So-called permanent rare-earth magnets are the biggest single market for the minerals, and China accounts for more than 90% of global production. Their widespread use in everything from vacuum cleaners to vehicles and fighter planes means multiple US industries could suffer if China chooses to block their supply amid a deepening trade war between the world’s biggest economies.
A block on shipments of rare-earth metals and alloys to the US is “manageable if ex-China processing gets built out swiftly,” Citigroup Inc analysts including Oliver Nugent wrote in a report. “The impact gets much more serious were a ban to extend into rare-earth fabricated products – especially magnets and motors, or through third-party suppliers.”
China has signalled it’s gearing up to use its dominance of the global rare earths industry to hit back at US measures that include the blacklisting of Huawei Technologies Co. The elements are often overlooked, but modern life would be impossible without them, Commerce Secretary Wilbur Ross said this week as the US released a report that promised “unprecedented action” to ensure supply. China’s top state economic planning body is studying proposals to control exports and will put measures in place soon.
Permanent magnets come in two key forms, one based mostly on the rare earths neodymium and praseodymium, the other on samarium and cobalt, according to Citigroup. They are used over other types of magnets because they can deliver more power relative to their size Rare-earth magnets are considered essential to many military weapons.
China’s magnet exports totalled US$1.7 billion last year, Citigroup said. While the US imported about US$395 million, including US$257 million from China, that masks the potential economic hurt to downstream industries as magnets used in miniature motors perform essential functions in automobiles, wind turbines, and many home appliances.
“The industrial value add at risk if this supply chain gets disrupted is tough to quantify but likely runs multiples higher,” Citigroup said. “While Japan and others ex-China presumably have spare magnet capacity to divert more supply to the US, conversations with experts suggest the infrastructure and technical knowledge to respond quickly is very limited in scale.”
Add to that, many of the magnet plants outside China – the biggest are in Japan and Germany – are still reliant on China for their rare-earth inputs. Of 50,000 tons of mined supply outside China, only about 8,600 tons isn’t integrated with the Asian nation, Citigroup estimates.