The Chinese Communist Party (CCP) has always wanted to play the “rare earth card”. In 1992, Deng Xiaoping once said, “The Middle East has oil, China has rare earths.” However, for over 40 years, despite China’s rare earth reserves accounting for 34% of the global proven reserves and its production constituting 70% globally (according to the data from the U.S. Geological Survey in 2022), it has not had the same influence as Middle East oil. Why is this the case? The main reasons are threefold: the poor efficiency of the CCP’s rare earth policies, international vigilance against the CCP and “de-risking,” and the relatively small global total demand for rare earths.
Today, the Chinese rare earth industry faces three major challenges.
Rare earths are not actually soil, but a collective term for seventeen metal elements on the periodic table. Against the backdrop of a new round of technological revolution and industrial transformation, rare earths, as strategic mineral resources, are known as “industrial vitamins,” “the mother of new materials,” and “the core of military equipment” (almost all core components of high-tech weapons contain rare earths). However, global rare earth resources are not scarce. In 2022, global rare earth reserves stood at 130 million tons, with global production reaching 300,000 tons in the same year. By simple calculation, the current rare earth reserves could be mined for 400 years, far surpassing oil at 43 years and natural gas at 63 years.
China claims the top spot globally in four categories related to rare earths: reserves, production, export volume, and consumption. However, based on the historical price trend of Chinese rare earths drawn up by Zhongtai Securities and price data from 2020 onwards, it can be observed that since 2005, the prices of Chinese rare earth products have not experienced stable growth but have instead fluctuated between two peaks.
Take neodymium oxide as an example. From October 2010 to July 2011, the price of neodymium oxide skyrocketed from 200,000 yuan/ton to 1,249,000 yuan/ton, a 518% increase, marking the first peak. The second peak period was from March 2020 to March 2022, when the price of neodymium oxide reached a peak of 1.11 million yuan/ton. However, the price subsequently fluctuated and decreased, with the average price of neodymium oxide dropping from around 911,944 yuan/ton in January 2022 to approximately 457,318 yuan/ton in December 2023, representing a 49.85% decrease. In 2024, prices further declined, with neodymium oxide listed at only 384,800 yuan/ton on the Northern Rare Earth official website in June.
The fluctuation in product prices has dealt a heavy blow to the Chinese rare earth industry. In 2023, the net profits of listed companies Northern Rare Earth, China Rare Earth, and Shenghe Resources dropped by 70-80% year-on-year in the first three quarters, with Guangcheng Nonferrous declining by 20%. As 2024 began, the industry continued to face challenges, with China Rare Earth’s revenue at 302 million yuan in the first quarter, down 81.94% year-on-year, and a significant decrease of 354.98% in net profit attributable to shareholders of listed companies, reaching -289 million yuan.
In 2023, China’s rare earth exports amounted to 114,300 tons, up by 1.4% year-on-year. However, export value decreased by 23% to 4.396 billion U.S. dollars, with the average export price dropping by 24% to 38,500 U.S. dollars per ton.
As a leader in the global electric vehicle market, Tesla’s technological advancements have had a significant impact on the rare earth industry. Initially, Tesla used induction motors without rare earth materials in the Model S and Model X. However, starting with the release of the Model 3 in 2017, Tesla adopted new permanent magnet synchronous motors (which have been used in subsequent models), marking a significant event that led to an increase in Chinese rare earth prices. The rare earth elements used in Tesla’s electric motors currently include dysprosium, terbium, and neodymium, with respective contents of 10g, 10g, and 500g.
Nevertheless, on March 1, 2023, at Tesla’s Investor Day, Colin Campbell, Vice President of Powertrain Engineering at Tesla, announced, “We have designed the next drive unit, which uses a permanent magnet electric motor that does not contain any rare earth materials.” This unexpected news caused a sharp drop in the stock prices of Chinese rare earth-listed companies. By March 10 of that year, Northern Rare Earth (China’s largest rare earth supplier) saw its stock price fall by nearly 10%, while the other two major rare earth suppliers – China Rare Earth and Shenghe Resources – experienced 5.9% and 10% declines, respectively.
Colin Campbell stated, “As the world transitions to clean energy, the demand for rare earths is indeed increasing rapidly. Meeting this demand will be somewhat difficult, and rare earth mining comes with environmental and health risks. We hope to do better.” Between 2017 and 2022, due to efficiency improvements in the powertrain system, the rare earth usage in Tesla’s Model 3 had already decreased by 25%. Now, the decision to eliminate rare earths altogether has been made.
In fact, rare earth permanent magnet motors emerged as advanced technology in the 1960s-1980s. Prior to that, for over 160 years, non-rare earth motors were used. Not only Tesla but also Japanese and European automotive companies like BMW, Audi, Nissan, Mahle, and Continental have been developing non-rare earth permanent magnet synchronous motors.
If Tesla’s zero-rare earth motor is successful, the impact will be significant. On one hand, for the rapidly expanding global electric vehicle market, the reduced supply chain risk and potential cost advantages brought by non-rare earth permanent magnet motors will force other car manufacturers to follow suit. On the other hand, beyond new energy vehicles, the use of non-rare earth permanent magnet motors will extend to various other areas, including wind power generators, traditional automotive motors, variable frequency home appliances (such as air conditioners, refrigerators, and washing machines), industrial robots, and energy-efficient elevators.
It is widely known that among rare earth functional materials, rare earth permanent magnet materials have the widest range of applications and the largest market demand. They are also the most produced rare earth materials in China, accounting for nearly half of China’s rare earth functional materials production. Should there be significant changes in the demand for permanent magnet materials, the impact on the Chinese rare earth industry would undoubtedly be immense.
In 2010, amid escalating tensions over the Senkaku Islands issue, the CCP restricted rare earth exports to Japan. At that time, Japan imported over 90% of its rare earths from China. Surprisingly, Japan swiftly resolved the crisis through three measures. First, Japan temporarily used its ample stockpile while increasing imports of rare earths from countries like Australia, the United States, Vietnam, and Kazakhstan. By 2015, over half of Japan’s rare earth imports came from countries other than China, with China’s share standing at 48%. Second, Japan accelerated research on energy-saving technologies, including developing rare metal substitutes, reducing consumption, and promoting recycling to decrease reliance on rare earths. In 2010, Japan imported approximately 28,000 tons of rare earths, which dropped to around 23,000 tons in 2011 and further plummeted to less than 14,000 tons in 2012. Third, Japan enhanced exploration efforts and discovered rare earth mud with thicknesses ranging from 10 meters to 70 meters in the Pacific Ocean in 2011. The concentration of rare earths in the mud was 2 to 5 times higher than that in mainland China’s rare earth mines. Nonetheless, as rare earth prices lowered after 2012, Japan remained unprepared to exploit these resources. Additionally, in 2012, Japan, the United States, and the European Union jointly filed a complaint against the CCP with the WTO. In August 2014, the WTO confirmed the CCP’s defeat.
This “first rare earth war” ended in a disastrous defeat for the CCP. Subsequently, the United States, Europe, and Japan became wary of the CCP and began pushing for the “de-Chinization” of the global rare earth supply chain, a move that has already shown initial effects.
First, since 2017, global rare earth production has significantly increased. While China’s rare earth production has doubled, its share of the global market has decreased from 98% in 2010 to 70% in 2022. The CCP’s absolute monopoly position has eroded, and a diversified global rare earth product supply landscape has gradually emerged. For instance, Vietnam, with the second-largest rare earth resource reserves globally (22 million tons, approximately half of China’s reserves), has increased its rare earth production tenfold in 2022. Moreover, to sustain 70% of global rare earth product supply with only one-third of the world’s rare earth ore reserves is unsustainable for China in the long run.
Second, Western countries have collaborated to reorganize rare earth supply chains independent of the CCP. For example, (1) the United States and Japan signed an agreement where MP Materials Corp., the owner of the Mountain Pass rare earth mine in California, sells materials produced at its separation plant directly to Sumitomo Corporation, a major trading partner, for distribution in Japan. Previously, the mined ores were sent to China for processing, and Japanese companies made their purchases from there (in 2023, China imported 66,414 tons of rare earth metal ores, with over 99% of rare earth metal ores originating from the United States). (2) In a bid to prevent Chinese involvement in Canadian rare earth resources, the Canadian government acquired a mining area resource from Australia’s Vital Metals in 2024. In 2022, Canada also ordered three Chinese companies to divest from their shares in Canadian rare earth companies. (3) On June 3, 2024, a spokesperson for Australia’s Treasurer stated that the Treasurer, citing national interest, had instructed multiple investors with connections to China to reduce their shares in rare earth miner Northern Minerals. (4) Brazil, possessing the world’s third-largest rare earth reserves, commenced commercial production at its first rare earth mine, Serre Verde, this year. By joining the Western camp, Brazil ambitiously seeks to establish a rare earth industry.
China’s abundant rare earth resources should have been a great advantage. However, due to the CCP’s poor rare earth industry policies, rare earth resources have been excessively exploited, leading to ecological degradation, and issues like an irrational industry structure for a considerable period. Now, due to the CCP’s “wolf warrior diplomacy,” where rare earth products are used as a “bargaining chip” against the West, Western efforts to reorganize an independent global rare earth supply chain from China have deprived the Chinese rare earth industry of the benefits it rightfully deserved (as stated by China’s Ministry of Industry and Information Technology in 2021, China only sold rare earths at the price of “soil” rather than the price of “rare earths”), severely hampering (creating a significant gap in rare earth technology between China and developed countries like Japan and the United States). The major impacts currently faced by the Chinese rare earth industry are all consequences of the CCP’s related policies.
(The news was first published by Dajiyuan)