BRICS Rare Earth Dominance Set To Continue

There is a famous Yiddish proverb which says that if you want to make God laugh tell him your plans. But for the United States and the rest of the G7, an inability to decouple from a reliance on rare earth elements sourced from China is no laughing matter. Rare earths remain crucial to the adoption of green energy and possess significant defence industry applications, giving BRICS a clear advantage with respect to these strategic minerals.

Despite various initiatives in Washington, China's government subsidized rare earth mining and refining industry continues to eclipse Western efforts to diversify rare earth supplies. Moreover, even if the West succeeds in diversifying the global rare earth elements supply chain, the US and its allies could simply come to rely on other BRICS nations such as Brazil and South Africa.

This creates an interesting geopolitical dynamic where, despite financial advantages, the West remains reliant on emerging markets for key natural resources. G7 countries still rely heavily on Russian and Middle Eastern crude supplies, nickel and coal from Indonesia, and Kazakhstani uranium. Maintaining this reliance with respect to Chinese rare earths is something the Western world, and the United States in particular, would prefer to avoid.

Although the US has emerged as the world’s largest oil producer, the continued shift towards new energy sources means China’s dominance in rare earths remains a concern. In addition to their use in wind turbines and electric vehicles, these elements are also used to produce cutting edge cruise missiles, radars, and unmanned aerial vehicles. As a result, China’s dominance is more than just an economic issue for the US. It is a national security concern.

China

Producing wind turbines, solar panels, batteries, and EVs, has helped China reduce its reliance on coal and imported fossil fuels. This has improved the country’s air quality, public health, and balance of trade. These clean energy technologies have also become a major source of export revenue for Beijing, boosting Chinese wages as the nation moves up the global manufacturing value chain.  

While Western firms scour the earth looking for alternate supplies, Chinese producers, backed by state financing and well developed domestic supply chains, are able to maintain operations even during economic downturns. This state support keeps prices down, undercutting Western competitors and ensuring Chinese miners, refiners, and clean energy technology producers can maintain their global dominance despite efforts to diversify supplies.  

As a result of massive state subsidies, China now commands 70% of global rare earth mining and 90% of processing capacity, a near-monopoly that has become a strategic concern for the United States. Worryingly for Washington, China's control of key resources extends beyond rare earths to include other critical materials for the green energy transition such as graphite, cobalt, and nickel, making China’s lead in the sector even more difficult to overcome.  

South Africa

A site near the Kruger National Park in South Africa has become a focal point for US efforts to challenge China’s rare earth dominance, with the US pledging financial support to extract rare earths from gypsum waste at a site in Limpopo. However, the project's viability is under threat due to a 60% drop in rare earth prices since 2022, casting doubt as to whether the project will secure the $250 million in funding required to begin operations.

The US International Development Finance Corporation has already invested $50 million in the project, reflecting a desire to support African critical mineral projects with an estimated $700 million in proposed future investments. However, low prices resulting from subsidised Chinese production have led analysts to question the economic feasibility of moving forward with many of these greenfield projects.

In addition to rare earths, the recent slump in prices for lithium, cobalt, nickel, and graphite, which are key components in electric vehicle battery production, has seen Western producers shut down mines, cut production, and scale back expansion plans. Major players such as BHP and Glencore are among the affected firms, highlighting the vulnerability of Western projects to market fluctuations largely driven by Chinese supply and demand.

Brazil

With the world’s third-largest rare earth reserves, Brazil could become a major player in the sector. Brazil’s efforts to attract investment are supported by low labour costs, hydropower (which provides over 60% of Brazil’s electricity needs), established regulations, and close proximity to US importers eager to diversify supplies. Brazil’s first rare earth elements mine, Serra Verde, began commercial production in 2024 and is expected to double output by 2030.

However, Brazil faces many of the same challenges as others who would challenge China. Rare earth prices remain low due to high Chinese production, while Brazil lacks refining capacity and overall competitiveness when compared with Chinese firms. Nervous lenders in a high global interest rate environment have added to the difficulties Brazil faces in attracting the necessary investments to scale its rare earth industry.

Considering the fact that Serra Verde mine took fifteen years to commence production suggests that long leads times further complicate matters. Nevertheless, like Russia and India, who also feature in the worldwide top ten for rare earth reserves, Brazil still has plenty of future potential and the BRICS remain poised to dominate this critical market for decades to come.

That said, the market is still dominated by China, whose output of almost a quarter of a million metric tons is five times higher than any other producer. China’s strategy of flooding the market poses a significant challenge for other producers with Beijing increasing production quotas for state-owned miners despite falling prices, leading stock prices of US and Australian producers to experience sharp declines.

Western efforts to reduce dependence on China for rare earths face significant obstacles. The head start enjoyed by China and recent low prices all make it difficult for new projects to get off the ground. Furthermore, the diversification of the global rare earth supply chain could still see the West remain reliant on other BRICS nations.