Ex-China Rare Earth Demand to Stay Weak Amid Economic Headwinds and EV Industry Struggles

China Rare Earth

Global demand for rare earth elements (REEs) outside of China is expected to remain subdued in the coming months, as macroeconomic challenges and sluggish industrial activity continue to weigh on end-user sectors. The rare earth market, which plays a crucial role in electric vehicles (EVs), renewable energy, and high-tech manufacturing, has seen only modest demand growth in 2024, with contract negotiations for 2025 suggesting little change ahead.

Muted Demand Growth for Rare Earths in 2025

Market sources across the Atlantic region and Japan report that rare earth consumption has remained steady but unimpressive, with purchasing volumes under discussion for 2025 aligning closely with 2024 levels. Industries that rely on rare earths—including catalysts, phosphors, ceramics, and glassmaking—are waiting for an industrial revival to drive greater demand.

While the automotive magnetics sector has shown signs of recovery, the broader ex-China automotive industry continues to struggle. The weak performance of EV manufacturers outside of China has been a key factor limiting rare earth demand, particularly for neodymium (Nd), praseodymium (Pr), and dysprosium (Dy), which are essential in permanent magnets used in EV motors.

"We don’t see much change in demand next year," said a market participant. "We are expecting similar volumes under supply contracts for most industries and are actively seeking new applications for rare earth materials to offset the weak market conditions."

Inventory Caution Amid Geopolitical and Shipping Disruptions

Another major concern heading into 2025 is inventory management, as companies work to maintain stable supply chains while avoiding overstocking. With high interest rates and tight margins, international trading firms remain cautious about restocking and taking on new commitments.

"We are still being careful about restocking," said a trader. "It looks like rare earth prices might stay low next year, so the margins are narrow."

Further complicating supply chains, shipping disruptions in the Red Sea have extended lead times for Chinese rare earth shipments to up to 12 weeks this year. While container freight rates have softened since their summer peak, they started rising again in late 2024 as businesses rushed to complete shipments ahead of a potential strike by the International Longshoremen’s Association (ILA) in North America.

US Tariffs on Chinese Magnets Could Reshape Market

Looking further ahead, the US' planned 25% tariff on Chinese permanent magnets, set to take effect in 2026, is another factor that could reshape the rare earth market. The move has been welcomed by some companies as a way to level the playing field and support new US-based permanent magnet production, but its actual impact remains uncertain.

The US magnetics industry has taken small steps toward securing domestic supply chains, occasionally sourcing ferro-gadolinium and ferro-dysprosium from the spot market. However, with domestic magnet production still in its early stages, US demand for Chinese rare earth oxides, metals, and alloys remains high. Even when the tariff is implemented, industry experts warn that it may not be enough to significantly reduce reliance on Chinese magnets, as non-China-produced magnets typically command a price premium well above 25%.

Potential Trade War Escalation Under Trump Administration

Adding further uncertainty is president-elect Donald Trump’s proposed 60-200% tariffs on all Chinese imports, which could be implemented after his inauguration in January. While most analysts expect rare earth materials to be excluded due to US dependence on China, heightened geopolitical tensions and the increasing focus on critical minerals could lead to unexpected policy shifts.

As 2025 approaches, market participants remain watchful of potential developments in US-China trade relations, as any changes could significantly impact global rare earth supply and pricing dynamics.

Conclusion

Despite some recovery in automotive magnetics, overall rare earth demand outside China is expected to remain weak in 2025 due to macroeconomic headwinds, EV industry struggles, and cautious inventory management. The US' planned tariffs on Chinese magnets could reshape long-term supply chains but are unlikely to reduce reliance on Chinese rare earths in the near term. Meanwhile, trade policy uncertainties under the Trump administration add another layer of unpredictability for rare earth markets going forward.