Southeast Asia’s Potential Role in Rare Earth Elements Diversification

The importance of rare earth elements (REE) in high-tech products has made this industry a geopolitical focal point. Many developed countries in the West are concerned about China’s dominance in the industry. Today, China accounts for about 70% of global rare earth ore extraction and 90% of rare earth ore processing. Many countries have sought a strategic response to reduce their dependence on China as a source of REE.

Can Southeast Asian countries contribute to REE supply chain diversification? As China depletes its reserves and new REE mining frontiers open up in Africa and South America, China is widening explorations and has identified potential new sites in Southeast Asia for new ventures. Currently, Malaysia, Thailand and Vietnam have a sizable presence in the global REE supply chain. The viability of these countries as alternative sources of REE hinges on their mining capacity, the scale and composition of their REE reserves as well as their operations — whether upstream, mid-stream or downstream — along the entire REE supply chain. The REE supply chain stretches from the upstream mining of REE ores to the downstream production of inputs for the manufacturing sector (Figure 1).  REEs comprise 15 elements (otherwise known as lanthanides) as well as scandium and yttrium that exhibit similar chemical properties. Refined REEs can be incorporated into a variety of high-technology products. China has established technical superiority in various processes, for example, the use of the solvent extraction process at the separation stage.

Figure 1: REE Supply Chain

On the production front, Vietnam mines about 600 tons of REE per year, but has 22 million tons of REE reserves — half the size of China’s reserves (Table 1). Malaysia mined 80 tons of REEs in 2024; its government has not disclosed official estimates of REE reserves but claims to have 16 million tons of non-radioactive REEs.  These numbers suggest that while Southeast Asian countries such as Vietnam and Malaysia may have substantial reserves, their current REE production levels are significantly lower than China’s. 

Table 1: Levels of REE Production and Reserves (2023)

The prospects for Southeast Asia as a source for REE diversification will also depend on the types of REEs mined and processed. Based on their atomic weight, REEs can be classified into two major groups – heavy and light REEs. Heavy REEs, which are used in magnets, are scarcer and therefore more highly priced. Secure supply chains are especially important for heavy REEs given their extensive use in high-technology products. Based on the available analysis of minerals, the mines in Malaysia (Lehat) and China (Longnan) have higher percentages of heavy REEs. Vietnam’s REE reserves include light REEs though their exact proportion is not public knowledge.  The country’s prospects for establishing secure supply chains of strategic heavy REEs and capitalising on global interest in diversification remain uncertain.

The processing of REE, which involves separation and purification of rare earth ores, is the key link in the supply chain where China dominates. The Lynas plant in Pahang, Malaysia currently processes 12-15% of the world’s REEs — mostly light REEs mined in Mount Weld in Western Australia then shipped to the Kuantan Port.  The remaining 85-87% of REE processing takes place in China. To date, China is the only country that has the capacity to produce all 17 types of REEs. Innovation and production ecosystems, together with REE research institutes, buttress the country’s prowess in processing technology. Tellingly, China has accumulated more REE patents than the rest of the world combined.  

Malaysia and Vietnam have sought to bolster their technical know-how. Malaysia has directly appealed to China for processing technology; Vietnam has attracted investment by a large-scale western-backed REE project. However, it remains to be seen if the ASEAN countries are able to bridge this gap, given China’s ban on the export of REE technology.

The strategy to diversify the source of REEs will also depend on developments in the downstream components of the REE value chain. The electrical and electronics industry and the electric vehicle industry are major users of REEs. These industries are major growth drivers in Southeast Asian countries such as Malaysia, Thailand, and Vietnam.  These countries may want to carve out niches in the processing of REEs that are critical to these industries.

The chief challenge for Southeast Asian countries is clear. While their REE reserves will allow them to be potential sources of REE supply diversification, their role in the supply chain might be limited to the upstream, extractive activities.

The chief challenge for Southeast Asian countries is clear. While their REE reserves will allow them to be potential sources of REE supply diversification, their role in the supply chain might be limited to the upstream, extractive activities. Another complication stems from the potential detrimental environmental effects of REE acquisition and processing, although the industry has tried to tap into a bigger pool of the raw materials by recycling REEs, and even recovering REE from geological deposits such as shale and marine sediments.    

But venturing downstream is not without peril. Refining REEs as a strategic manufacturing input, while essential for all three countries to develop processing capabilities beyond REE extraction, might be phased out by scientific advancements. As a case in point, Toyota has already developed a neodymium-iron-boron magnet for electric vehicle motors that eliminates the need for two REEs, terbium and dysprosium. The discussion of REE diversification in Vietnam, Malaysia, and Thailand appears to be concentrated on upstream activities. Moving forward, however, demands shrewd policy planning for investments that broaden their presence across the entire supply chain and respond to technological change.

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