Rare earth metals and their role in the global economy
Against the backdrop of growing disagreements between China and Western countries, rare earth metals (REMs) are gaining strategic importance, as evidenced by the large-scale investments of the USA and European countries in rare earth mining. REMs are essential for the most advanced sectors of the economy, military and energy. Currently, China controls the lion's share of the REM supply chain to the world market, but the US and its allies are trying to deprive China of this monopoly.
Rare Earth Metals as a Driver of The High-Tech Sector and a Source of Controversy
Rare earth metals are a group of 17 elements from the Mendeleev table, namely yttrium, scandium and 14 lanthanides (neodymium, dysprosium, holmium, etc.). ‘Rare earth’ they are called due to the fact that in pure form these metals are practically not found in nature. They are found in ore deposits mixed with other elements or composites, which makes REMs difficult to detect. Currently, China is the leader in mining and production of rare earth metals: Chinese companies extract more than 60% of all REMs in the world.
The use of REM, even in small quantities, significantly improves the quality characteristics of the product. For this reason, the most advanced industries have started to use REM compounds. The growing demand for rare earth elements emerged in the mid-2000s in the wake of the development of microelectronics and investments in environmentally friendly production. It is impossible to create microchips, drones and electric motors without the addition of REM. REMs are also associated with the development of green technologies, as they are part of batteries for electric cars and wind turbines. REMs are also used to produce advanced military products, including positioning systems, lasers, night vision devices and next-generation UAVs.
The development of the microelectronics market and the US and China's race for technological leadership in the world indicate that the demand for rare earths is unlikely to decrease significantly. According to an analysis by Verified Market Research (VMR), the REM market size will more than double by 2030, from $4.8bn in 2023 to $10.8bn.
REM consumption in 2021 was 120 thousand tonnes, and if high technology continues to grow, the global industry will need 315 thousand tonnes of rare earths in 2030.
The increased interest in REM mining is confirmed by the recent actions of the USA and China – countries in urgent need of rare earth metals. Since the late 2010s, the U.S. has returned to rare earth mining and began purchasing rare earth metals from Australia. In the summer of 2024, China announced that all rare earths in China's subsoil are state property, and at the end of October this year imposed new restrictions on REM exports. Before that, back in 2023, as a reaction to the US and EU sanctions, China banned the export of technologies related to REM mining and production.
China's Monopoly in The REM Market
Due to the concentration of high-tech industries in the USA, EU, China, South Korea and Japan, the main flows of mined rare earths are directed to these countries. China holds a monopolistic position in the REM market: it has both the largest proven reserves of rare earths in the world (about 40% of the world's reserves) and is the leader in their extraction and production of finished products. Unlike other countries, China controls the full cycle of mining, separation and production of rare earths.
The REM supply chain consists of three stages: extraction of raw materials, purification to obtain oxides from rare earths and, finally, production of REM alloys or magnets. If at the first stage - mining - China controls about 60 per cent of supplies, then at the second and third stages this share increases to 80-90 per cent. Thus, China concentrates about 80 per cent of oxide creation activities and 90 per cent of alloy and magnet production. Magnets, in turn, are an integral part in the production of all sorts of electronic motors, including those for electric cars.
Interestingly, the USA to a certain extent contributed to China becoming a centre of REM mining, while until the 1980s the development of rare earth deposits was concentrated in the USA. By the 1980s, the US authorities started to implement a neoliberal economic policy, which implied the reduction of production and its replacement by the service sector. At that time, large deposits of REM were discovered in China, and US investment in microelectronics manufacturing in China ensured the creation of a complete supply chain of REM products. Up until the 2010s, U.S. technology and Chinese cheap labour provided explosive growth in U.S. high-tech industries.
China is not the only country with rare earth deposits. Suitable REM deposits are located in Australia, Vietnam and the USA. However, REM mining is costly, environmentally degrading, and requires the use of advanced geological equipment and technologies. According to the US Geological Survey, China's reserves are estimated at 44 million tonnes or 34% of the world's reserves. Vietnam, Russia and Brazil are estimated to have just over 20 million tonnes each. India has almost 7 million, Australia has 4.2 million tonnes and the United States has 2.3 million tonnes.
Currently, the US imports up to 80% of all rare earth elements needed by the US industry, which has been of particular concern to the government and the military-industrial complex recently. Due to the aggravation of the geopolitical confrontation with China, in the early 2020s the US began to take measures to limit its dependence on supplies from China.
From 2020, the US Department of Defence is pursuing a domestic supply chain strategy with around $440 million in funding, which will be used both to mine REMs directly and to develop the processes needed to convert these purified materials into metals and then into magnets. Further plans include developing previously closed deposits and supporting REM mining in allied countries, primarily Australia.
Australia is one of the world's leading REM miners and producers, intent on squeezing China out of the market, and a staunch US ally in the Asia-Pacific region. In March 2024, the Australian government granted a $550 million loan to local mining company Arafura to build a mine and processing facility in the north of the country. Earlier, the REM mining project, Iluka, received $820bn of government support to build a processing plant in Western Australia.
Factors That Determine The Price of Rare Earth Metals
Unlike non-ferrous and precious metals, rare earths are practically not represented on exchanges. The fact is that rare earth metals are produced in accordance with the exact requests of a particular company for physical and chemical characteristics of REM. Therefore, rare earths are not sold on exchanges, but through transactions between counterparties.
It is important to note that the global demand for REM is unstable. The development of one or another industry sector temporarily causes a surge in demand for one REM and a drop in demand for another. Due to the accelerated development of the electric vehicle industry and microelectronics, REMs used in these industries can be several hundred times more expensive than for the oil refining industry.
The price of scandium, which is in demand in the production of lasers, X-ray mirrors and solar batteries, can reach $3600-4600 per kilogramme. For the same money, you can buy a tonne of lanthanum, also a rare earth, but used in less profitable production for the needs of the oil and gas sector.
As the REM market is dominated by China, Chinese companies are able to control both the volume of supply and the price, which the US and other Western countries are particularly unhappy about. Because the REM price is now falling, the US and Australia accuse Chinese companies of artificially low prices (dumping) in order to reduce the profitability of nascent US and Australian deposits and production. For China, REMs may indeed represent a tool to pressure Western countries in response to sanctions. Lower prices for Chinese REMs devalue rare earths production in the West, while higher prices lead to higher production costs, which are less favourable to consumers in the US and Europe.
Rare Earths and The Role of The Global South
Although China has a monopoly on the production of REM and REM-containing products, it, like other countries in the Global South, remains dependent on Western technological developments, albeit less than it was 20 years ago. However, in order to use REM for its own needs (rather than producing products under Western logos), China, like other countries in the Global South with REM reserves (Malaysia, Vietnam, Myanmar), needs to support its own technology companies.
China has already chosen this path, which can be seen in the example of IT companies (Huawei, Alibaba) and the electric car sector, where Chinese manufacturers have pioneered a local green revolution - the transition from internal combustion engine vehicles to battery-powered cars. The other countries still lack resources and capabilities, which is why they need to co-operate.
In this respect, the BRICS could have significant opportunities, given its growing economic weight and potential. The BRICS currently lacks a common ideology and a clear plan of action. For this reason, promising projects that could contribute to technological independence from the West have been put on hold. Even now, the BRICS have the technological, financial and, most importantly, resource capacity to support advanced high-tech companies, but this is hampered by the contradictions between China and India. While China is increasingly trying to dictate its terms, including through manipulation of the REM market, India is seeking to take China's place as a leading producer of goods for Western consumers in exchange for technology and investment.
Thus, the development of the REM market in the Global South goes hand in hand with the accelerated creation and growth of the market of high-tech industries that create demand for REM. With the slowdown of globalization, sanctions and the US-China confrontation, the Global South (which includes China) has an opportunity to use REM and other natural resources for their own benefit, but to do so they need a unified strategy, ideology and consensus on the most important world issues, as the West did after the Second World War.
