West scrambles to fill heavy rare earth gap as China rivalry deepens

Highlights:

• As China limits exports, MP Materials leads US bid for alternatives
• Heavy elements dysprosium and terbium are hard to source
• Brazil emerges as key heavy rare earth ore exporter

The West's push to build a home-grown magnets supply chain to reduce its reliance on China - led by massive US backing for Nevada-based MP Materials - is running into a critical problem: the scarcity of so-called heavy rare earth elements.

The United States and allies have been scrambling to create an alternative supply chain to make super-strong rare earth magnets, which are vital components in everything from defence technology and electric vehicles, to electronics and wind turbines.

MP Materials aims to integrate the entire supply chain from mining rare earths to magnet production and has ambitious plans to produce magnets within years, buoyed by a July deal comprising billions of dollars in US government support.

It trumpeted its success earlier this month, boosting processed output of two light rare earths by 51% this quarter.

But shortages of heavy elements dysprosium and terbium could be an Achilles heel for MP Materials and the West's campaign to forge a magnets industry away from geopolitical turbulence that has constricted supply from China, analysts say.

MP's Mountain Pass mine in California contains only traces of those two elements, which are used in small quantities in the magnets but are vital. Dysprosium and terbium help magnets retain their magnetic qualities under high temperatures, such as in EV engines.

"MP Materials may have a formidable challenge," said Ilya Epikhin, senior principal with consultants Arthur D. Little. "They'll need to go to Brazil or Malaysia, or some African states to find those resources, but it can take a lot of time."

In an analysts conference call on 6 November, Chief Operating Officer Michael Rosenthal said MP was "actively engaged" with a number of potential feedstock providers for heavies, but did not name them.

Another source of feedstock will be recycled materials supplied by Apple that contain heavy rare earths under a $500 million deal for MP to supply magnets to the tech giant.

"We believe we are very well positioned," MP's Matt Sloustcher, executive vice president of corporate affairs, told Reuters.

MP is a high-profile example of the impact of continued dependency by the West on China for heavy rare earth processing. According to consultancy Benchmark Mineral Intelligence, the West will still rely on China for 91% of its heavy rare earths needs by 2030, down only slightly from 99% in 2024.

Chinese export restrictions imposed in April on heavy rare earths in the magnets have in some cases suspended operations at auto plants and jolted the West into action. On 30 October, Beijing agreed to delay new controls under a US-China deal.

Scramble to line up heavies

The proportion of heavy rare earths in deposits is much smaller than the other elements used in magnets, with the relative ratio of heavy rare earths in global mines only half of their relative ratio in permanent magnets.

The scarcity of heavy rare earths outside of China is evident in the price of dysprosium oxide in Rotterdam at $900 per kg, more than triple the price in China of $255, according to data provider Fastmarkets.

"If you talk about critical resources, it's really the heavies, the heavies, the heavies - all the rest we will get," said Erik Eschen, CEO of Germany's Vacuumschmelze (VAC), one of the few rare earth magnet producers outside China.

VAC has been busy inking deals with miners that produce heavy rare earths to supply its new US plant in South Carolina that recently opened.

VAC has agreed supply deals for heavy rare earths with Canada's privately-held Torngat Metals from its Strange Lake project in Quebec and Aclara Resources from its Carina project in Brazil.

"Even with limited capacity in the West, we're succeeding at securing the capacity we need," Eschen said.

Magnet production capacity outside of China and Japan is expected to hit 70,000 metric tons a year by 2030, which would need 1,650 tons a year of dysprosium oxide, according to critical minerals consultancy Adamas Intelligence.

"Heavies are definitely the next piece of the puzzle that needs to be dealt with to unlock widespread Western magnet production at scale," said Adamas managing director Ryan Castilloux.

Despite the flurry of recent deals and rhetoric in the West, mines outside of China are forecast to meet only 29% of the heavy rare earths consumed outside China in the auto and wind sectors by 2035, according to data from London-based commodity consultancy CRU.

"To close this gap, more mine supply will be needed with costs higher than the current supply base," said Piyush Goel at CRU.

Projects to take years

A wide range of companies have been publicising new projects and processing facilities for heavy rare earths, but most of them will take many years to come to fruition.

The two biggest Western firms in the sector, MP Materials and Lynas Rare Earths of Australia, are both looking for additional ore to process since their own mines are not rich enough in heavy elements.

Lynas kicked off heavy rare earth separation earlier this year in Malaysia, becoming the world's first such producer outside China.

The Australian group announced last month it would expand output of heavy rare earths to 250 metric tons of dysprosium and 50 tons of terbium a year, but gave no timeline, saying it depended on regulatory approvals.

CEO Amanda Lacaze told analysts on a call on 30 October that Lynas planned to source heavy rare earths both from its own Mt. Weld mine in Australia and from Malaysia, where its processing plant is located.

"We have a team whose job it is to work with various Malaysian partners on that development process."

This contrasts with a global deficit forecast by CRU by 2035 of 2,920 tons in the supply/demand balance of dysprosium and terbium oxides.

Another Australian company, Iluka Resources, is building a refinery at Eneabba in Western Australia that will eventually be able to process up to 750 tons a year of heavy rare earths. It is expected to be commissioned in 2027.

The company told Reuters it has moderate amounts of heavy rare earths in its own material and has agreed a deal with Northern Minerals to supply heavy rare earths from its new mine in Western Australia, due to start production in 2028.

MP Materials' mine has scant heavies

MP Materials, which owns the only US rare earths mine, aims to eventually lift magnet output to 10,000 metric tons a year.

It plans to launch a heavy rare earth separation facility next year that will eventually be able to produce 200 tons a year of dysprosium and terbium.

But MP Materials' mine produces mainly light rare earths, with its deposit containing less than 1.8% medium and heavy rare earths.

MP said it has stockpiled several hundred tons of medium and heavy rare earth concentrate in preparation for magnet production, but this only contains 4% dysprosium and terbium, according to the company's website.

Environmental concerns seen as bottleneck

Brazil is emerging as a major heavy rare earth (HREE) ore exporter, but the real challenge lies in processing capacity, said Neha Mukherjee, a rare earths analyst with Benchmark Mineral Intelligence.

"While the technology for HREE refining is expected to be available globally by 2029, costs outside of China remain 5–7 times higher," Mukherjee said.

Higher amounts of heavy rare earths are found in ionic clay mine deposits, where the standard extraction technique involves flushing the deposit with chemicals, which in Myanmar has caused contamination of water supplies and deforestation.

Western miners say they use environmentally-friendly extraction methods, but they have sometimes met with scepticism and opposition by residents to mine plans.

Rare earth mining of deposits from monazite ore includes radioactive elements uranium and thorium, which can be difficult to dispose of safely.

"A key bottleneck for new production will be the higher negative impact of heavy rare earth mining and processing on the local environment," CRU's Goel said.

Some companies, including VAC, have produced magnets without heavy rare earths, but they have limited applications, such as slow-moving wind turbines, said Eschen.

"The moment you go into other applications, for example, a motor for EVs, turning very fast, going 120, 140 degrees Celsius, then you need the heavies."