[New Weapon Rare Earths] Counterattack Card Against the US... What Is China's Monopoly on 'Heetoryu'?

Over 70% Dependence on China in Korea
Eco-friendly Industry Comes to a Complete Halt Without Chinese Products

[Asia Economy Reporter Park Sun-mi] South Korea's dependence on China for rare earth imports has exceeded 70%. As South Korea is still in the preliminary stage of diversifying its rare earth supply chain, it is at risk of suffering significant damage if China weaponizes rare earths.

According to the Korea International Trade Association on the 26th, South Korea imported $394.53 million worth of neodymium permanent magnets, one of the key materials and most representative uses of rare earths, used in electric vehicle motors and wind power turbines, from January to September this year. Of this, $343.79 million worth came from China.

The scale of imports from China has been increasing by about $100 million annually, with $158.89 million in 2020 and $258.62 million last year. Rare earth metals also saw imports of $7.799 million this year, with the majority, $6.522 million, sourced from China.

Rare earths refer to a group of 17 elements with similar properties found together in geological deposits. Praseodymium, samarium, lanthanum, cerium, and neodymium are the most commonly found rare earths, comprising 85-90% of the total. Rare earth elements are widely used in the manufacture of catalysts, abrasives, glass, phosphors, batteries, and lasers, and recently, demand has surged as they are essential raw materials for permanent magnets used in eco-friendly industries such as electric vehicles and wind power. Despite the impact of COVID-19, global rare earth consumption has been increasing by about 5% annually and is expected to grow at an average annual rate of 4% until 2030.

rare earth elements

Rare earths are essential mineral resources in the era of the 4th industrial revolution but have limitations in reserves and production volume. Supply sources are also limited, causing prices to fluctuate wildly. This year, prices soared to their highest level in 10 years. According to the China Rare Earth Industry Association, the rare earth price index, which aggregates prices of 21 rare earth oxides and composite products, exceeded 420 in February. Although the index has dropped to around 280 as of October, it remains significantly higher compared to 140 in January 2020 and 180 in January last year.

The supply and price determination of rare earths are controlled by China, which holds the largest share of these scarce resources. According to the U.S. Geological Survey statistics, the world's rare earth reserves are approximately 120 million tons, with global production estimated at around 280,000 tons last year. Notably, China’s rare earth reserves and production capacity are overwhelming.

As of last year, the major countries' rare earth reserves are China (44 million tons), Vietnam (22 million tons), Brazil (21 million tons), Russia (21 million tons), India (6.9 million tons), and Australia (4 million tons). Approximately 280,000 tons are reserved in other countries outside the top 10. China, the world's largest rare earth reserve holder, accounts for 60% of global rare earth production (with refined products occupying 85% of global production), demonstrating its formidable production capacity.

The world's major rare earth producers last year were China (168,000 tons), the United States (43,000 tons), Myanmar (26,000 tons), and Australia (22,000 tons). During the same period, global rare earth production increased by about 17% compared to the previous year, with China leading supply growth by increasing production by 20%.

Rare earths are known as a highly volatile market due to factors such as oversupply, price fluctuations, export restrictions, production quotas, and the feasibility of producing permanent magnets from individual elements. This is why cooperation at the national and corporate levels is essential to establish a stable supply chain for this critical mineral.

As rare earths have emerged as a strategic weapon for China, the United States has recently been making efforts to restructure the rare earth supply chain. Although rare earth mining and production in the U.S. were halted in the 2000s due to declining competitiveness against China and environmental concerns, the government has recently rolled up its sleeves to secure production facilities to reduce high dependence on China.

The U.S. Department of Defense is supporting MP Materials, the only rare earth producer in the U.S., and Lynas, a global rare earth company headquartered in Australia, with subsidies to expand rare earth production facilities in Texas. Plans are also underway to establish a medium rare earth refining facility in the U.S., which currently only China possesses. MP Materials owns the only operating rare earth mine in the U.S. and is building rare earth processing facilities with government support. Australian Lynas is establishing a rare earth plant in Texas in partnership with the U.S. chemical company Blue Line, aiming to operate medium rare earth production facilities by 2025.

Efforts led by the U.S. to reduce China's influence over rare earths are accompanied by initiatives from other countries. In June, the 'Critical Minerals Security Partnership (MSP),' an initiative involving 11 countries including South Korea, Japan, Canada, Australia, and the European Union (EU) Commission, was launched to enhance the stability of supply chains for critical minerals, including rare earths.