China's Rare Earth Grip: Supply shock may hit Indian industry, exports and bank books
SBI
analysis suggests that ongoing curbs on Chinese rare earth exports could influence domestic production, export competitiveness, and, to some extent, the financial exposure of banks linked to these industries.
The top sectors impacted by China's ban include – Transport equipment, basic metals, machinery, construction and electrical and electronics, as per the analysis. Both domestic production and exports will be impacted.
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"Rare earth being a critical mineral, disruption in supply of rare earth can impact the financial exposure
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of banks to these sectors as also ancillary ones. However, it should be kept in mind vulnerability is also a function of available inventory of rare earth and disruption is not immediate uniformly across sectors."
ET Bureau
According to SBI, the possible transmission mechanism to banks due to
rare earth supply shock
under aggravated
scenario may include:
• Elongation of working capital cycle due to accumulation of semi-processed inventory, idle capacity etc.
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• Volatility in demand due to output inoperability
• Likely emergence of stress in both upstream and downstream sectors
• Interlinkages from NBFC sector to banking sector
• Export / trade uncertainties for committed yet unfulfilled obligations; both funds as also non-funds based (due to sudden restrictions).
ET Bureau
An analysis of India's trade data shows that the country's total imports of rare earth elements and related compounds have averaged around $33 million annually over the past four years, with FY25 imports at $31.9 million. Imports of magnets have been significantly higher, averaging $249 million during the same period and rising to $291 million in FY25. The study highlights that direct absorption of
rare earths
is concentrated in six core sectors, notably basic metals and electrical and optical equipment.
In the case of magnets, usage is primarily concentrated in the automotive, electrical and electronics, and machinery sectors. A granular, sector-by-sector analysis—factoring in both direct rare earth inputs and the embodied rare earth content in magnets (assumed at 33% by weight)—was undertaken from two angles: final demand and export demand. The rare earth footprint, measured in kilograms, serves as an approximate indicator of how vulnerable sectoral output may be to disruptions in the supply of rare earths or related value-added materials.
What makes Rare Earths so valuable?
Rare earth is a subset of critical mineral with wide application in many emerging technologies. Critical minerals (including rare earth) form an important part of the modern production process because of their unique
physical, chemical properties in reducing energy consumption, achieve miniaturization and thermal stability.
During the last three decades, there has been an explosion in the applications of rare earth and their alloys in several technology devices.
Because of their unique physical, chemical, magnetic, luminescent properties, these elements help to make many technological advantages such as reduced energy consumption, miniaturization, durability and thermal
stability.
In recent years, demand for rare earth is particularly on rise in energy efficient gadgets (green technology) which are faster, lighter, smaller and more efficient.
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