Rare earths are once again in focus: In a recent analysis, Goldman Sachs warns of growing disruptions along the global value chain – from extraction and refining to magnet production. In particular, China’s strong position with regard to rare earths, which are not so rare in and of themselves, could prove to be a lever in geopolitically tense times. As early as October 9, Beijing expanded its export requirements, added five more elements to the list, and tightened the review for semiconductor users. These are relevant signals for industries ranging from electronics and electromobility to the defense industry.
China’s Control over Rare Earths and the Consequences
According to Goldman Sachs, China accounts for around 69% of global extraction, 92% of refining and 98% of magnet production for rare earths. The dependence is therefore high along the entire chain. Rare earths – a collective term for a series of metallic elements – are indispensable in permanent magnets, batteries, high-performance processors, sensors, catalysis applications and numerous defense systems. Although the market value of rare earths amounts to around USD 6 billion and is therefore relatively small compared to the copper market (copper is around 33 times larger), the economic leverage is considerable: According to the bank, even a ten percent production loss in REE-dependent industries could cost around USD 150 billion in economic output and additionally generate inflationary pressure.
The latest export rules illustrate how quickly framework conditions can change. For companies along the supply chain – from raw material procurement to final assembly – security of supply, diversification of sources and transparency regarding critical preliminary products are becoming increasingly important. For rare earths, this primarily includes access to refined products and magnets.
Export Requirements: Particularly Exposed Elements and LRE/HRE Differences
Goldman Sachs names samarium, graphite, lutetium and terbium as particularly susceptible to export restrictions. Samarium is used, among other things, in samarium-cobalt magnets, which offer high temperature resistance and are therefore used in aerospace and defense technology, for example. Lutetium and terbium are common in various high-tech applications; bottlenecks could quickly affect downstream industries and their value creation. The bank also sees light rare earths (LRE) such as cerium and lanthanum as potential targets for further requirements, as China dominates extraction and refining.
Another focus is neodymium-praseodymium oxide (NdPrO), a core raw material for high-performance permanent magnets used in wind turbines, electric drives and precision motors. Goldman Sachs expects supply deficits here. Although western producers – such as Lynas Rare Earths (ASX: LYC) in Australia, MP Materials (NYSE: MP) in the USA or chemical players such as Solvay (EBR: SOLB) – can in principle contribute to defusing the situation, the structural dependence on China remains, particularly for preliminary products and process steps.
Independent REE Chains: Long Lead Times and Technological Hurdles
The development of independent supply chains for rare earths is a political goal in several countries, but it faces hurdles. According to Goldman Sachs, heavy rare earths (HRE) in particular are scarce outside of China and Myanmar: deposits are often small, low-grade or associated with radioactivity issues. It typically takes eight to ten years for a new mine to go into production – including permits, financing and infrastructure.
Refining is also challenging. It requires special expertise, extensive facilities and strict quality and environmental management; new buildings take around five years to complete. In addition, there is magnet production: production capacities outside of China are emerging in the USA, Japan and Germany, but are reaching their limits as long as critical inputs – such as samarium or certain alloys – are themselves heavily sourced from China. This brings intermediate stages of the value chain into focus: Without a secure supply of oxides, carbonates and metals, magnet production remains vulnerable.
Market Implications and a Look at Companies
For the capital market, the analysis points to the growing importance of security of supply as a valuation factor – across sectors from automotive to energy and electronics. In addition to Lynas Rare Earths and MP Materials, Goldman Sachs also names Iluka Resources (ASX: ILU) as relevant raw material and process suppliers in the rare earths environment. At the same time, the bank emphasizes that the risk exposure is not limited to rare earths: other critical raw materials could also be affected by geopolitical tensions and export requirements, including cobalt and energy raw materials such as oil and natural gas.
For industrial users, this means that strategic stockpiling, long-term purchase agreements, recycling programs and diversification across multiple jurisdictions are becoming more important. In parallel, governments are working on funding programs, simplified approvals and partnerships to reduce dependence. In the short term, however, the situation remains asymmetrical – particularly where China has high market shares and process expertise in rare earths.
Conclusion: Rare earths remain a neuralgic point of modern industrial production. The combination of Chinese market power, tightened export rules and long lead times for new capacities increases the vulnerability of supply chains. For the industries affected, the question of predictability and resilience is therefore likely to move even more into the focus – from raw materials and refining to magnets.
