Why China has the edge in the rare earths market

In an April 20 industry update, Research Capital analyst Greg McLeish said rare earths are moving into a structural re-rating as visible long-term demand collides with increasingly controlled supply, particularly in heavy rare earths such as dysprosium and terbium. He argued the market is being driven less by uncertainty over demand than by downstream processing bottlenecks, export controls and the growing role of government policy in shaping supply chains.

McLeish said neodymium and praseodymium remain the core demand drivers because they are critical to permanent magnets used in electric vehicles, wind turbines, automation and other advanced technologies. But the analyst said the real supply constraint sits in heavy rare earths, where processing capacity remains overwhelmingly concentrated in China. That gives China leverage not just through mining, but through separation, refining and magnet production, which he said are now the true chokepoints in the market.

He said recent export controls on medium and heavy rare earths reinforce that shift, making rare earths less of a traditional commodity story and more of a strategic asset class embedded in national policy. In McLeish’s view, those restrictions may not cause the same short-term price spikes seen in past cycles, but they do introduce a more durable geopolitical premium and a higher structural floor for pricing.

McLeish also said Western governments are responding with capital, subsidies and industrial policy, but that rebuilding mine-to-magnet supply chains will take years and require very large investment. He pointed to the United States and Canada as examples of jurisdictions trying to develop alternative supply, while warning that execution remains fragmented and downstream capacity is still limited.

For investors, McLeish said the key implication is that rare earth pricing is increasingly being shaped by jurisdiction, processing access and policy alignment, not just marginal cost. He argued that downstream processing assets, secure allied supply chains and exposure to heavy rare earths could command premium valuations as the market shifts toward what he described as a two-tier system of low-cost Chinese supply and higher-cost, policy-supported Western supply.

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