China Controls 94% of Permanent Magnets With 50-Year ‘Rare Earth Barrier’... Can Price Floors Break Its Grip? [Minerals War]②

China's Monopoly from Mining to Processing and Manufacturing
A Rare Earth Industry Fostered by State Policy for 50 Years
The Need to Secure Processing, Manufacturing, and Pricing to Compete with China

Editor's NoteThe global race for critical minerals is intensifying. Minerals essential for future industries—such as electric vehicles, semiconductors, robots, wind power, and the defense sector—are no longer merely raw materials but have become strategic assets that determine industrial competitiveness and national security. Countries are reorganizing their supply chains from mine acquisition to refining and recycling around their own national interests, effectively waging a 'minerals war.' Especially with China having claimed dominance over the supply of key minerals like rare earth permanent magnets, lithium, nickel, and graphite, the United States, Europe, and Japan are accelerating efforts to establish non-Chinese production bases and supply chains centered on allied nations. Korean companies, too, are expanding beyond overseas resource acquisition into refining, materials production, and recycling, joining a fierce survival competition. The Asia Business Daily presents a five-part series exploring the global competition around critical mineral supply chains, how Korean firms are responding, and survival strategies for resource-poor Korea.

Although efforts to move away from a China-centric rare earth supply chain are spreading worldwide, 'de-coupling from China' is no easy feat. Developing new rare earth mines alone is insufficient. China controls not only mining, but also the entire value chain including separation, refining, metallization, alloy production, and permanent magnet manufacturing. To establish a supply chain outside of China, every stage from mine to magnet production is required, and companies must also be able to withstand price competition with Chinese products.

High-performance rare earth permanent magnets, which are essential for electric vehicles and wind turbines, represent the area of highest dependence on China. According to the International Energy Agency (IEA), as of 2024 China accounted for about 60% of rare earth mining for magnet use, including neodymium, praseodymium, dysprosium, and terbium. At the separation and refining stage, China’s share rises to about 91%, and for sintered permanent magnet production, as high as 94%. The further processing moves from raw materials to finished goods, the greater the reliance on China becomes.

The risks of depending on China became reality when export controls were implemented. In April 2025, China introduced export controls on seven rare earth related items: samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. Since then, American and European automakers have struggled to secure permanent magnets. Although China later allowed exports again, the price of non-Chinese magnets soared. This demonstrated how a tightening of China’s exports can instantly disrupt global manufacturing.

Nearly 50 Years of Nurturing the 'Rare Earth Industry'

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The process of making rare earth permanent magnets is complex. First, raw ore is extracted from a mine, then the required rare earths are separated from ores containing mixed elements. These are refined into oxides and then converted into metals. Neodymium and praseodymium metals are combined with iron and boron to form alloys, which are then ground into powder, shaped, and sintered at high temperatures to produce permanent magnets.

China’s overwhelming influence is not only due to rich reserves. Over almost 50 years, the Chinese government has fostered the rare earth industry through deliberate policy, building up a step-by-step supply chain from mining to magnet production.

Since the 1970s, China has managed its rare earth sector with policy support. In the 1980s, it increased exports to grow industrial scale. By 1985, the government implemented export tax rebates for rare earth products to encourage production and exports. Through this process, China accumulated mining, refining, and separation technology, quickly increasing its share in the global rare earth market.

From the 1990s, China tightened government control over the industry as issues of disorderly mining, overproduction, and environmental pollution grew. In 1991, ion-adsorption rare earths were designated as protected minerals, with government regulation across mining, beneficiation, refining, processing, sales, and export. Export quotas were introduced in 1999, and from 2006 a production allocation system was implemented.

China did not stop at mining and exporting raw materials. Instead, it restricted raw material exports and cultivated higher-value industries such as in-country separation, refining, metallization, alloys, and magnet production. Investment in R&D and manufacturing equipment was made, and skilled professionals were trained in parallel. China transformed itself from a country exporting cheap raw materials in bulk to a leading rare earth nation capable of producing high-performance magnets.

In 2024, China implemented the 'Rare Earth Management Ordinance' covering mining, refining and separation, metallurgical refining, recycling, distribution, imports, and exports. Rare earth resources are defined as state property, and the government designates the mining and refining enterprises. The total production quota is also controlled by the government. Effectively, this completed the structure in which the entire rare earth industry ecosystem—from mine to separation and refining, metal, alloy, and magnet—is governed by the Chinese government.

Kim Hongin, Director of the Resource Utilization Research Division at the Korea Institute of Geoscience and Mineral Resources (KIGAM), noted, "Recently, China has achieved such comprehensive control not only over raw materials but also over the technological processes that it has become extremely difficult for other countries or organizations to even gain access. Since Korea lacks its own raw materials, there is ongoing discussion about recycling rare earth magnets, but this too faces significant challenges," he assessed.

Developing Mines Alone Won’t Achieve 'De-Chinization'

The United States, Australia, Brazil, and Canada have begun developing rare earth mines to reduce dependence on China. However, simply securing mines does not complete the supply chain. Capability must be established to separate and refine rare earths from raw ore, metallize and alloy them, and finally produce magnets. Outside China, not only is there a shortage of raw materials, but also a lack of downstream processing capabilities.

Demand is rising rapidly. The IEA projects that the demand for rare earths for magnets outside China will increase by about 50% by 2035 compared to 2024. Yet, even when including all currently operating and proposed facilities, non-Chinese production capacity is expected to fall short of meeting anticipated demand. The sector is especially lacking in separation, refining, and magnet manufacturing facilities. It is estimated that by 2035, magnet production capacity outside China will not even meet 20% of expected demand.

Technological barriers are also high. Even if a country secures rare earth metals, it cannot immediately produce permanent magnets. Precise control over the purity and blend ratios of materials is required, as well as stable operation of alloying, powdering, and sintering processes. High-performance magnets for EV drive motors must not only exhibit strong magnetism, but also retain magnetic properties at elevated temperatures, and deliver consistent quality between products. It is also necessary to ensure stable supply of heavier rare earths, such as dysprosium and terbium, which maintain magnet strength at high temperatures.

The price factor is an even greater obstacle. China possesses the entire supply chain from mining to magnet production and achieves low costs through mass production. In contrast, companies establishing new supply chains outside China incur higher investment and production costs. In addition to higher labor and energy costs, smaller scale renders facilities less efficient. Costs for securing a stable raw material supply further impede their ability to compete on price with Chinese goods.

Indeed, GKN Powder Metallurgy, a German company, scrapped plans to manufacture rare earth permanent magnets in Europe this year due to price competition with Chinese companies and investment uncertainty. This demonstrates that having the required technologies and plans does not guarantee continued production unless there is a sound business case.

Countries are responding by acquiring both raw materials and downstream processing capabilities. The United States is expanding rare earth production via MP Materials while building domestic separation, refining, and magnet manufacturing facilities. Australia, led by Lynas, is increasing raw material production, emerging as a core player in the non-Chinese rare earth supply chain. In Malaysia and other third countries, businesses are linking separation and refining of Australian raw materials to magnet production. Japan leverages its magnet manufacturing technology and materials/components sectors to diversify its supply chain.

Will the US 'Price Floor System' Be a Game Changer?

The key to de-coupling from China is not just finding new rare earth mines. It is essential to secure a full supply chain outside China from separation and refining to magnet production, while guaranteeing price and demand so companies can continue production. The large initial investment and higher production costs compared to Chinese goods mean that without stable sales channels, the business cannot be sustainable.

A representative example is the agreement the United States signed last year with MP Materials, a rare earth company. The US Department of Defense set a price floor for neodymium-praseodymium (NdPr) at $110 per kilogram, guaranteeing this price for 10 years. If market prices fall below this level, the government will make up the difference. This allows US companies to continue production with reduced losses even when Chinese competitors cut prices.

Additionally, the US Department of Defense plans to invest $400 million in MP Materials and to lend an additional $150 million for expanding heavy rare earth separation and refining facilities. The government will also purchase output from new magnet plants for 10 years. By supporting investment, providing price floors, and guaranteeing sales channels, the risks of operating a rare earth business are reduced.

The price floor system is attracting attention because it provides a foundation for withstanding China's low-price offensive. Even companies outside China with established rare earth supply chains can be forced to reduce production or close their business if Chinese prices fall. Conversely, if a certain price and minimum purchase are guaranteed, investors can recoup their capital while continuing production.

If a non-Chinese supply chain expands, centered on the US, it could create opportunities for Korean companies as well. Cooperation with US companies or long-term supply contracts across the supply chain—from raw materials, metals, and alloys to magnets and recycling—would become more likely. To nurture rare earths as a strategic industry, the government should not merely demand investment from companies but must also support prices and long-term demand.

Director Kim emphasized, "Ultimately, even if it is expensive or the process is a bit difficult, we are reaching a point where we have no other choice but to pursue this industry. If the US maintains a certain price level, it would create an environment where countries outside China can also compete in this business," he said.

This content was produced with the assistance of AI translation services.