China: Largest exporter of rare earths

What most people don't know is that many of these rare earths come from China. According to a report by the International Energy Agency¹, China produced 61% of the world's mined magnetic rare earths in 2023. However, China also imports rare earths from other countries to refine and export them. And these exports make up about 92% of the global trade, giving China a “so-called” monopoly in the rare earth value chain. Without these exports, many high-tech products could not be manufactured.

In April of this year, China restricted the export of rare earths, and many companies, especially those in the automotive and high-tech industries, have been alarmed and fear supply shortages, which could lead to significant production disruptions.

Repeating history and lessons learned

Rare earths have been at the centre of international attention before. Namely, in 2010, a similar situation occurred. Two events were decisive: First, China reduced export quotas for rare earths, which was seen worldwide as a signal of an impending shortage and led to a drastic price increase. Second, after an incident between Japanese and Chinese ships near a disputed island group in the East China Sea, China stopped exporting rare earths to Japan for several months.

This export stop alarmed the Japanese industry—especially since around 90% of Japan's rare earth imports came from China and were crucial for the automotive industry.

Although it is often said that history does not repeat itself, we are experiencing a similar situation today. It would be extremely unwise not to learn from this experience. It clearly shows how vulnerable supply chains can become when there is a dependency on certain raw materials or individual suppliers, and the supply chain is disrupted.

Learning from Japan

Following the saying "You don't always have to reinvent the wheel," companies can draw many valuable recommendations from Japan's response back then to the current situation on how to break free from excessive dependency on a single supplier and build a resilient supply chain.

How to break free from rare earths supplier dependency

1. Increase inventory levels
   To avoid short-term supply shortages and possible production disruptions, inventory levels can be increased, even if this increases storage costs and ties up capital. By incorporating data-based planning tools and AI-supported demand forecasts, companies could optimize their inventory.
2. Diversify your supply chain and build a good relationship network
   Companies should try to reduce their dependency on a single supplier by identifying alternative sources and checking if a quick switch is possible. Furthermore, companies should not underestimate a good business network. What does it look like along the entire supply chain, both with suppliers and service providers? Can alternative solutions be found together with the help of the supply chain network?
3. Invest in your own value chain
   China invested early in the value chain for material refinement, giving it a quasi-monopoly. To break this, companies could invest more in building their own value chain to reduce dependency on just one partner.
4. Invest in sustainability and recycling
   Many products containing rare earths, like smartphones, are often carelessly disposed of after just a few years. This is where the starting point for more sustainability lies, which not only protects the environment but also saves money.
5. Use alternative materials
   Companies should check whether it is also possible to use alternative materials. By using an integrated product development tool in the cloud, existing products can be analysed more quickly, and their special features identified. The use of AI functionalities can help to search for, find, and develop alternative materials.

With the help of AI, companies can analyse their situation even faster and more easily and check which measures are most suitable for them in the short and long term to build a resilient supply chain.

As mentioned earlier, you don't always have to reinvent the wheel, but adapt the measures to the current situation, and this is where new technologies can help build a resilient and flexible supply chain that fits the current and future situation.