The U.S. and Europe would love to cut their dependence on China for rare earths, reports The Wall Street Journal (July 16, 2024). Standing in the way of that ambition are low prices and Beijing’s willingness to throw its weight around to keep the market down.
Rare-earth prices have plummeted this year and are now hovering at 3-year lows. The price of neodymium, a silver-gray alloy, has fallen by almost 20% this year to $50,000 a metric ton. Other rare earths are down even more.
Today, these neodymium minerals are mainly used in permanent magnets for a range of essential household items such as TVs, refrigerators and headphones. Increasingly, though, the magnets also help turn motors in electric vehicles, wind turbines and robots. By 2030, such high-tech products are expected to account for 2/3 of demand for neodymium permanent magnets.
Yet despite the promise of soaring demand driven by the energy transition, prices of rare earths have spiraled downward since 2022. A glut of Chinese supply is one problem. In recent years, Beijing has ramped up production of rare earths. In 2024, China ordered its state-owned miners to produce 135,000 metric tons of rare earths, up 13% from the quota in 2023.
At the same time, demand for rare earths hasn’t lived up to expectations. EV sales, for example, have slowed globally amid wavering consumer sentiment.
China’s overproduction, with its increasingly negative impact on industry profits, only makes sense as part of a broader economic strategy. The country produces 60% of the world’s mined rare-earth minerals. In recent years, it has also tightened its grip on the entire magnet supply chain: It controls 91% of refining activity, 87% of oxide separation and 94% of magnet production.
One theory is that Chinese overproduction is designed to stymie efforts to develop alternative sources of supply. Low prices of rare earths have squeezed margins for Western producers. This situation has long worried the West. The U.S., European Union, U.K., Canada and Australia have all drafted “critical mineral” strategies. To stand a chance of loosening China’s grip on rare earths, the West will need to deploy the country’s own tactics: unprofitable production and long-term thinking.
Classroom discussion questions:
- What options do operations managers have with regard to the rare earth supply chain?
- Will China’s strategy work?