Domestic efforts are underway but they take time --- Chinese supplies would be the short term default because of accumulated advantages

Chen & Erickson ’22 [Avery Chen and Camille Erickson, 2-3-2022, “Clean energy transition to fuel growth for China's rare earths sector in 2022,” S&P Global, https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/clean-energy-transition-to-fuel-growth-for-china-s-rare-earths-sector-in-2022-68604096, St. Mark's School of Texas, Ashrit Manduva ‘24]

Changes in competition scope

"With the emergence of the worldwide rare earth exploration boom and the massive mining of China's rare earth resources, China's dominant position in rare earth resources has been gradually decreasing," a group of researchers led by Zheng Guodong at the Chinese Academy of Geological Sciences wrote in a March 2021 essay.

China accounted for 60% of global rare earths production in 2021, down from 97.7% in 2010, according to the United States Geological Survey. Meanwhile, the country's share of global reserves fell to 36.7% in 2020 compared to 50% in 2010.

Market participants in China are paying close attention to overseas rare earths supplies, which might be the biggest uncertainty for the domestic market for the longer term, Yang said. Among the newcomers, Africa is most likely to become a significant source of rare earths, according to the analyst. Despite limited capacity, Africa is the only region outside China that has built an entire industrial chain of electronic-waste recycling, Yang added.

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More companies will be recycling rare earths to meet decarbonization goals, according to Chen Shufang, an analyst at Chinese research firm Antaike. For example, neodymium magnet recycling accounts for about 30% to 40% of total supply, Chen said in an interview.

Long way to go

Chinese companies enjoy lower production costs, as their environmental requirements are still much looser than in many other countries, Yang said. More importantly, China spent decades developing a complete supply chain, covering upstream separation, smelting facilities and magnet plants as well as auxiliary materials such as phosphoric acid, sodium hydroxide and oxalic acid. China has also been working toward consolidating the rare earths industry to increase pricing power and improve management efficiency, Yang added.

Despite mounting global demand for rare earths, the path to launching a new refining facility in regions such as the U.S. is steep. Aspiring companies face myriad challenges including extensive permitting hurdles, a lack of available financing for upstream mining and refining projects, and strong competition with established producers in China.

Still, some North American companies are jumping into the market.

In California, MP Materials Corp. operates an integrated rare earths operation where it mines and beneficiates a mixed rare earth concentrate, which is ultimately sold to processors in China. The company does not process separated rare earths, but it is investing about $220 million to optimize separation circuits and produce a magnetic rare earth compound, bringing it a step closer to offering an end-to-end supply chain in the U.S., a spokesperson for the company told Market Intelligence.

MP Materials also announced in early December 2021 that it plans to develop a rare earths metal, alloy and magnet factory, with U.S. automaker General Motors Co. signing on as a foundational customer.

Other North American companies, including Energy Fuels Inc., USA Rare Earth LLC, Rare Element Resources Ltd. and Ucore Rare Metals Inc., have plans to undertake rare earths projects outside of China. However, bringing these projects to a commercial scale will take time.

It was not always this way, said Ian Lange, associate professor of economics and business at the Colorado School of Mines. Several decades ago, the U.S. had more refining capacity, but demand for rare earth products was too low for companies to justify keeping processing facilities up and running.

"If anyone thinks about building a refiner and tries to go get off-take agreements or commitments from, say, a U.S. firm to buy, companies in China can just come back and say, 'Oh, we're going to lower your price,'" said Lange, who also served as a senior economist on the Council of Economic Advisers for the Trump and Biden administrations. "That makes it really hard for domestic refining capacity to get into the financial market and say, 'Hey, we've got promised buyers, so lend us some money to build this facility.'"

The U.S. government has flagged the country's dependence on rare earth elements as a potential risk to national security, given the commodity group's defense technology applications.