Rare earth magnet makers enjoy a moment in the sun

Rare earth magnet manufacturers are in trouble as Western countries scramble to build domestic “mine-to-magnet” supply chains and reduce dependence on China.

Rare earths have moved to the top of the agenda as geopolitical tensions between the U.S. and China continue, and a tumultuous year marked by supply constraints and the threat of tariffs has put the strategic importance of magnet manufacturers firmly in the spotlight.

Magnets made from rare earths are critical components in everything from electric cars, wind turbines, and smartphones to medical devices, artificial intelligence applications, and precision weapons.

It is in this context that the United States, the European Union, Australia and others are seeking to break China’s mineral dominance by taking a series of strategic steps to support magnet manufacturers, including investing heavily in factories, supporting the construction of new plants, and increasing processing capacity.

The United States and Europe, in particular, are expected to emerge as major growth markets for rare earth magnet production over the next decade. But analysts remain skeptical that the West will be able to break out of China’s mineral orbit anytime soon.

“Frankly, we were the solution to a problem that the world wasn’t aware of,” Rahim Suleman, CEO of Canadian group Neo Performance Materials, told CNBC in a video call.

“We need to grow this way because the end market is growing from a physics perspective rather than a software perspective,” he continued. “It also doesn’t rely on any single-ended market, so it doesn’t rely on cars, battery electric vehicles, drones or wind farms. It’s an energy-efficient motor for all sectors,” Suleman said, referring to demand for magnets from fast-growing industries such as robotics.

His comments come about three months after Neo began the grand opening of its rare earth magnet factory in Narva, Estonia.

The facility is located in close proximity to Russia and is widely expected to play a key role in Europe’s plans to reduce its dependence on China. For example, the European Union’s head of industry, Stéphane Séjournet, praised the strategic importance of the plant at an event in early December, saying the project represented “the pinnacle of European sovereignty.”

Neo’s Suleman said the Estonian facility will produce 2,000 tonnes of rare earth magnets this year, with plans to expand to more than 5,000 tonnes later.

“The global market is 250,000 tonnes and will reach 600,000 tonnes in the coming years, which means it will more than double in 10 years,” Suleman said. “And more importantly, our concentration is 93% in one jurisdiction. So when you combine those two factors, I think you’re going to find a market that’s growing very quickly.”

Indeed, global rare earth supplies have long been dominated by Beijing. According to the International Energy Agency, China is responsible for almost 60% of the world’s rare earth mining and more than 90% of magnet production.

A recent report from consultancy IDTechEx estimates that U.S. rare earth magnet production capacity is on track to increase nearly sixfold by 2036, with expansion driven by strategic support and funding from the Department of Defense and increased midstream activity.

Meanwhile, magnet production in Europe is expected to grow 3.1 times over the same period, driven by the EU’s Critical Materials Act, which aims to meet 40% of the region’s demand through domestic production by 2030.

John Maslin, CEO of North Carolina-based rare earth magnet producer Vulcan Elements, told CNBC that the company is trying to scale up as quickly as possible “so that this fundamental supply chain doesn’t become a drag on the United States.”

Vulcan Elements is one of the companies that received direct funding from the Trump administration. Magnet manufacturers last month received a $620 million direct federal loan from the Department of Defense to support domestic magnet production.

“Rare earth magnets convert electricity into motion, which means virtually all advanced machines and technologies – the innovations that shape our daily lives and keep us safe – require them to work,” Maslin told CNBC via email.

“The need for high-performance magnets is accelerating exponentially as demand and production for advanced technologies, including hard disk drives, semiconductor manufacturing equipment, hybrid/electric motors, satellites, aircraft, drones, and nearly every military capability, increases rapidly,” he added.

Separately, Wade Senty, president of Florida-based magnet manufacturer Advanced Magnet Labs, said the only way to achieve an alternative supply chain is to be innovative.

“Demand for rare earth permanent magnets sourced outside of China is rapidly increasing,” Senty told CNBC in an email.

“The challenge is whether U.S. magnet manufacturers can build a complete domestic (non-Chinese) supply chain for these magnets. To do that, magnet manufacturers need to take the lead and bring together the supply chain from the mine to the magnet to the customer,” he added.