Rare earths: a geoeconomic challenge the West has already lost - Report
- Gabriele Iuvinale
- 1 apr
- Tempo di lettura: 12 min
As Western countries head toward a supply crisis comparable to the oil shock of the 1970s - the effects of which will adversely affect the development of critical sectors such as technology and the defense industry - China dominates the industry undisturbed, stretching its tentacles even over the “rare earth giant,” Myanmar
Oskar Lewnowski, founder of Orion Resource Partners, a large global provider of financial services in the metals and mining sectors, urged countries to stockpile metals and warned that a lack of investment would lead to supply shortages comparable to the oil crisis of the 1970s, Bloomberg reported on April 1st. He also said he had been called by a government to ask how it could catch up in an area where China has been deeply involved for a decade.
The lack of sufficient mining investment means that the world is accelerating toward a metals supply crisis comparable to the oil crisis of the 1970s, Lenovsky said.
One of the solutions, according to him, is for the state to step in and create strategic mineral reserves. “This is a very important issue and governments need to be more involved,” Lenovsky said in an interview.
According to the report, Lenofsky's comments reflect the “paradox” facing the mining industry: as concerns about the supply of key minerals intensify in areas ranging from energy and communications infrastructure to defense in Europe and the United States, mining has suddenly become a strategic priority. But with capacity being freed up by Chinese investment projects and prices of key metals such as nickel and lithium falling, building and financing new mines is more difficult than ever.
Lenovsky is not the only one calling for government intervention: last week, Richard Holtum, CEO of Singapore-based commodities trading giant Trafigura, said the mineral processing industry should be elevated to the level of a “national security issue” that requires strong government support, arguing that Western governments should “nationalize” some of their metal processing plants in order to compete with China, otherwise the West will never be able to reduce its dependence on China for key mineral supplies.
It is worth noting that Holtum's comments come at a time when Trafigura is conducting a strategic review of its loss-making Nyrstar zinc and lead smelting operations in Australia, pending a subsequent sale, which it hopes will be “taken over” by the Australian government.
Understanding Orion Resource Partners' recent investment debacle helps understand Lenofsky's call for government involvement, the report says.
In 2021, the private equity firm backed global mining giant Horizonte Minerals Plc's nickel project in Brazil, along with Trafigura's rivals, global mining giant Glencore and Egyptian billionaire Naguib Sawiris.
At the time, nickel prices were good thanks to rising demand for electric car batteries, and car company executives were concerned about future shortages of the mineral. However, the London-listed company's nickel project may never be completed: it went into receivership after an earlier assessment showed that project costs had skyrocketed and the project budget was much higher than expected.
It is a vivid example of how strong demand does not necessarily lead to quality investments: investors lost confidence in Orizante Mining when it revealed that construction costs would be almost double what was expected.
Meanwhile, Chinese investment in Indonesia has fueled an increase in nickel production, putting pressure on competitors, according to Lenovsky.
How did we get to this point?
China occupies a leading position in the global supply chain of rare earths (REE) and essential minerals, from extraction to processing up to final use.
The reasons for this success are mainly two. The first is the serious strategic error committed by the United States with the abandonment of public support for the mining sector which led to the abandonment of private entrepreneurs.
The second was Beijing's great ability to move up the value chain with huge investments in research and development and with the experience accumulated in the intermediate stages of production.
The United States was the major global player in the rare earths industry from World War II until the early 1990s. Since the 1980s, however, government investment has ceased and basic research has stopped.
In the 1990s, the public-private investment mechanism disappeared, while China began to effectively use very similar policies to facilitate the growth of its domestic sector.
Currently, Beijing's dominance is due more to its investments in separation and refining than to trade or industrial policies.
In 2012, the Chinese government initiated an industry consolidation process that transformed the industry into six state-owned regional conglomerates. In December 2021, further industry consolidation occurred with the creation of a new mega-firm.
China Rare Earth Group is the result of the merger of three large mining conglomerates and two research institutes. It will control China's heavy and medium rare earths, under the control of the State-owned Assets Supervision and Administration Commission of the State Council (the highest administrative level).
The new conglomerate will control around 30-40% of global supply. In the future, companies in northern China will also be consolidated, around the Baotou mine in Inner Mongolia, and Beijing will have only two huge, vertically integrated state-owned enterprises capable of handling rare earth extraction and post-processing. The southern company will focus on heavy minerals, while the northern one will focus on light minerals (including neodymium).
As mentioned, today China occupies a leading position in the global supply chain of rare earths, from extraction to processing up to final use.
Beijing uses numerous tools to maintain its dominant position, such as export controls (economic coercion), production quotas, state investment in basic research, nationalization of industry, and, more recently, state consolidation in an integrated mega-corporation.
China's investments in R&D
China's investments in R&D and the extent of its experience compared to other countries are evident in the permanent magnet sector and patent grants. In 2021, while China received only 48% of overall patents on permanent magnets, 99% of patents on neodymium magnets and 86% of patents on samarium-cobalt magnets were Chinese. Patents in the rare earth sector also have this tendency.
Supply chain vulnerabilities therefore arise from market concentration in China. Beijing, however, will not be able to meet its own growing domestic demand, nor global needs, particularly for neodymium and other key rare earths needed for permanent magnets. Without these rare earths, global energy transition policy will also be difficult to implement.
Why is Myanmar, the “rare earth giant,” so important to Beijing?
As a globally important producer of antimony, tin, and rare earths, Myanmar is becoming a focal point for related supply chains. Located between southwestern China and the Indian Ocean, Myanmar is an import source of many important minerals for China. In recent years, rare earths from this country have accounted for about 60 percent of China's total rare earth imports, and the importance of this is clear.
The 7.9-magnitude earthquake that struck central Myanmar on March 28, “like a giant knife slicing through the earth,” sparked global concern.
The quake was the 17th earthquake of magnitude 6 or higher to strike the world this year, the largest this year and the strongest earthquake to hit the continent globally in nearly a decade.According to the Myanmar State Management Committee informed at about 2 p.m. local time on the 30th, the strong earthquake in Myanmar has killed about 1,700 people in the country, while another 3,400 people were injured and about 300 are missing.
What will be the impact of this earthquake?
With China to the northeast, India and Bangladesh to the northwest, Laos and Thailand to the southeast, and the Bay of Bengal and the Andaman Sea to the southwest, Myanmar enjoys a very unique geographical location. Its area (676,600 square kilometers) is small, but it is rich in mineral resources.
According to the report “Analysis of Myanmar's Geology and Mineral Characteristics and Mining Investment Environment,” published by He Xuezhou et al. of the Development Research Center of China Geological Survey in the journal Northwest Geology, based on the law of spatial and temporal distribution of minerals, combined with the process of geological and tectonic evolution in Myanmar, the geological mineral resources of this country can be divided into 7 mineralization zones, including:
the Rakhine oil and gas mineralization belt,
the Indo-Burma mountain range nickel-chromium mineralization belt,
the western Rakhine oil and gas mineralization belt,
the Indo-Burmese nichrome mineralization belt,
the Western Burma gold-copper-oil-gas mineralization belt,
the chromium-nickel-gold-metals mineralization belt of the Grape-Daw Mao-Myitkyina platinum-gems group
7. and the tungsten-tin-antimony-rare earth mineralization belt of Tengchong-Drindayi.
Among them, the Tengchong-Drindayi tungsten-tin-antimony-rare-earth metallogenic belt is located east of the Sagaing Fault, which runs north-south across the entire territory of Myanmar, and is a globally well-known tungsten-tin metallogenic belt, producing mainly Mesozoic-Cenozoic tungsten, tin, and rare earth mineralization and Late Paleozoic antimony mineralization. It mainly produces tungsten, tin and rare earth mineralization from the Mesozoic-Cenozoic and antimony mineralization from the Late Paleozoic.
Rare earth elements (REEs) and critical minerals are a group of 17 metals: 15 elements from the lanthanide series and two chemically similar elements, scandium and yttrium. Each with unique and vital properties, they support the production, development, distribution and support of essential services such as telecommunications and computing, food and agriculture, finance, healthcare, education, transportation and public safety. In the civilian sectors of the economy, strategic and critical materials and their supply chains are essential for countless manufactured goods, ranging from personal electronics (an iPhone, for example, contains eight REEs) to consumables for fuel, food and medical supplies, to building homes and supporting critical infrastructure.
In the defense sector, strategic and critical materials ensure the expansion of the production and development of military goods (an F-35 fighter contains approximately 420 kg of REEs and these are essential for guided missiles) and the conduct of forces operations armies. Their demand is expected to increase over the next two decades, especially as the world moves to eliminate net carbon emissions by 2050.
Over the past decade, Myanmar's rare earth production has increased to become the third largest in the world, making the country a fast-growing “rare earth powerhouse.”
In recent years, China has begun to rely on rare earth mining in neighboring Myanmar. The imports come from poorly regulated mines and probably also from Chinese minerals mined illegally and recycled across the border.
According to statistics, Myanmar's rare earth production was only 200 tons in 2014, rising to 31,000 tons in 2020, accounting for 12 percent of world production, behind China (58 percent) and the United States (16 percent), before fluctuating upward.
Data from the U.S. Geological Survey (USGS) show Myanmar produced 31,000 tons of rare earth minerals in 2024, down 12,000 tons from 2023, accounting for 7.9 percent of global production.
Despite fluctuations in production, the country's position as the third-largest rare earth producer globally remains secure.
According to Guotai Junan's research report, China's total imports of full-caliber rare earths in 2024 were about 77,300 tons, down 30 percent from the previous year; of these, 44,000 tons were imported from Myanmar, accounting for 57 percent.
Guotai Junan previously analyzed that in October-December 2024, Myanmar closed customs due to the civil war, and the volume of domestically imported rare earths from Myanmar in December dropped sharply to about 300 tons. Despite last December's customs clearance, Myanmar imports have not yet been restored.
And now, the earthquake has brought more uncertainty for rare earth exports, triggering market concerns.
Although the epicenter of the earthquake is far from Kachin State and other rare earth mines in northern Myanmar it is expected that “import from rare earth mines in the short term is difficult to recover.”
In addition to being a “rare earth powerhouse,” Myanmar is also the world's third largest producer of tin and a major exporter of tin (tin concentrate and tin ore).
Tin products are widely used in semiconductor chips, 5G communications, photovoltaic batteries, the defense industry, and many other fields.
On the map of Myanmar, an orogenic belt (Tengchong-Delingdai Tungsten-Tin-Antimony-Rare Earth Orogenic Belt) runs through the entire territory. It is not only the main area of rare earth production, but also the main origin of tin ore, mainly involving the Wa region.
According to USGS statistics, global tin reserves have been shrinking for the past 20 years. The distribution of global tin reserves is mainly concentrated in a few large countries, with Myanmar ranking among the top three countries in the world in terms of tin reserves and production in 2023, of which the Wa region contributes 90% of Myanmar's production.
Although the Wa region is far from the source of the earthquake, Gu Fengda, chief analyst at Guoxin Futures, analyzed that the earthquake could still have a direct impact on Myanmar's tin supply chain.
“In addition, the transportation infrastructure in the mountainous areas of northern Myanmar is weak and the destruction of transportation roads could hinder the transportation and export of minerals.”
Looking at the past decade, Myanmar's tin production has had ups and downs and has also been affected by fluctuations in the global tin supply and demand market. In 2013, Myanmar's tin mine production of 19,000 tons peaked at 67,500 tons in 2017, after which production gradually declined partly due to the Covid 19 pandemic, with prices rising.
In 2024, Myanmar produced 34,000 tons of tin ore, unchanged from 2023, accounting for 11.3 percent of global production.
In addition, this year, armed conflict in the Wa region intensified, leading to the closure of local tin mines for several months, and the global tin market gap widened.
Therefore, tin prices have risen sharply in the past year.
CITIC Securities predicts that in 2025 the tin supply gap will be further widened, and the price of tin is expected to exceed 300,000 yuan/ton.
The Myanmar earthquake may also have a direct impact on the local tin supply chain, tin ore transportation and export,
ale worth noting that in addition to the Wa region's main production area, Mandalay and other areas hit hard by the earthquake are also an important tin production area.
Mandalay, the "City of Many Treasures", is Myanmar's second largest city and, in addition to being a major tin producer, is also the country's largest jade trading center.
It connects major jadeite mining areas in northern Myanmar, such as Pachang, with the Chinese consumer market that accounts for about 70% of the country's jadeite. As a result, many Chinese businessmen are involved in the jadeite trade there and it is said that "a third of the population is Chinese".
Behind the scenes, between southwest China and the Indian Ocean, Myanmar is much closer to Beijing than you might think.
Recent Chinese policies on rare earths
In July, China has announced i Regulations on the management of rare earths clarifying that REEs are state property and that the CCP will implement protective exploitation of these strategic resources. The measure came into force on 1 October 2024.
In clarifying the context of the Regulation, Beijing said that there are still some unresolved problems in the domestic management of rare earths, including “insufficient means and sanctions to correct illegal behavior such as illegal mining or illegal smelting and separation, production without or above targets and trade in illegal rare earth products.”
At dinner he adopted such “Regulations” to protect the supply of rare earths through a high level of national security.
The introduction of these “Regulations” aims to firmly control the strategic rare earth resource and “protect its important reserves of industrial metals”.
The introduction of the new "Regulation", composed of 32 articles in total, includes:
clarify the management principles of mining activity;
strengthen the protection of rare earth resources;
improve the management system;
promote high-quality development of the rare earths sector;
improve the supervision system of the industrial supply chain of rare earths;
clarify supervision and management measures, legal responsibility and six other aspects of the content.
In addition to clarifying that rare earth resources belong to the state, the new rules require:
that extraction companies and those involved in the fusion and separation of rare earths are identified;
that the total amount of extraction, smelting and separation of rare earths is regulated;
that dynamic management is optimised; that a product traceability system be established;
that traffic is strictly managed.
Furthermore, the regulations clarify that the State shall “implement unified planning for the development of the rare earth industry and encourage and support research, development and application of new technologies, new processes, new products, new materials and new equipment in the rare earths sector”.
The provision also states that companies violating the relevant provisions can be fined five to ten times their illicit profits and receive fines of up to 5 million yuan.
Many analysts believe these regulations will outline new legal sanctions for illicit practices related to rare earth mining and smelting. Towards the end of 2023, China expanded its list of limited exports to include numerous technologies related to the production of rare earths. The list updated by the Chinese Ministry of Commerce refers to "rare earths" a total of 17 times.
According to Chinese state media, the update concerns items that Beijing wants to ban from free export to protect the nation's "economic and technological rights and interests." Meanwhile, external analyzes indicate that the expanded list prohibits technologies for the production of rare earth magnets, the mining of rare earths and the refining of these substances.
The Ministry of Justice and the Ministry of Industry and Information Technology said, in response to a reporter's question about the regulations on June 29, that "in recent years, China has introduced a series of policies and measures regarding rare earth industry access standards, industry consolidation, environmental protection and so on, which have effectively promoted and safeguarded the sustainable and healthy development of the industry.”
As mentioned, China is the largest producer of rare earths in the world. Rare earths are a dozen metallic elements critical to modern technology, from electric cars and wind turbines to robots and military weapons. At the same time, rare earths require rigorous processing to produce usable materials, and China is also a leader in rare earth refining technology.
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