India's rare earths riddle: No quick fix as China holds the magnetic key

Mint

6 hours ago

There seems to be no quick fix in sight for India's rare earths predicament as it scrambles for magnets, slaps export curbs and weighs production incentives, while a delegation from the country waits to meet Chinese officials.
Issues related to raw material availability, global magnet supply, import duty structure and access to technology are key constraints that could delay any local manufacture of rare earth magnets in the short to medium term, said S.B. Mohanty, acting chairman and managing director of IREL Ltd, the state-owned rare earths company.
On 4 April, China restricted exports of seven rare earth elements and magnets critical in defence and automobile sectors. Since Indian automakers have relied exclusively on China for magnets, the crunch threatened production at companies like Tata Motors Ltd and Maruti Suzuki India Ltd, triggering a search for alternatives.
"We don't make the more powerful batteries that automakers want, because we don't have access to a few rare earth elements that are crucial raw materials in the manufacturing process," Mohanty said in an interview.
IREL mines and refines critical raw material that goes into rare earth magnets; and at full capacity, it could cater to a third of India's requirement. However, its plants operate at half capacity, and the company doesn't make the magnets themselves. On 17 June, Mint reported that the company does not have a full-time CMD since December.
Currently, China controls 90% of the world's battery production and Japan about 7%, while the rest come from countries like Vietnam and Thailand which account for 1% each. Japanese firms make advanced batteries with specialized applications, some of which even China imports. That essentially means for any immediate requirement, India has no option but to lean on China.
"If China relaxes its restrictions, then we will return to normal; but if it doesn't, there are no quick solutions," Mohanty said.
On 13 June, Reuters reported that India has asked IREL to suspend a 13-year-old agreement on rare earth exports to Japan to save supplies for domestic needs. At a recent meeting with industry executives, commerce minister Piyush Goyal asked IREL to stop exports of rare earths, mainly neodymium, used in magnets for EV motors, the report added.
Union industry minister H.D. Kumaraswamy last week said the government will decide on a scheme to support domestic production of rare earth magnets in 15-20 days. Separately, India is looking to source rare earth magnets from countries such as Vietnam and Japan, Mint reported on 24 June, citing a government official. The government is currently talking to industry stakeholders on the quantum of government support to process rare earths in India.
According to IREL's Mohanty, even though a factory to make auto-grade rare earth magnets can be built in a year for ₹800 crore with some help from the government, the problem will be in sourcing the raw materials. Among the seven elements in the Chinese ban list are yttrium, gadolinium and lutetium, which enhance the performance of a normal rare earth battery at high temperatures.
India has few deposits of these elements and China imports them from Myanmar, Vietnam and Sri Lanka. "It is not as if we don't have these metals, but our mine yields are so low that they are unremunerative and that will require us to look for new sources of imports like Australia or even Myanmar," says Mohanty. "We will also have to find out who will sell us equipment for factories as they can't be ordered off the shelf."
It's not that there was no attempt to make rare earth magnets domestically. As the industry's nodal agency, IREL had invited expressions of interest from private players to set up manufacturing units in 2020.
"A few private players showed interest, but all of them backed out as the import duty structure for raw materials was more than intermediate and finished products, and that made the project unviable. At that time, the lower duty on intermediates was essentially to favour user industries like automobiles," says Mohanty.
For the future, Mohanty has a few recommendations. He says that for the short term, India should stockpile batteries, increase capacity utilization (which IREL is doing now), source and license global technology, and recycle more to create a circular economy. He says that while India recycles only 5% of its old magnets, Chinese rates stand at over 80%.
"We must understand that the key levers in this business are with China. Our batteries are subsidized to the extent 35% already to match Chinese prices, and if we do manage to increase production, China can drop prices more and make our new factories unremunerative," says Mohanty. "But, if we want to secure our industries in the long run, there is no option but to create local alternatives whatever the cost."