China’s move of imposing restrictions on the export of rare earth magnets has posed a major challenge before companies engaged in the manufacturing of automobiles, semiconductors and other equipment in which the magnets are used.
In April this year, China put curbs on the export of seven medium to heavy rare earth elements and several magnets by mandating exporters to obtain licenses citing national security and non-proliferation concerns. The rare earth magnets form a crucial component of electric and petrol vehicles, defence equipment, and clean energy systems. These are used in the manufacturing of systems of motors and steering, brakes, wipers, and audio equipment. The mandatory licensing, which can take months, is going to cause delays in supply of rare earth magnets, consequently impacting the global production lines.
What are rare earth magnets
Rare earth magnets magnets are a form of permanent magnets made from alloys of rare earth elements such as neodymium and samarium-cobalt. These are the strongest type of permanent magnets and have significantly stronger magnetic fields compared to other magnets. Two main types of rare earth magnets are- Neodymium-iron-boron (NdFeB) and samarium-cobalt magnets (SmCo). Due to their unique properties, the magnets have vital industrial applications across sectors including automobile, aerospace and semiconductor industries. As a result, any shortage or disruption in the supply of the magnets can impact the entire production line.
How does China dominate the sector
China is the world’s biggest rare earth elements supplier, accounting for 60% of the total global supply of the rare earth elements and 90% supply of the rare earth magnets. What provides China an advantage in the production and supply of rare earth elements is not the scarcity of the elements in other countries but the country’s developed capacity to extract these elements. China dominates this sector because they have mastered the difficult process of extracting rare earth elements. The country has been working on refining its rare earth elements extraction technologies since the 1980s. Besides, availability of cheap labour and lenient environmental regulations provide China an added advantage by reducing the cost.
“People understandably tend to think that rare earth mineral deposits are what’s scarce, given the name. That is false. They’re everywhere. As with lithium, what China has that others lack is the heavy industry of refining the minerals,” said business tycoon Elon Musk commenting on China’s decision to impose restrictions on the supply of rare earths.
China has suspended exports of certain rare earth minerals and magnets to the US and around the world.
— unusual_whales (@unusual_whales) April 13, 2025
China is drafting a new regulatory approach to the minerals to prevent them reaching American companies pic.twitter.com/WX8Uh89gkO
In recent years, China’s dominance of the rare earths market is reducing. From 98% market share in 2010, it has reduced to around 70% now. This has happened as more and more countries are developing technology and capability to extract these elements.
In order to secure its dominant position in the area with increased competition, China imposed a ban on the export of the rare earth elements extraction technology in 2023. The US has been trying to develop new technologies for rare earth element extraction since 1950s but the technologies developed by it so far are not widely used becuause of the radioactive waste generated in the process.
How China’s restrictions have posed challenges for Indian automobile industry
China’s restrictions have sent ripples across various industries at the global level, including the automobile industry. Several global manufacturers from Japan, South Korea and Europe and diplomats are seeking meetings with Chinese officials to expedite the halted export licenses.
Indian automobile industry, which is the third largest in the world, is also facing adverse consequences of the Chinese restrictions. For the last two months, India has experienced a halt in the import of rare earth magnets. In addition to that, further delays in supply of the rare earth magnets due to mandatory licensing are disrupting the automobile production. With their depleting stocks of rare earth magnets, the Indian automobile makers are facing the challenge of keeping the production lines running.
India’s emerging electric vehicle sector is also staring at a potential shortage of the rare earth magnets due to Chinese restrictions. The electric two-wheeler sector is expected to take a major hit due to delays in the supply of rare earth magnets. India’s estimated annual demand for rare earth magnets in the electric vehicles industry is 6,000 to 7,500 tonnes, for which India entirely depends on China.
This has prompted the Indian government and the automobile makers to reach out to Chinese officials to extradite the stalled supply of rare earth magnets. As per reports, a delegation from the Society of India Automobile Manufacturers (SIAM) and the Automotive Component Manufacturers Association (ACMA) is planning to meet Chinese officials. The Indian government is also making efforts to resolve the issue through diplomatic channels. Seventeen Indian automobile component makers, including Continental Automotive, Hitachi Astemo, Mahle Electric Drives, Varroc Engineering, and Flash Electronics submitted their import applications to China last month. However, the supplies have not resumed due to lack of approval by the Chinese commerce ministry. Nine of these import applications have been endorsed by the Chinese embassy.
Additionally, the supply period is expected to be further increased due to the introduction of China’s new tracking system for rare earth magnet sector. The system, which came into effect last week, mandates the producers to submit additional information, including trading volumes and client names online.
