Imbalance Between Resources and Manufacturing: Is India Addressing the Rare Earth Dilemma? [SMM Commentary]

Recently, Piyush Goyal, India's Minister of Commerce and Industry, announced at a press conference in New Delhi that India would launch the "Production Linked Incentive Scheme for Rare Earth Magnets," with plans to invest INR 750 billion (approximately RMB 63 billion) over the next five years. The goal is to achieve a 70% localisation rate for rare earth permanent magnets by 2030. Although it will take several years for India to build a rare earth magnet supply chain, this effort will help reduce India's reliance on importing rare earth magnets from China. Discussions are currently underway with multiple companies to establish long-term reserves of rare earth magnets.

Late last week, Reuters cited sources saying that during a recent meeting with automotive and other industry executives, Indian Commerce Minister Piyush Goyal requested that state-owned miner IREL suspend its rare earth export agreement with Japan, particularly for neodymium, a key material for EV engine magnets, to prioritize domestic demand. This move aims to reduce reliance on China. IREL also hopes to develop India's capabilities in rare earth processing. According to a 2012 agreement, IREL supplies rare earths to Toyota Tsusho India, a subsidiary of Toyota Tsusho (8015.T), which processes them and exports them to Japan for magnet manufacturing. According to customs data, Toyota Tsusho India has shipped over 1,000 mt of rare earth materials to Japan, accounting for one-third of the 2,900 mt of rare earths mined by IREL.

Considering India's previous measures, it is not difficult to see that, against the backdrop of China's rare earth export controls, India is also compelled to develop its own rare earth resources to meet domestic demand. However, industry insiders suggest that it will be challenging for India to achieve a breakthrough in its rare earth magnet industry in the short term.

India has the world's third-largest rare earth reserves, estimated at around 6.9 million mt, primarily distributed in states such as Andhra Pradesh, Tamil Nadu, and Odisha. However, India currently contributes less than 1% to global rare earth production. Firstly, India significantly lags behind China, the US, and Japan in rare earth mining and refining technologies.There is a lack of advanced separation and refining technologies, making it difficult for its processed products to meet the demands of high-end manufacturing in the country. Meanwhile, poor infrastructure also limits the progress of India's rare earth projects, with the most critical issue being power shortages. According to incomplete statistics, Tamil Nadu faces a power shortage of 6,000 MW, severely restricting the mining of local rare earth ores. Another issue is the lack of roads, with Andhra Pradesh being one of the regions with a relatively developed road network in India. Despite having a dense road network, the quality of roads in some areas is poor, with many unpaved roads, and less than 15% of roads suitable for rare earth ore trucks. Finally, what restricts the development of India's rare earth industry is changes in local policies and severe bureaucratic corruption. At the national level, there is a desire to accelerate the development of rare earth mines. However, many industry insiders have stated that the implementation of this policy at the state level presents an entirely different reality. Moreover, severe bureaucratic corruption has also led investors and rare earth enterprises to adopt a wait-and-see attitude. After all, "no one wants to engage in uncertain endeavors."

SMM analysts, synthesizing the views of industry insiders, remain cautious about the breakthrough of India's rare earth magnetic materials sector by 2025. Of course, they will also continue to monitor the Indian market in the future.