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Diversifying and transforming rare earths supply chains: A strategic imperative

Rare earth elements are essential to modern technologies, but global dependence on China’s concentrated supply chain creates significant risks, making it crucial for industries and governments to diversify and strengthen these supply chains for greater security and resilience.
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By John Davies , 

Commercial Director, Sentrisk, Marsh McLennan

27/11/2025 · 6 minute read

Rare earth elements are essential to modern technologies, but global dependence on China’s concentrated supply chain creates significant risks, making it crucial for industries and governments to diversify and strengthen these supply chains for greater security and resilience.

Rare earth elements have become indispensable to the modern economy, underpinning technologies from smartphones and electric vehicles to advanced defence systems and data centres. Despite their name, many rare earths are relatively abundant in the earth’s crust, but their supply chains are among the most highly concentrated and complex globally. This concentration, coupled with recent geopolitical tensions and export controls, has exposed critical vulnerabilities that threaten the stability of many industries and organisations — manifesting as regulatory risks, supply disruptions, and rising operational costs. For organiations that rely on rare earths, either directly or indirectly, the urgent need to diversify and transform their supply chains is clear.

A complex and concentrated supply chain

The rare earths supply chain involves multiple intricate processes, including extraction, leaching, thermal cracking, and refining. Each stage requires specialised expertise and infrastructure, making the supply chain capital-intensive and technically challenging. Currently, China controls approximately 70% of global rare earths mining and 85% of refining capacity. This geographic concentration creates a bottleneck, leaving the rest of the world heavily dependent on a single country for these critical materials. For instance, Europe is 98% dependent on China for rare earths, which are needed for hybrid vehicles, fibre optics, and nuclear power, and 97% dependent on China for magnesium, a key material for aerospace and automotive manufacturing.

China’s position is not merely a commercial fact, it is also used as a strategic lever. Often, China’s rare earth policy actions appear to be rooted not so much in the value of the minerals themselves, but more in efforts to advance broader bilateral or multilateral strategic objectives beyond the commodity market. Yet, control over these critical materials gives China significant influence on global supply and pricing. This concentration also means that any disruption — whether due to policy changes, weather events, trade disputes, or environmental regulations — can reverberate across markets worldwide, causing shortages and price volatility.

Export controls and their global impact

In recent years, China has used rare earths as a powerful strategic tool. Ongoing trade tensions between the US and China have brought this issue into sharp focus. In 2025, following announcements of US tariffs on Chinese goods and the inclusion of thousands of Chinese companies on an “entity list” restricting their access to US technology, China responded with export controls and strict licensing requirements on several rare earths and the magnets produced from them. It also halted the export of technology and equipment that could enable other countries to develop their own rare earth mines, refineries, and magnet manufacturing facilities.

These export controls rattled markets and disrupted supply chains. European companies faced long delays and sharp price increases due to shortages of raw materials, and some automobile factories faced the possibility of shutdown.

The sectors affected by these controls are broad and critical: energy, automotive, defence, semiconductors, aerospace, industrial motors, and AI data centres all depend heavily on rare earths. The tightening of this supply chain has threatened production schedules, driven up costs, and raised serious concerns about the resilience of vital infrastructure worldwide.

In October 2025, China announced a 12-month suspension of certain export controls on critical minerals to the US and the EU following an agreement between the US and China. Additionally, China will issue general licenses to facilitate the export of critical minerals, such as gallium, germanium, antimony, and graphite, which are essential for the production of semiconductors, electronics, and renewable energy technologies, including electric vehicle batteries. This will likely benefit US end-users and their global suppliers.

Despite this reprieve, companies dependent on Chinese-origin rare earths remain vulnerable to shifting policies.

Economic and geopolitical stakes

Given China’s position in rare earths, the US and other countries are seeking ways to reduce their reliance on imported rare earth elements.

For example, governments are incentivising investment in domestic rare earths supply chains, streamlining regulatory approvals, and fostering international partnerships aimed at enhancing competitiveness. The US government announced plans to make direct investments in the rare earths industry and has signed agreements with Japan, Thailand, Malaysia, and Australia to boost mining and processing projects outside of China.

This could present mining companies and those companies reliant on their inputs with multiple opportunities to better secure their supply chains.

However, some analysts caution that these efforts will not immediately alleviate the risks associated with China’s position, given the scale and sophistication of its existing infrastructure. For instance, launching a new mining project is a complex, time-consuming process that can take years to discover, develop, and construct. It requires substantial financial capital, technical know-how, permitting approvals, and robust infrastructure. Government support can be a crucial enabler in providing financing, implementing policy reforms, supporting the development of R&D capabilities, and other mechanisms, while also managing environmental risk and community relations.

Preparing for the future

Companies are placing increasing importance on supply security and reliability. To navigate today’s volatile landscape, organisations should proactively address their vulnerabilities by:

  • Extending visibility beyond tier one suppliers;
  • Quantifying and modelling exposure to tariffs, climate events, geopolitical changes, and political risks; and
  • Building agility into sourcing strategies through technology-enabled decision-making.

For mining companies, supply chain resilience may include diversifying mining and refining operations in other regions, such as North America, Australia, Latin America, and Africa, or recycling rare earths to recover valuable materials from waste, reducing the need for primary mining and mitigating environmental impacts.

Platforms like Marsh’s Sentrisk™, combined with specialist risk consulting, empower organisations with deep supply chain intelligence to support more innovative and faster responses. According to Marsh’s Mining Market Update 2025, the insurance industry is also placing greater emphasis on supply chain-linked risks when assessing contingent business interruption coverage. This highlights the growing importance for companies to prioritise mitigation efforts accordingly.

In an era where rare earths are the backbone of critical technologies as well as keys to national and economic security, their secure and sustainable supply is indispensable. Investing in resilience, sustainability, and data-driven supply networks is crucial during this period and beyond.

Supply chain deep-dive

Based on Sentrisk’s™ analysis of clients operating across a wide range of sectors and geographies, it is evident that rare earth elements and other critical minerals play a significant role in upstream supply chains. More than one-third of Sentrisk’s clients — spanning industries such as aerospace and technology, healthcare, and consumer goods — have dependencies on critical minerals, with over half of these dependencies being on rare earth elements. This highlights the broad and cross-sectoral importance of these elements in modern manufacturing and product development.

A key challenge identified is the lack of visibility into these dependencies within supply chains. In the majority of cases, reliance on rare earth elements and critical minerals is not apparent at the direct supplier level (Tier 1) but rather emerges further up the supply chain, at Tier 2 and Tier 3 levels. This opacity can make it challenging for companies to identify, assess, and mitigate risks associated with supply disruptions, underscoring the complexity of global supply chains.

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