The Update on The Magnet Industry 2025/08

Highlight of the Month   ◎ Jerry Yang, COO

Theme: Rare Earths and Permanent Magnets — Innovation Amid Supply Chain Risks

Over the past two months, developments around rare earths and permanent magnets once again highlight a global landscape defined by both technological innovation and persistent supply chain risks. On one hand, companies are introducing solutions to reduce reliance on Chinese heavy rare earths; on the other, export volatility, policy interventions, and sharp price hikes continue to expose the structural fragilities of this industry.

A key development comes from Japan’s Proterial (formerly Hitachi Metals), which announced the successful creation of two neodymium magnets free of heavy rare earth elements such as dysprosium and terbium. One model has already been delivered as mass-production samples, while a second, designed for higher heat resistance, is expected to be released in April 2026. Unlike some alternative approaches requiring modifications to motor design, Proterial’s magnets can be seamlessly integrated into existing production processes, signaling an important step toward practical “HRE-free” solutions. This represents not only a materials engineering breakthrough but also greater design flexibility for future EV motors. However, closer inspection of the specifications shows that the Hcj of these HRE-free magnets remain lower than those of conventional HRE–containing products, raising concerns over thermal stability. Chinese manufacturers, likewise, are advancing their own “HRE-free” technologies under the framework of Beijing’s dual-use regulatory regime, with progress not falling behind Proterial’s efforts. As such, even with this innovation, Proterial will face direct competition from Chinese products that may not be subject to the same export controls.

Meanwhile, supply dynamics continue to shape market sentiment. In June, China’s rare earth magnet exports surged to 3,188 tonnes, up 158% from May, with shipments to the United States soaring from 46 tonnes to 353 tonnes. Yet, despite this rebound, volumes still lag behind the 2024 monthly average. This suggests that temporary “trade truces” do not equate to long-term stability, leaving downstream manufacturers to navigate ongoing uncertainty in procurement and design.

On the policy front, the U.S. government is considering expanding price support mechanisms for domestic rare earth projects, spanning mining, processing, recycling, and magnet production, in an effort to strengthen self-sufficiency. At the same time, discussions have surfaced around potentially including rare earth magnets under Section 232 tariffs as derivative products. While such tariffs may, in theory, protect U.S. mining and magnet supply chains over the long run, they remain premature given the current lack of robust domestic availability. In practice, tariffs under conditions of inelastic supply are likely to push costs higher across the board, with suppliers passing the burden directly onto downstream users. This risks slowing motor design progress and could result in the paradox of “protection that backfires.”

India's experience underscores the direct consequences of supply disruption. Bajaj Auto, a leading two- and three-wheeler manufacturer, saw its EV output halved in Q2 when magnet supply chains broke down. Production of two-wheel EVs dropped to just 50–60% of planned levels, while three-wheelers managed only 70–80%. To mitigate the shortfall, the company resorted to HRE-free magnets as a substitute, while delaying the launch of new models. Yet, as with Proterial’s case, HRE-free or light rare earth magnets do not yet match the performance of established HRE-containing products. Particularly in the transport sector, adjustments to validation standards and motor design are required, making current usage more of a stopgap. The risks of reduced efficiency—or even motor failure—remain, underscoring how policy-driven disruptions ripple rapidly down to production lines and product timelines.

Looking further ahead, demand growth will intensify the imbalance. According to McKinsey, global demand for magnetic rare earths (Nd, Pr, Dy, Tb) is projected to rise from 59,000 tonnes in 2022 to 176,000 tonnes in 2035, a threefold increase. If supply expansion cannot keep pace, the market could face a shortfall of around 60,000 tonnes, or 30% of total demand. This gap will be driven not only by EVs, but also by applications such as wind power generation and cooling systems for data centers

At the same time, soaring prices reflect both market anxiety and geopolitical maneuvering. In recent months, praseodymium-neodymium (PrNd) metal prices climbed more than 30% within a single month and over 50% within six months, reaching nearly 760,000 RMB per tonne. Market speculation suggests that prices could exceed 1 million RMB per tonne by year-end, placing even greater cost pressures on downstream industries that must contend simultaneously with supply shortages and price volatility.

Geopolitics will remain the key variable. Should China and India reach an arrangement on rare earth and magnet trade, India could secure relatively stable supplies to bolster its EV industry. However, such bilateral agreements would inevitably carry displacement effects on other markets, reshaping global supply chain dynamics.

In sum, the signals from July and August point to a clear message: the future of rare earths and magnets is no longer just about material science, but also about the intersections of policy, economics, and geopolitics. Technological breakthroughs offer pathways forward, but structural demand growth and ongoing policy uncertainty ensure that this industry will remain in a state of volatility and transformation for the decade ahead.

In the midst of rapid global shifts and ongoing supply chain risks, the New Favor Industry team will continue to closely monitor developments in the rare earth and magnet sector. With expertise and pragmatic judgment, we are committed to helping our clients make the best decisions at critical market turning points.

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