Demand surging for rare earth magnets

Meeting the moment requires improved collaboration & robust manufacturing support

Meeting the growing global demand for neodymium magnets is an urgent priority. Beyond the well-recognized challenge of raw material procurement, insufficient support for scaling downstream processes like manufacturing remains a critical constraint. This Viewpoint examines the current demand-supply gap and highlights the resulting business opportunities for industry players.

DEMAND FOR NEODYMIUM MAGNETS

There are 17 types of rare earth elements (REEs). Four of them — neodymium, praseodymium, dysprosium, and terbium — account for approximately 90% of the market. These elements produce rare earth magnets (also known as neodymium magnets), which are essential for electric vehicle (EV) motors, offshore wind turbines, data centers (including compressors and fans in chillers, cooling towers, and liquid cooling systems), and smartphones, supporting a wide range of high-growth industries.

Global demand for neodymium magnets is projected to grow at a CAGR of +7.5% from 2025–2040. In the US, demand is expected to grow more rapidly, with a CAGR of +8.9% over the same period (see Figure 1). Demand is being driven by structural transformations like AI adoption and decarbonization, and the cross-industry applicability of neodymium magnets points to a sustained growth trajectory.

SUPPLIES INCREASING BUT STILL INSUFFICIENT

Despite recent efforts to expand supply capacity, experts expect a global shortage of neodymium magnets to emerge around 2030. In the US, which accounts for approximately 20% of global demand, initiatives are underway to establish a domestic supply chain and reduce import dependency. However, the risk of continued shortages remains high (see Figure 2).

THE SUPPLY CHAIN & MAGNET MANUFACTURING LANDSCAPE

Narrowing the supply-demand gap requires solving the well-known issue of securing rare earth resources and overcoming significant supply chain and manufacturing challenges. The process involves mining/beneficiation, separation/refining, electrolysis/reduction, alloying, and manufacturing (see Figure 3).

Mining

• Rare earth–containing ores are extracted and processed to separate minerals containing REEs. At this stage, the rare earths are in rock form.
• Although rare earth deposits are geographically widespread, approximately 70% of mining activity is concentrated in China. Other players include MP Materials and USA Rare Earth in the US and Lynas, Australian Strategic Materials (ASM), and Iluka Resources in Australia.

Separation & refining

• Roasting and leaching processes are used to convert rare earths into water-soluble forms, followed by solvent extraction and calcination to produce rare earth oxides. During refining, radioactive elements such as thorium and uranium are co-extracted at high concentrations, requiring careful handling.
• More than 90% of separation and refining is currently conducted in China, with Malaysia playing a smaller role. MP Materials and Iluka Resources are seeking to establish domestic refining capabilities in the US and Australia, respectively.
• Many magnet manufacturers have secured rare earth oxide supplies through multinational partnerships.

Electrolysis & reduction

• Rare earth oxides are processed to remove oxygen and produce rare earth metals.
• These processes are typically carried out in regions with low energy costs, including China and Vietnam. MP Materials is planning to establish domestic capabilities for this stage.

Alloying

• Raw materials (e.g., neodymium, iron, and boron) are blended and melted in furnaces.

Magnet manufacturing

• This complex process involves hydrogen decrepitation, fine grinding, magnetic-field forming, sintering, machining, grain boundary diffusion, aging treatment, and surface treatment.
• An alloy is crushed and formed under a magnetic field, sintered in a vacuum furnace, and machined into required shapes. In the grain boundary diffusion stage, part of the neodymium is replaced with dysprosium or terbium to enhance performance, making securing these elements essential for producing high-performance magnets.
• In addition to Chinese players, Japanese companies Shin-Etsu Chemical and Proterial have significant market share and have accumulated mass-production know-how.
• New and midsized players (MP Materials, USA Rare Earth, Vulcan Element, Noveon Magnetics, Vacuumschmelze [VAC], and JS Link) are advancing toward mass production. However, they face challenges in yield improvement and cost competitiveness, including understanding process interdependencies and conducting defect analysis.

Historically, vertically integrated supply chains within a single country or company were rare. Recently, MP Materials and USA Rare Earth have begun pursuing this strategy, aiming for integration from mining to magnet production.

COLLABORATION HAS BEGUN

Collaboration between magnet manufacturers and downstream players like motor manufacturers is expanding to address the supply-demand gap:

• MP Materials
  • Signed a supply agreement with General Motors (GM) in 2021
  • Announced a joint investment of approximately US $500 million with Apple in 2025 to establish a magnet recycling line
• Noveon Magnetics
  • Signed a supply agreement with GM in 2022
  • Signed supply agreements with Nidec and ABB in 2025

Additionally, several magnet manufacturers are receiving US government support (see Figure 4). The European Commission and national governments in Europe are providing subsidies to companies like LCM (Less Common Metals) and VAC, and India has announced support measures aimed at developing domestic magnet manufacturing capabilities.

Further support is required to encourage investment in magnet manufacturing capacity and in developing extended supply agreements.

CHALLENGES TO CLOSING THE SUPPLY-DEMAND GAP

Three main barriers hinder efforts to close the supply-demand gap (see Figure 5):

1. Procuring raw materials
   • Challenges such as geographic concentration in refining remain, but progress is being made through multinational collaboration.
   • In the US, Lynas plans to supply materials to Noveon Magnetics’s Texas plant and JS Link’s planned facility in Georgia.
2. Securing investment and market entrants
   • The pace of investment and new entrants in magnet manufacturing isn’t keeping up with demand growth.
   • Opportunities exist in magnet production and in adjacent areas such as manufacturing equipment, recycling, and engineering.
   • Government and private funding are increasing but remain insufficient.
3. Enabling magnet manufacturing capacity improvement
   • Yields must improve, and overall economic viability must be addressed. Even when successful at the lab scale, challenges often emerge during mass production.
   • Given the high interdependence across processes, overall optimization should be the focus rather than localized improvements. For example, changes in cooling conditions to enhance coercivity are likely to impact the crushing, forming, and/or sintering processes.

BUSINESS OPPORTUNITIES & KEY SUCCESS FACTORS

Based on these challenges, Arthur D. Little has identified the following opportunities:

1. Closer collaboration between raw material suppliers and magnet manufacturers
   • For new manufacturing entrants, technical support and long-term supply agreements from raw material suppliers will likely become key buying factors.
   • For suppliers, new magnet manufacturers represent potential new customers.
   • Collaboration should extend beyond material supply to include process compatibility and performance evaluation.
2. Activation of the neodymium magnet supply chain, including manufacturing
   • In addition to mining, investments in alloying and magnet production are essential.
   • Risk mitigation through government support, long-term procurement contracts, and coinvestment by end users (e.g., Apple and MP Materials) will be critical to enabling commercial-scale supply.
3. Development of an ecosystem supporting mass production
   • Optimization across the supply chain (material suppliers, magnet manufacturers, equipment providers, engineering firms, and end users) will be needed to increase production.
   • This may necessitate collaboration beyond traditional geographic and industry boundaries and could be key to gaining competitive advantage.

Conclusion

3 STEPS TO IMPROVING CAPACITY

The neodymium magnet market is expected to expand rapidly over the next 15 years. However, without coordinated action, structural supply constraints are likely to persist, limiting growth across key downstream industries. Addressing these challenges will require early investment, stronger partnerships, and a more integrated approach to scaling manufacturing capabilities. To ensure that supply meets demand, the industry should:

1. Strengthen collaboration between raw material suppliers and magnet manufacturers.
2. Optimize the entire supply chain, including manufacturing processes.
3. Build a comprehensive ecosystem that supports mass production.