Controlling the market

There are three key areas through which China is leveraging its control in the market: financial dominance, technological expertise and export controls.

In terms of financial viability, rare earths actually hold an interestingly contradictory position in global manufacturing. Their inherent value to technology is enormous, with items such as neodymium magnets unrivalled in their efficiency and used in everything from smart toothbrushes to computer hard drives to EVs. However, the total financial value of the market is relatively small when compared to the mining and refining of other minerals and metals.

“The metals are rare by name, and you can’t really replace them with equivalently efficient alternatives, but they are not quite as precious as other things,” says Pitron. “The total rare earth market only accounts for between $5-7 billion per year.” The global iron ore market, on the other hand, was worth $289.72 billion in 2023.

To maintain its leading position, China often operates at a loss across the rare earths supply chain to keep prices low. For example, the cost of neodymium-praseodymium (NdPr) dropped by 20% between January and July 2024, according to the Institute for Energy Research. But, given the ability of the country’s centralized system to absorb these losses, this appears to be a choice that China’s leadership is willing to make to maintain the country’s control over the critical elements.

While new discoveries of deposits across the world are relatively commonplace, actually developing functioning mines can take years due to legal and environmental compliance requirements, on top of the practical difficulties of opening a mine. The costs of dealing with all of these hurdles can often be prohibitive for newcomers when compared to potential income, and finding investors who are willing to wait for well over a decade to see any return on investment is difficult.

“What we’ve seen so far is that every time a non-Chinese firm starts to build rare earth mining capacity, China will increase its exports rendering the new mine uncommercial,” says Andrews-Speed. “To what degree they will continue to do this is unclear, and what impact US subsidies on new mines will help offset this is also unclear, but China’s dominance means that they can use this tool often.”

And this has led to accusations of dumping levied against China. “They are happy to lose money,” says Pitron. “As long as they produce rare earths at such a cheap price, it makes it impossible for others to produce resources with a decent business model.”

Technologically, especially for rare earths processing, China also far outperforms the competition. Between 1950 and 2019, China applied for almost 26,000 rare earth-related patents, compared to Japan’s 13,920 and 9,810 in the US. And while the technologies themselves are incredibly advanced, regulations in China are also less strict in terms of environmental impacts.

“China is ready to pay a high cost, socially and environmentally, for having so much of the refinery process in the country,” says Pitron. “They have created a bottleneck in the international supply chain, and have publicly stated that they were willing to limit others’ access to rare earth technologies.”

The third lever China has been utilizing is export controls on many of the rare earth products produced in China. The current geopolitical environment is far more fraught than it used to be, and the US’ attempts to control China’s access to the technologies and resources it needs to produce semiconductors has led to China increasingly controlling rare earths supply and associated tech.

In December 2023, the country announced a ban on sharing rare earth extraction and separation technologies and a year later announced a ban on the exports of gallium and germanium to the US.

“The macroeconomic impact of the controls will not be huge, but certain sectors may well face difficulties,” says Andrews-Speed. “The energy and renewables sectors are probably the most visible example. There will also be military implications, but the extent of that impact is much harder to judge from the outside.”

In terms of comparing the impact of the two sets of controls, Pitron would lean towards having access to semiconductors. “It is obviously a nuanced discussion,” he says “But having complete access to and mastery of the semiconductor chain, including lithography machines, is probably a greater advantage than having rare earths leverage.”

Alternative sources

With export controls in mind and current geopolitical trends, many countries are pursuing alternatives to China for their rare earth supplies. In terms of functioning alternatives there is the Mountain Pass Mine in California, which is the only rare earths mining and processing facility in the US, and in 2022 it produced 42,499 metric tons of rare earths, 14% of the global total.

Last year, the Saskatchewan Research Council in Canada opened a $74 million rare earth processing plant, which, once fully operational, will be able to produce 400 tonnes of NdPr metals per year, enough for 500,000 electric vehicles. There is also the Lynas Mt Weld mine in Western Australia, which exports to the company’s Malaysia processing plant for refining.

Another option is to explore alternative processes, such as developing products that can do more with less resources and recycling rare earths goods. An example of the latter is the attempts within the EU to recycle neodymium magnets by pulverizing the magnets into a powder and reforming them.

“Technology-wise, we are pretty much there,” says Edoardo Righetti, a researcher at the Center for European Policy Studies. “There are startups that have been testing their processes for a few years and are now working on scaling up. But it isn’t just technological readiness that is required, there are a number of economic, supply chain and regulatory barriers that need to be solved to make it work.”

Recycling is an attractive option given its economic security benefits, as well as cutting out the emissions produced through the mining process. The time horizon for recycling is also a lot shorter given the difficulty of locating rare earths reserves, financing projects and passing regulatory barriers. But how much of the supply recycling can actually replace, particularly in the short term, is not clear yet.

“With several caveats, even the optimistic scenario would say not to expect much before 2030,” says Righetti. “There needs to be more infrastructure in place and there isn’t yet sufficient feedstock. The current applications for the magnets have a certain lifespan and given the recency of the development of these markets it will take a while for items such as EVs or wind turbines, for example, to reach their end of life.”

“In a very optimistic scenario, we might be able to reach up to 50% of demand by 2050,” he adds.

Refining the supply

China’s rare earth dominance will be hard to shake. It has such control over the market and has several cards to play to maintain it, but the current trend towards decoupling we have seen across different sectors of the global economy is also present in rare earths.

“There has been a policy push from the EU and US to increase domestic production capacity,” says Righetti. “There are also some options, particularly for Europe, for limiting the impacts of potential export bans. Stockpiling, joint purchasing and international partnerships are just some of the avenues to be explored to reduce short-term risk.”

The long-term goal is to diversify away from a reliance on China for rare earths and while the process is slow, things are changing. “China had a much larger monopoly on extraction 10 years ago, but that is now down to 60%, and many countries and companies are contemplating the idea of opening up their own rare earth mines,” says Pitron.

But it will not be an easy process. “It is too early to tell how well diversification will go,” says Andrews-Speed. “If someone controls 90% of a market, weaning yourself off could take 10 years or more.”