China drought of rare earths to India in focus for Xi-Modi meet

An official in New Delhi told reporters earlier this month that China had assured India of supplies of fertilizer, rare earth and tunnel boring machines. But the topic was conspicuously absent in China’s statement after Foreign Minister Wang Yi met his Indian counterpart as part of a two-day visit to New Delhi earlier this month.

The anticipated top leaders’ meeting this weekend will test Modi’s ability to extract policy favors from Beijing as India shifts closer to China amid deteriorating ties with the US.

The months-long supply crunch has forced automakers to make design changes that reduce their reliance on heavy rare earth magnets, such as switching to motors that can be converted to run on LRE- or ferrite-based magnets.

China’s export controls apply to seven medium and heavy rare earths, as well as products — like the higher-performance magnets — that contain even small amounts of them. But even the LRE-only magnets were snarled in customs delays at the start of the curbs. That bottleneck has since eased, with shipments to India surging to a record in July.

Still, the drought of heavy rare earth magnets has meant that carmakers which use bigger motors, as well as two-wheeler makers who are still figuring out alternatives, are behind on their festive season manufacturing plans, people familiar with the matter said.

This calibrated stance on clearing rare earth magnet applications underscores the continued risk from China’s chokehold on the critical minerals, and its ability to disrupt supply chains for electric vehicles, wind turbines as well as defense equipment globally.

India is gauging private sector interest in a policy to spur local production of rare-earth magnets, Bloomberg News reported in July. But creating the ability to make these raw materials domestically will be costly and take a long time.

“We are scouting for alternative sources of rare earths outside China in case there is further action from the Chinese government,” said Rakesh Sharma, executive director at Bajaj Auto, India’s largest maker of electric two- and three-wheelers on a post-earnings call earlier this month.

Bajaj Auto is also accelerating efforts to develop magnets that don’t require either light or heavy rare earths, he added, aiming to insulate itself from Chinese supply.

The acute shortage of the past few months has pushed some automakers to desperate measures, people familiar with the matter said. In a few cases, heavy rare earth magnets were carried to India in airline hand baggage — light enough to pass through discreetly — or hidden between slabs of granite shipped from China, they said.

In July, state media reported that Beijing had vowed “zero tolerance” for rare earth smuggling, pledging tougher enforcement against false declarations and transshipments through third countries. China’s intelligence officials in the same month accused some overseas agencies of stealing controlled rare earth materials through mail delivery, without naming any country.