Highlights

• EY's 2025 report confirms China controls approximately 70% of rare earth mining but dominates over 90% of separation/refining and 94% of permanent magnet production, which is the real supply chain chokepoint.
• Demand for rare earth magnets will grow 9% annually through 2035 for electric vehicles (EVs), wind power, and defense.
• New processing facilities take 5-10 years to establish, which is far slower than market optimism suggests.
• Europe and Central Asia hold resource potential but lack processing capacity—only two EU facilities exist—indicating that having ore alone cannot deliver supply chain independence from Chinese leverage.

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In a report (opens in a new tab) late last year by Ernst & Young (opens in a new tab) (EY)—led by its Regional Energy Center team and partners across Europe and Central Asia—the team comes to a stark conclusion Rare Earth Exchanges™ chronicles on a daily basis: the world’s rare earth vulnerability is not about mining scarcity, but processing dominance. Titled Rare earths: hidden leverage beneath the surface, the paper synthesizes government data, trade flows, and policy timelines to show how China’s control of separation, refining, and magnet manufacturing has become a powerful lever over global industry. Demand for rare earth magnets is projected to grow roughly 9% annually over the next decade, driven by EVs, wind power, defense, and data centers—precisely where supply is most concentrated.

How EY Built the Case (and What It Looked At)

EY draws on USGS, IEA, customs data, and policy analysis to map the entire rare earth value chain—from geology to magnets. The study distinguishes light vs. heavy rare earths, explains why REEs are geologically common but economically difficult to extract, and tracks production growth (global mine output reached ~390,000 tonnes in 2024, tripling since 2017). Crucially, the analysis goes beyond mines to the chokepoints that matter: separation, refining, and sintered permanent magnets.

The Core Finding: The Monopoly Is Downstream

China accounts for ~70% of global REE mining, but its grip tightens dramatically downstream—over 90% of separation/refining and ~94% of sintered permanent magnet production. These magnets sit inside EV drivetrains, wind turbines, industrial motors, AI data centers, and defense systems. EY documents how Beijing has formalized this leverage via export controls since 2020, expanding in 2025 to include multiple medium and heavy REEs and, critically, processing technologies—even extending extraterritorial rules to products containing trace Chinese-origin material.

Markets React—Then Remember the Cycle

Supply anxiety has moved markets before. EY notes a 175% rally in a representative basket of REE equities through October 2025—outpacing Big Oil and Big Tech—echoing a similar surge in 2021 that later reversed. The paper’s reminder is timely: price spikes do not equal supply chains. New mines can take 8–10 years; new refineries ~5 years.

Europe, Central Asia, and the Long Detour

EY surveys alternatives—Sweden (Per Geijer), Norway (Fen), Finland (Sokli), Central Asia, and beyond—finding meaningful resource potential but limited processing capacity. Europe currently hosts only two operational REE processing facilities, underscoring why ore alone does not deliver independence. Recycling and “urban mining” may help (EU targets 25% recycling by 2030), but cannot replace primary supply in the near term.

Where the Paper Is Solid—and Where It Softens the Edge

What holds: the data on downstream concentration, export controls, and timelines is consistent with independent sources and lived industry reality.

Where optimism creeps in: the scale and speed at which new projects can displace Chinese processing may be overstated, a trend we often observe in Western media and among analysts. Capital intensity, permitting, environmental liabilities (radioactive byproducts), and workforce constraints are acknowledged—but their drag is likely greater than the paper implies.

And EY does not claim imminent decoupling; it also warns of structural dependence.

Implications for Investors and Policymakers

The lesson is blunt, delivered by a global consultancy: diversification without processing is theater. Real resilience demands separation chemistry, magnet manufacturing, and policy coordination—not just mines. Until then, China’s “hidden leverage” remains visible, actionable, and costly.

Citation: Ernst & Young (EY), Rare earths: hidden leverage beneath the surface (opens in a new tab), November 2025.

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