MC EXPLAINER How China’s grip on rare earth magnets hurts Indian manufacturing — and the way out

China controls 90% of the global supply chain for rare earth permanent magnets

As automakers such as Bajaj Auto and electronics manufacturers sound the alarm over China restricting exports of rare earth permanent magnets to India—following similar curbs on the US—experts say India should seize the opportunity to develop local sources for these magnets, which are crucial for EVs, renewable energy, and home appliances.

A total of 17 elements of the periodic table are considered "rare earth elements," including scandium and yttrium. Magnets made from some of these elements are significantly more powerful than conventionally made magnets and have found uses in new-age defence and aerospace solutions, besides electric vehicles.

However, as global trade wars—especially between China and the United States—continue, marked by a breakdown in the "rules-based" international trading order, entities from corporates to governments are scrambling to secure supply of rare earth elements and permanent magnets, as China unilaterally restricts supply of these inputs.

Some are also ramping up research and development in the sector and are looking to secure more domestic supply, which may need a policy push as well as amendments to existing legislation.

According to one industry source, China controls over 60 percent of the supply of rare earth mineral reserves globally and 90 percent of the supply chain for permanent magnets made from rare earth minerals. This leaves manufacturers from all over the world in the firing line during the ongoing trade war, with Indian auto manufacturers warning that production may grind to a halt in a matter of days if supplies from China are not restored.

In FY24, India imported around 460 tonne of rare earth magnets, almost all from Chinese manufacturers, according to industry sources. While figures for FY25 are awaited, imports are expected to rise to around 700 tonne.

Self-reliance efforts

India has around 6 percent of global reserves for rare earth elements and was early to recognise the potential for rare earth elements, having established India Rare Earths Ltd (IREL) in 1950 to extract rare earth elements and conduct research and development into it. However, it has struggled to scale up since then.

Due to a policy push towards self-reliance in permanent magnets, such as the National Critical Mineral Mission, IREL has teamed up with the Bhabha Atomic Research Centre (BARC) to set up a rare earth permanent magnet manufacturing unit at the latter's Visakhapatnam facilities in Andhra Pradesh. One industry observer said that although the plant carries a capacity of only around 3,000 kg, the partnership with BARC—which has been a leader in scientific research in India—can be crucial to build up more capacity within IREL and elsewhere.

According to IREL, it commissioned its flagship mining and mineral extraction plant in Odisha in 1986 and also set up a rare earths extraction plant there, with a capacity of around 11,000 tonnes of rare earth concentrate in terms of rare earth chloride and associated products.

More domestic supply for some forms of rare earth magnets, such as the neodymium iron boron (NdFeB) magnets, may come from global commodities firm Trafalgar Group’s upcoming plant in Gujarat. Trafalgar plans to supply 20 percent of the demand for NdFeB magnets in India in 2027, with these magnets being largely used in electric vehicles.

Last year, the Union government's Department of Science and Technology (DST) partnered with Midwest Advanced Materials, based in Hyderabad, to ramp up production of neodymium materials as well as rare earth permanent magnets.

The Union government sanctioned funding for the project and also helped by way of technology transfers from the Nonferrous Materials Technology Development Centre (NFTDC). The plant will have an initial manufacturing facility of around 500 tonnes per annum and can be scaled up to 5,000 tonnes per annum by 2030, the government said in a press release.

Securing supply overseas

Besides securing domestic supply and manufacturing capacities, the government has also been looking beyond India's borders to secure supply for rare earth and critical minerals. Khanij Bidesh India Ltd has looked to South America and Australia, among other places, for the supply of "conventional" critical minerals such as lithium, cobalt, and beryllium.

As for rare earth minerals, India has inked a partnership through the India-Central Asia Rare Earths Forum with various Central Asian countries—especially former Soviet Union countries—carrying rich capacities of various rare earth minerals.

Chief among them is oil- and mineral-rich Kazakhstan, with whom India has expanded diplomatic relations in recent years. Kazakhstan also has adequate supply of 15 of the 17 rare earth minerals, which can help India secure ample supply over the years, experts added.

One industry observer added that while India can ramp up research and development in permanent magnets in the country, an opportunity also presents itself in the form of partnerships with Japanese firms in the sector, which is the largest importer of permanent magnets from China.