China is doing its utmost to defend its rare earth monopoly

Since November 2023, China has ceased supplying technology for the mining or processing of rare earths, such as neodymium oxide and dysprosium oxide, to Western nations. This significantly complicates the establishment of independent refineries. Furthermore, building domestic processing facilities is currently not profitable for the West, due in part to the politically fixed prices of the end products. These pricing structures make it nearly impossible for mining companies outside the Chinese sphere to operate economically, ensuring that our dependence on China persists.

China’s policy aims to control the entire supply chain, with the goal of achieving dominance at every stage of production. Consequently, there are also considerations in Beijing to ban the export of magnets containing rare earths. Western industrial nations can discover and excavate as many rare earth deposits as they like: as long as both the further processing of ore into oxide and metal, as well as the development of magnets and electric vehicles, take place primarily in China, the dependency remains.

The Middle Kingdom also produces far more rare earths, such as terbium oxide and gadolinium oxide, than it needs itself. This occurs despite declining domestic demand amidst the real estate crisis. This overproduction can serve only one purpose: market dominance through suppressed prices. Refineries and manufacturing are not profitable at such low prices, which, incidentally, also applies to China. However, China simply accepts that its own producers can barely operate economically. The reward for China will follow when, as a monopolist, it can enforce very high prices.

In addition, China is investing in the production of rare earths outside its own borders, such as scandium oxide. One example is the participation in rare earth projects in the Congo as part of the “Belt and Road Initiative.” The Chinese company Shenghe Resources has also invested in the Kvanefjeld project in Greenland, one of the largest rare earth projects in the world. China has a history of investing in rare earth production abroad. For instance, Shenghe Resources acquired the American mining company Molycorp in 2015 after it was forced to file for bankruptcy.

To become more independent, state support is essential. Phases of unprofitability must be borne by taxpayers. However, there is still a lack of investment in the mining sector. While the government is providing one billion euros for commodities projects, and other EU countries like France and Italy have also established funds for raw material supply (as we reported), this combined amount is not even sufficient to commission a single copper mine. Europe would need approximately 300 billion euros in mining sector investments to manage the energy transition independently. China’s monopoly is therefore likely to persist for several more years, perhaps even a decade.