China imports record rare earths due to strong magnet demand, Myanmar supply

China imported 105,750 metric tons of rare earths in the first seven months of 2023, rising 52.1% year over year to hit the highest level since records began 20 years ago, data from S&P Global Market Intelligence's Global Trade Analytics Suite showed.

The spike was driven by surging supplies from China's southern neighbor Myanmar, as well as rising demand for rare earth permanent magnets used for electric vehicles and wind turbines. Demand for rare earth elements is expected to multiply by three to seven times by 2040, depending on the choice of wind turbines and the strength of policy support, according to the International Energy Agency.

An excess of mined rare earths built up in Myanmar during the COVID-19 pandemic and has streamed into China since Beijing relaxed restrictions in December 2022, Yang Jiawen, a rare earth analyst with Shanghai Metals Market, told S&P Global Commodity Insights.

China imported 25,877 metric tons of rare earth oxides from Myanmar in the first seven months of 2023, jumping more than nine times compared to the same period of 2022.

Reliance on Myanmar

China has shut down illegal domestic mining operations, consolidated its rare earths industry, and imposed rare earth production and export quotas since the mid-2010s to preserve resources and curb pollution. Myanmar, which hosts ion-adsorption clay deposits that are similar to ones in southern China, has since become China's top supplier of heavy rare earth elements thanks to less environmental regulation.

Heavy rare earths are mainly extracted from ion-adsorption clay deposits using ammonium sulfate as a leaching agent, which is a process that risks contaminating surrounding soil and groundwater, according to Yang. China now heavily relies on Myanmar's imports, which are approaching the domestic mining quota of around 20,000 metric tons per year of heavy rare earths, Yang said.

Heavy rare earth elements including dysprosium and terbium are in demand to improve the performance of neodymium magnets at high temperatures.

China is the world's largest producer of rare earth minerals and dominates the refining industry, but its share of global output and reserves has declined due to years of excess domestic mining and other countries' efforts to reduce dependence on China's critical mineral supply chain. China produced 70% of the world's rare earths supply and owned a third of global reserves in 2022, decreasing from 100% of global production and 50% of global reserves in 2010, according to data from the United States Geological Survey.

Short-lived spike

The sharp import growth could be short-lived as imports from Myanmar return to pre-pandemic levels, according to analysts.

"Myanmar's release of stockpiled rare earths during the COVID pandemic is unsustainable," China International Capital Corp. analysts wrote in an Aug. 8 note. Supplies from new mines coming online in 2022 had an impact on rare earth imports in the first half of 2023, and miners might be reluctant to open new operations as praseodymium-neodymium oxide prices have fallen by about 60% to 450,000 yuan per metric ton compared to a peak in early 2022, the analysts noted.

In March 2022, China's Ministry of Industry and Information Technology summoned rare earth majors, calling on industry players to bring prices back to a "reasonable level," as surging prices were denting downstream profits. A price index issued by the Association of China Rare Earth Industry was at 216.78 on Aug. 28, down from a record high of 431 in March 2022.

Myanmar's customs banned rare earth exports to China for a week in July. Wa State, Myanmar's major tin producing region, suspended all mining activities in August, raising concerns that other regions would follow suit, which could impact rare earth mining, Yang said. Should that happen, China might raise its mining quota for the second half of 2023 in response, Yang said.

As of Aug. 29, US$1 was equivalent to 7.28 Chinese yuan.

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