China is defending its rare earths dominance with sheer scale

Still, China continues to enjoy significant advantages given the breadth of its industry. Apart from mining its own raw materials, China dominates every other step in the long industrial chain of producing high-purity rare earths. The economies of scale are vast, particularly in a country where labor is cheap. “It’s going to be very difficult to compete with the Chinese cost structure,” said John Ormerod, the principal and founder of JOC, a consultancy that specializes in the rare earth magnet industry.

One solution for the West is to improve and develop technologies that require fewer rare earths, to better shrink any dependence on China. For example, Tesla recently announced that its next-generation motors will use rare earths-free magnets, although technical details are sparse.

Some industry analysts believe that Tesla’s move will have minimal effect on the market for neodymium and dysprosium, the key rare earths in the most common EV magnets. But Stan Trout, founder of the rare earths and magnetic materials consultancy Spontaneous Materials, thinks that Tesla’s decision can lead to ripple effects.

“Reducing demand for neodymium is actually a very powerful thing because you don’t have to process as much ore,” he said. “A small reduction...just takes a bit of the froth out of the market place, and so that’s very helpful. Will Tesla’s do that? I can’t answer that yet.”

But at the same time, other countries will have to accept a reality: that diversifying their rare earth supply chains away from China will come with higher costs. Automakers, for example, may have to pay a premium for non-Chinese sourced rare earth magnets, passing those costs onto consumers through a higher sticker price on their cars.

China’s rare earth industry has vulnerabilities too

Another possibility, though, is that China’s rare earths monopoly becomes a victim of its own success.

China’s combination of a ban on foreign investments in rare earths; bans and restrictions on the export of rare earths technology; and tax rules that distort the market and increase import dependence on rare earth raw materials are “unsustainable and cannot succeed,” said Thomas Krümmer, author of The Rare Earth Observer newsletter and director of the Singapore-based firm Ginger International Trade and Investment .

“[T]he current stance of China in terms of rare earths will eventually destroy China’s monopoly... Sixty years of painstaking development work down the drain.”

This is the third article in a three-part series.

Part I: China’s rare earths industry has a raw materials problem

Part II: China is on a global hunt for rare earths

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