Demand for magnetic REEs to triple by 2035: McKinsey

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In the midst of a global energy transition, the market for magnetic rare earth elements (REEs) is likely to face a threefold demand increase by 2035, which could further exacerbate global supply challenges, according to a report by McKinsey & Company.

REE magnets are currently the strongest permanent magnets available on the market to power e-motors and wind turbines. The magnets typically require four rare earth elements as inputs: neodymium (Nd), praseodymium (Pr), dysprosium (Dy) and terbium (Tb), with the first two being the primary constituents and the latter two being additives to enhance performance in more demanding applications.

McKinsey estimates that magnetic REEs now make up the largest share of the overall rare earth market by value at 80%, despite accounting for 30% of the total production volume.

Credit: McKinsey & Company

Due to their significance to clean energy technologies, global demand for magnetic REEs is expected to triple from 59,000 tons in 2022 to 176,000 tons in 2035. This growth, it adds, will be driven by strong growth in electric vehicle adoption, which is outpacing the substitution of REEs with copper coil magnet, as well as the high rate of renewable capacity expansions in wind.

Meanwhile, supply is expected to fall short by as much as 30%, especially in the absence of production forecasts for China, which has a near monopoly on the global mine production and refining, McKinsey says.

The firm also warns that even in a scenario in which Chinese volumes fill the supply gap until 2035, geopolitical considerations could put additional strain on an industry that has already been plagued by challenges around scaling in other regions.

China’s grip to persist

While demand for magnetic REEs is broadly distributed across geographies due to their critical role in high-tech applications, their primary supply is highly concentrated, with China dominating over 60% of mining and 80% of refining, McKinsey notes.

Credit: McKinsey & Company

Light REEs are expected to remain heavily dependent on China until 2035, it adds, while more than 60% of heavy REEs—vital for wind turbines, EVs, and robotics—will likely continue to be mined in Asia-Pacific and refined in China.

Despite global efforts to develop local REE value chains, including regulatory initiatives that could theoretically reduce China’s share in mining to under 50%, supply diversification is still expected to progress slowly over the next five to 10 years, the firm says. It also warns that China’s recent export restrictions on certain REEs remain an ongoing geopolitical risk.

Focus on recycling

As a result, secondary sources like recycling may become increasingly important, given the long timelines, environmental hurdles, and high costs of developing new mining and processing capacity.

Today, more than 80% of REE scrap originates from applications in consumer electronics, appliances or internal combustion engine vehicles, all of which use relatively small magnets for motors, actuators, and sensors, among other things.

However, increased use of magnetic REEs for EVs and wind turbines could cause scrap pools to continuously shift by 2050, McKinsey says. BEV drivetrains, industrial motors and wind turbines could generate scrap on a similar magnitude, providing a new pool of larger magnets containing higher shares of valuable heavy REEs.

McKinsey estimates that the REE value chain could generate about 40,000 tons of pre-consumer scrap, originating from magnet design and manufacturing steps, as well as 41,000 tons in post-consumer scrap from various end uses reaching end of life.

With the majority of downstream magnet manufacturing occurring in China, most pre-consumer scrap will be generated, processed, and recovered in the region as well. By contrast, scrap from post-consumer sources will likely be geographically diverse, though recovery challenges may remain.

According to McKinsey, post-consumer REE recycling would require dedicated separation of the magnet for further processing, which is a practice currently not adopted within existing recycling value chains focused on high-value or high-volume materials (such as gold and copper or aluminum and steel).