Rare earth elements: a complex issue that’s vital to net zero

Oriental Image via Reuters Connect

• REEs crucial to net-zero plans
• Demand surging, prices tumbling
• China-US ‘tussle for control’

Used in everything from car batteries and fridges to iPhones and elevators, rare earth elements are an ever-present – but rarely noticed – part of daily lives. 

They are also now central to the global energy transition, and their importance to Gulf states was highlighted this week by a $180 million investment by Qatar.

The Qatar Investment Authority invested in TechMet, a Dublin-based mining investment company also backed by the US, with the funds used to increase critical minerals and rare earth elements (REEs) production.

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Crucial in the production of wind turbines, solar panels and a host of other renewable energy applications, REEs are central to the Gulf’s net-zero plans.

Neodymium and samarium are essential to the magnets used by wind turbines and generators, while ytterbium and lanthanum are used for power transmission and distribution. Cerium, meanwhile, is vital to the working of catalytic converters.

REEs are also critical for the region’s strategies for advancing economic diversification and industrialisation by establishing complete local supply chains.

Saudi Arabia’s plans to connect mining all the way to electric vehicle production rely on a steady supply of the rare earth magnets neodymium and praseodymium used in making EV batteries.

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The International Energy Agency says that by 2040 demand for REEs worldwide will be three to seven times higher than it is now.  

However, the price of rare earths has recently been tumbling – falling by around 70 percent over the last two years, according to analyst Fastmarkets.

The reasons for this are many and controversial. In particular, the sector’s fortunes have long been hostage to the state of relations between China and the US.

With relations between those two giants now frosty, Caroline Messecar, Fastmarkets’ strategic markets editor, says that REE-based products have become “an engineering miracle stuck in the middle of the world’s biggest argument”.

Indeed, while the Qatar Investment Authority told the Financial Times its investment was part of its plans to diversify into more “critical minerals investments”, many analysts viewed it as Qatar’s being dragged into a tussle between China and the US for control over this increasingly important sector. 

Creative Commons/US Department of Agriculture

Rare to medium rare

Contrary to their name, REEs occur widely in nature. What is rare is finding them in commercially viable concentrations.

Most REE deposits in the Gulf, for example, “do not have a sufficient quantity of high-value magnet rare earths to be viable,” says Willis Thomas from metals and mining analyst CRU. 

Rarer still is finding a place where those REEs can be processed. 

This is no easy task, as different rare earths tend to occur together in nature, meaning they have to be separated. 

This creates a “basket problem” – if demand rises for one particular REE, a boost in its extraction leads to a boost in all the other REEs occurring with it. This can create oversupply in those other rare earths, depressing their prices.

REEs are an expensive and complex business with typically low margins.

In recent decades, investors and miners have typically addressed that low-profitability challenge in one particular way – by locating the lion’s share of the industry in one low-cost, low-regulation country: China.

Enter the Dragon

That relocation began in the 1980s, when stiffer environmental regulations in the US and Europe prompted Western companies to move their polluting REE operations abroad.

Back then, China had much laxer regulations and much lower costs. It “only started regulating its mining industry at all in 2005,” according to Dr Shan Guo of Hutong Research in Shanghai. 

Those eased market conditions then combined with global growth in demand for renewable energy equipment, which China was also able to provide at low cost.

China now accounts for around 70 percent of the world’s REE mining, 89 percent of the world’s separation processing and 90 percent of the globe’s neodymium magnet manufacturing, according to CRU.

Creative Commons/DOE

The country has also become a major consumer of REE-based products. A major factor in current low REE prices is “the economic downturn in China reducing demand for magnets in the construction and manufacturing sectors,” says Messecar.

China is also now trying to further regulate and consolidate the sector, merging its REE enterprises into two giant state-owned groups while cracking down on unregulated illegal mining.

Yet its REE dominance is also now causing increasing alarm in the US, Europe and Japan, leading to various recent attempts to decouple REE supply chains from China. In 2022, for example, the US government awarded $58.5 million to Texas-based MP Materials to boost its rare earth magnet manufacturing capacity.

However, in 2023 China banned the export of magnet-making technology and the equipment used to separate REEs, which Messecar says “could slow the development of new projects”.

This could hinder the GCC’s efforts to diversify and localise supply chains as they require just the kind of technologies China seeks to restrict – tech that would be difficult to develop independently in an industry with such low margins.

But there is a glimmer of hope for the Gulf, as Beijing may also try to leverage REE technology as a way to win allies.

“China is actively looking for friends,” says Guo. “So there could be some way to find mutual benefits from cooperating in the REE industry.”