Every time China tightens its grip on rare earths, the rest of the world becomes a little better at finding them. Rare-earth permanent magnets—which help stick charging cables to laptops, clamp mobile phones to mounting devices and click earbuds into their cases—have become a central battleground in China’s trade wars with its rivals.
Beijing used export controls on these devices to force US President Donald Trump into a humiliating retreat on his Liberation Day tariffs last year. The same tactic is being deployed by China against Japan following a diplomatic spat with Tokyo.
It is having to narrow its focus, though, because the world is responding in kind. Some 15 years ago, almost all rare-earth elements were mined and refined in China, but years of similar threats have significantly changed that picture.
Almost a third of total production now happens in other countries, so Beijing has had to focus on the rarest of rare earths. Neodymium and praseodymium, the elements that give the stickiness to most magnetic devices you will find in your home, are becoming too abundant to offer it credible leverage.
As a result, the focus has shifted to three scarcer elements: samarium, dysprosium and terbium. Conventional rare-earth magnets lose their effectiveness at higher temperatures, so in performance applications such as electric-vehicle motors, wind turbines, guided missiles and aeronautics, you need to supplement or replace them with these so-called heavy rare earths (HRE).
Go back 10 years, and most geologists would have told you this move was checkmate for China. HRE are a geological oddity. Like vibranium, the rare element in the Marvel universe found only in the fictional African nation of Wakanda, useful formations appeared to occur in just a single location on the planet: Longnan, an isolated spot in southern China, where geologists at the height of the Cultural Revolution in 1969 chanced upon one such deposit.
Right now, that assumption is looking far less certain. Scientists are endlessly innovative in finding ways to fix seemingly intractable problems. Industrial chemists solve scarcity by using alternative materials, as they have done in recent years with cobalt in lithium-ion car batteries, now mostly replaced by more abundant phosphate.
Geologists scour the world and demonstrate that what we thought scarce was not so rare after all. It is the latter process we are seeing now in the case of HRE.
The type of formation found in Longnan is certainly rare, but it is not unique. Known as an ionic-absorption clay, it typically forms when heavy tropical rainfall erodes granite mountains over millions of years, washing HRE to the valley floor where the weathered rock captures them like a geological sieve.
Faced with government restrictions on their output in the mid-2010s, Chinese miners were some of the first to look elsewhere, discovering and exploiting rich formations over the border in Myanmar’s war-torn Kachin state. Those mines may already be providing more HRE than China’s own pits, with all the attendant environmental problems that come with the small-scale nature of the industry.
Better-regulated work is underway elsewhere. In Brazil, Boston-based private equity firm Denham Capital Management spent much of the 2010s proving up a clay deposit in central Goiás state. After getting investment from former Xstrata CEO Mick Davis and starting production in 2024, the mine is now being taken over by magnet producer USA Rare Earth under a $2.8 billion deal announced in April.
That may be the tip of the iceberg. A study last year confirmed ionic deposits on four continents, from Madagascar, Malawi and Uganda to Chile and Australia, as well as the existing sites. There is also evidence of them in Malaysia, Thailand, Vietnam and even Finland.
Companies outside China with expertise in processing these ores are building separation circuits to isolate dysprosium, terbium and samarium. Lynas Rare Earths and Neo Performance Materials have already achieved commercial production. MP Materials and USA Rare Earth’s partner Carester expect to be up and running within months.
That is a significant vote of confidence in upstream mines. The key investment proposition for these processing businesses is their independence from China’s rare-earth supply chain. There is little point spending money on such equipment if they are going to be dependent on China and its partners in Myanmar for raw materials.
All this activity represents a warning for those who would seek to impede the global flow of minerals for geopolitical gain. In trying to starve others of rare-earth magnets, China encourages investment that will make them more abundant. ©Bloomberg
The author is a Bloomberg Opinion columnist covering climate change and energy.