Malaysia's Rare Earth Industry: Balancing Resource Potential and Technical Challenges​【SMM Analysis】

Malaysia's Minister of Natural Resources and Environmental Sustainability, Nik Nazmi, once publicly admitted: "Without China's rare earth technology, Malaysia's rare earth industry simply cannot develop." This statement reveals the practical challenges facing Malaysia's rare earth industry. In 2023 alone, Malaysia's share of global rare earth supply to countries other than China accounted for a significant proportion, yet all of this relies on foreign technology. As ASEAN explores regional cooperation in rare earths, can Malaysia truly become a new growth driver for Asia's rare earth sector?

Malaysia's Rare Earth Wealth and Limitations
Malaysia's rare earth resource potential should not be underestimated. According to official statistics, Malaysia possesses approximately 16.2 million to 18.18 million mt of rare earth resources, with an estimated economic value of up to $175 billion, equivalent to 12% of the country's GDP. This substantial resource base places Malaysia in a significant position in the global ranking of rare earth reserves.

Malaysia's rare earth resources are not only abundant in quantity but also relatively comprehensive in variety. According to foreign media reports, all 17 rare earth elements are found underground in Malaysia, a level of diversity that is relatively rare worldwide. The resources are mainly distributed in Pahang, Perak, and the northern states of Kedah, Kelantan, and Terengganu.

Despite the abundance of resources, Malaysia's rare earth extraction volume remains relatively limited. In 2023 and 2024, Malaysia extracted 310 mt and 130 mt of rare earths, respectively, a figure that stands in stark contrast to its vast reserves.

The Malaysian government has recognized the economic limitations of merely exporting raw ore. In 2023, Malaysia announced a comprehensive ban on the export of raw rare earth ore, aiming to compel investors to establish rare earth processing and manufacturing plants within the country, thereby retaining more value domestically.

Geopolitical Game: Malaysia's Opportunities Under China-US Competition
The competition over critical minerals between China and the US has created a historic opportunity for Malaysia. The US is vigorously promoting the "de-sinicization" of the rare earth supply chain, while China is defending its dominant position in the rare earth industry. Against this backdrop, Malaysia has become a target of competition for both sides. In recent years, the US has reduced or exempted some tariffs on Malaysia's rare earth products while actively courting Malaysia to join its "de-sinicization" rare earth supply chain. Such external pressure has posed complex challenges to the development of Malaysia's rare earth industry. Malaysia has adopted a balanced diplomatic strategy. Prime Minister Anwar Ibrahim has repeatedly expressed opposition to taking sides, emphasizing that "attempting to contain China's rise will only exacerbate China's dissatisfaction." This balancing strategy aims to maximize Malaysia's national interests. In terms of specific cooperation, Malaysia has pursued a multilateral engagement approach. In addition to collaborating with Australia's Lynas Corporation to establish the largest light rare earth processing plant outside China in Pahang, Malaysia has also partnered with Chinese companies to launch a pilot mine project in Perak, while seeking further cooperation with China throughout 2023-2025.

Industry Chain Construction: The Arduous Journey from Mine to Magnet

Malaysia's rare earth entire industry chain strategy faces severe challenges. In the upstream mining sector, legality coexists with illegal extraction. Currently, legal mineral development in Malaysia is limited, while illegal mining activities occur frequently in other regions, with regulatory information being opaque. The midstream processing segment is mired in radiation controversies. The Lynas plant in Malaysia, operated by the Australian company Lynas, has triggered ongoing social protests due to issues related to radioactive waste disposal, and its operating license renewal in March 2026 faces significant public pressure. This issue highlights Malaysia's shortcomings in environmental regulation. The downstream manufacturing sector is dominated by foreign capital. Multinational corporations from Japan and Switzerland monopolize rare earth magnet production, with local Malaysian enterprises accounting for less than 20% of technological participation. This indicates a clear inadequacy in Malaysia's involvement in the highest value-added segment of the industry chain.

Technological Bottlenecks: The Biggest Obstacle to Malaysia's Rare Earth Development

Technological shortcomings are the core issue constraining the full-chain development of Malaysia's rare earth industry. Malaysia lacks core technologies in rare earth mining, processing, and magnet manufacturing, and its commercialization capabilities lag behind international competitors. China, as the only country in the world that has mastered mature production technologies for all 17 rare earth elements, holds an absolute leading advantage in rare earth extraction and separation process technologies, as well as production technologies for rare earth metals and alloy materials. China possesses 469,000 rare earth-related patents and accounts for over 60% of global production. Malaysia has attempted to collaborate with other countries to overcome technological bottlenecks, but the results so far have been unsatisfactory, falling far short of conventional industrial standards. Faced with these technological challenges, Malaysia is actively seeking international cooperation. The "Rare Earth Technology Innovation Fund" established by the Malaysian government has attracted 23 multinational enterprises, including industry giants such as Germany's Siemens and Japan's TDK.

Strengths and Challenges: The Dual Landscape of Malaysia's Rare Earth Industry

Malaysia Possesses Multiple Advantages in Developing Its Rare Earth Industry

Its geographical location is superior, situated at the core of Southeast Asia, serving as both a key hub for Pacific shipping and a trade route for the Indian Ocean, while also controlling the globally vital maritime passage of the Strait of Malacca. The policy support system is relatively well-developed. Malaysia has signed 15 free trade agreements, covering 74.5% of the world's economies. In particular, the Regional Comprehensive Economic Partnership (RCEP) allows Malaysia's rare earth processing products to enjoy zero-tariff treatment in countries such as Japan, South Korea, and Australia. The business environment is relatively friendly. Malaysia leads Southeast Asian countries in indicators such as transparency in mining rights approval and cross-border trade facilitation. The registration process for rare earth processing enterprises has been fully digitized, and restrictions on foreign shareholding ratios have been completely lifted.

Malaysia's Rare Earth Industry Faces Multiple Challenges in Its Development

Geopolitical risk is the most prominent challenge. The pressure exerted by the US on Malaysia cannot be overlooked. If Malaysia chooses to deepen cooperation with China, it may face the risk of being excluded from the markets of the US and its allies. Environmental, social, and governance (ESG) compliance pressures are immense. The radiation controversy surrounding the Lynas plant in Australia is just the tip of the iceberg; achieving green mining is an issue Malaysia must address. Talent and technology gaps are significant. Although the Malaysian government has launched the "MyTalent" program, offering work visas of up to 10 years for foreign experts in the rare earth field, there remains a shortage of high-end technical talent.

Future Path: ASEAN Cooperation and China's Technology Export

ASEAN rare earth regional cooperation provided new opportunities for Malaysia. The ASEAN Mineral Development Vision Declaration, issued by the ASEAN Minerals Committee, outlined the ambition for ASEAN to become a major destination for mineral investment. ASEAN cooperation made technology sharing and the promotion of best practices possible. Through regional cooperation platforms, Malaysia could learn from the experiences of other member states while contributing its own accumulated expertise in rare earth processing. For China, Malaysia's rare earth strategy presented both opportunities and challenges. On one hand, cooperation with Malaysia helped China maintain its influence in the global rare earth market and counter the US's "small yard, high fence" strategy. In December 2023, China revised its Catalogue of Technologies Prohibited and Restricted from Export, explicitly listing "rare earth extraction, processing, and utilization technologies" under the prohibited export category. This increased the difficulty for Malaysia to access China's advanced rare earth technologies. Additionally, the export control policy issued by the Ministry of Commerce in October 2025 imposed further restrictions on technology, further complicating Malaysia's access to Chinese rare earth technologies. However, earlier, the Malaysian government again engaged in communication with China, and both sides remained confident about cooperation.