Nearly three months after China imposed new licensing rules on export of seven rare earth elements (RRE) and related magnets, India’s auto industry has sounded an alarm. Rare earth magnet stocks are running low, and if internal assessment of India’s top brass & motown executives are to be believed, these would last “at the most till June-end”.
No wonder then that India is racing against time to ensure supplies.
As the Chinese chokehold on this key auto component continue, India is seeking a 45-60 days’ timeline to set up alternative supply chain – a partial shield from the Dragon’s dominance in the segment. Other countries being tapped include Japan (magnets reportedly of lesser quality), Indonesia (which has Chinese influence), Vietnam (high local consumption), the US and Russia (long supply chain routes).
Assorted critical minerals and rare earth elements are the cornerstones of the high-tech manufacturing and fins usage in electric vehicle (EV) batteries, renewable energy storage systems, semiconductor manufacturing, defence production, among others.
The other related mineral exports banned by China include samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium.
India’s last reported import of REE was to the tune of 3,600 tonnes and import of magnets by the auto industry is around 800 – 900 tonnes.
India ups rare earth find
In April, Union Mines Minister, GK Reddy told Parliament, that the Centre is aware of the occurrence of neodymium (one of the rare earth elements) in the country.
The Geological Survey of India (GSI) has been carrying out mineral exploration across the country - with studies being categorised as reconnaissance surveys (G4), preliminary exploration (G3) and general exploration (G2).
In FY22 and FY23, GSI had taken up three reconnaissance stage projects for Rare Earth Elements including neodymium in Sirohi and Bhilwara districts of Rajasthan.
In FY22, there were 10 blocks in the state where exploration was carried out, in FY23, there were 13 blocks where exploration was carried out and in FY24, there was 12 and in FY25 (provisional data) there were 16 blocks. All explorations are in G4 or G3 stages, as per the report presented before the Parliament.
Reddy told the Parliament that the Department of Atomic Energy has explored 1,11,845 tonne in-situ Rare Earth Elements Oxide (REO) in hard rock terrains in parts of Balotra (erstwhile Barmer) district, Rajasthan.
So far, one REE block has been auctioned in Uttar Pradesh to Hindustan Zinc and one more in Karnataka to Ramgad Minerals and Mining Ltd. Composite mining licences - exploration and commercial usage – permissions were granted, as per Mines Ministry officials.
Small quantities are secured by IREL (formerly India Rare Earth Ltd), but these find use in defence sectors, primarily.
The company in its FY24 annual report said, rare earth processing and mineral usage ecosystem is yet to be fully developed in India.
What are rare earth elements?
Rare Earth Elements (REE) are a group of 17 elements. These elements share similar properties such as high density and high conductivity.
The main sources of REEs are minerals such as bastnasite, loparite and monazite.
Based on their atomic numbers, they are divided into two groups: the light group, also known as the Cerium group (light REE), and the heavy group, also known as the Yttrium group (heavy REE).
Incidentally, these elements are not so rare. They are found in abundance in the Earth’s crust. However, they are rarely found in concentration that are economically viable for mining. Therefore, extracting and processing REEs is complex and expensive, requiring high-end techniques and specialised labour to isolate and purify them.
India’s race against time
In case of India, China has not yet granted approval to sale of buyers from the sub-continent. And this, despite India granting end-user certificates to several of its importers.
“So far, there is no clearance from China’s Ministry of Commerce and hence supplies are stuck,” said an official. A dozen-odd companies have got end user certificates and endorsements from the Chinese Embassy, but none have approvals of the Ministry of Commerce in China.
For India though, the alternative is to loom beyond and tap and set-up of parallel supply chains.
The country has two available REE processing technology – one by IREL (India Rare Earth Ltd) and the other by BARC – that it wants to commercialise, for manufacture of these magnets.
While IREL tied-up with Hyderabad-based Midwest Advanced Materials Private Ltd (MAM) for tech-transfer, fund support, raw material supplies and commercial production – expected to start in the next six-odd months; BARC is yet to find takers for its technology.
“IREL was supposed to supply rare earth elements to the Hyderabad-based entity. But, if they are looking at commercial production then sourcing has to be increased,” a person in the know said.
In fact, an incentive scheme to promote manufacturing of rare earth magnets has also been under discussion.
The scheme with an outlay running into nearly ₹3,000 crore has a 7-year to 10-year period, which could see nearly 4,000 MT of magnet-making being pushed through a series of production and sale linked incentives.
“The concern continues to be around China’s cost competitiveness in the REE tech and manufacturing. So, if they bring down prices, then the parallel ecosystem being explored falls,” a source said.
For instance, the average selling price for rare earth magnets in China is about $52/kg, and it includes subsidies provided by the government there that include metal conversion cost (extraction of neodymium and praseodymium), and other subsidised capex provided there. Also, available tech continues to be an advantage.
In comparison, India will have to sell offerings at $57-60/ kg, to ensure viability (local manufacturing) which will include matching incentives to China; but a tech-transfer cost. Differential impact (cost) for Indian manufacturers is at least in the 3 per cent to 10 per cent range.
Chinese Choke
The Chinese dominance is very clear. China is a large producer of rare earths and has near-complete control over the refining processes needed to make the minerals useful.
It produces about 90 per cent of rare-earth magnets, has 70 per cent dominance in processing and a 50 per cent stranglehold over mining, thus completing its control over the supply chain.
It has very efficient, cost-effective providers of rare-earth materials, although given some of the historical environmental damage caused by their extraction and processing, it has paid a price.
And it not the first time that the Dragon is flexing its muscle to assert its dominance in the segment.
In 2010, China starved Japan’s hi-tech manufacturing industries by halting shipments of rare earths for about two months, after a dispute over a detained Chinese fishing trawler captain.
In late 2023, China formalised a ban on the export of rare-earth separation technologies.
And finally, China placed export restrictions on seven strategically chosen rare earths and the end product, magnets.
While the recent curbs were sparked by Trump’s tariffs, Beijing applied the export controls to all countries. It has implemented a new export permit system, choking the world of supply, including India.