Without Rare Earth Elements(REE), no semiconductors can be made anywhere in the world.
However, the current crisis is not directly because of semiconductors.
The current crisis is due to China putting a restriction to supply these rare earth elements over which it has a monopoly with 90% control on global production.
Apart from making semiconductors,
Rare earth elements and Rare earth element magnets find wide use in Automobiles , electric Motors , Electronic goods, defence & aero space , renewable energy etc you name it , it has its utility.
China has imposed export restrictions on seven rare earth elements (REEs), including six heavy rare earths, and related magnets, effective April 4th. This move, in part a response to US tariffs, has triggered concerns about global supply chain disruptions, especially in industries relying on these elements.
Specifics of the restrictions:
7 Heavy REEs: Dysprosium, Gadolinium, Lutetium, Samarium, Scandium, Terbium, and Yttrium.
Rare earth elements magnets: China is also restricting the export of rare earth magnets.
Licensing requirements: Companies now require special export licenses for these materials, which adds to the complexity and potential delays in the supply chain.
Reasons cited: National security and international obligations like non-proliferation.
Global supply chain disruptions:
The restrictions have the potential to disrupt manufacturing in the US, Europe, and other regions heavily reliant on China for rare earth materials.
Diversification efforts:
The situation has prompted renewed calls for supply chain diversification and efforts to develop alternative sources of rare earth materials.
China’s Dominance:
China currently holds a dominant position in the global rare earth supply chain, with a virtual monopoly on refining and processing of 90% Of global capacity.
The restrictions highlight the vulnerability of industries relying on a single source for critical materials.
How india gets impacted?
India stands 3rd in the world Among top 8 nations of the world for its rare earths with reserves at 6.9 million metric tons, and it produced 2,900 MT of rare earths in 2024, which is on par with the previous few years. India has nearly 35 percent of the world’s beach and sand mineral deposits, which are significant sources of rare earths. Indian Rare Earth limited- was established in 1950 still engaged in exploration of Indian rare earth elements.
Though we may have enough for our defence and atomic energy , but we still have to import for our auto industry and other requirement.
Indian Auto industry and indian govt is in diplomatic talks with China while trying to ramp up its own production and exploring other sources.
India is a big market for China and our imports from China are more than our exports to China - the trade deficit is at 100 Billion USD.
China seems to have offered assembled motors instead of REE magnet…which may be cheaper in some cases for auto industry and in most cases they may offer REE magnets on certification basis that these would be used only for auto industry and other industries and not for defence.
Which are the Indian companies likely.to take up rare earth elements mining and production ? (refer last few links)
Key risks and opportunities
(1) Rare earth elements come under commodity which comes under global supply chain. The price would depend upon demand and supply.
(2) Currently only one unlisted PSU namely Indian Rare earth limited is involved in mining and exploration of rare earth.
Currently Most of the listed PSU’s involved in metal and mining have not done consistently well due to cyclicality of the business
(3) Ramping up production refining ,requires some gestation period along with technology skills and knowledge to do that.
(4) However , there is a good opportunity for Indian companies both private and public to participate in exploration and refining of rare earth, given our solid reserves of rare earth and India could become a hub.
Union budget 2025-26 has already provisioned Rs 16000 crore towards Rare earth exploration and refining with similar amount Rs 18000 Crore commitment available from various PSU’s.
Discl : For information and education purpose only . Not a buy sell recommendation for any stocks.Please apply due diligence before buy / sell in any stocks.
