Goldman Sachs Warns of Critical Vulnerabilities in Global Rare Earth Supply Chains Amid China’s Market Dominance

Goldman Sachs has issued a stark warning about mounting risks to global supply chains of rare earth elements and other critical minerals, emphasizing China’s overwhelming dominance in mining and refining operations while outlining substantial challenges facing nations attempting to establish independent supply chains. The investment banking giant’s analysis comes at a time of heightened geopolitical tensions and underscores the vulnerability of industries dependent on these essential materials.

The warning from one of the world’s most influential financial institutions highlights how rare earth elements have evolved from obscure industrial inputs to strategic assets at the center of international competition, technological advancement, and national security considerations. As countries worldwide race to secure access to these critical materials, the complexity of building alternative supply chains has become increasingly apparent.

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China Tightens Export Controls on Strategic Materials

China expanded its export restrictions on rare earth elements on October 9, adding five new elements to the controlled list and implementing additional scrutiny measures for semiconductor industry users. This move came ahead of an expected summit between leaders Donald Trump and Xi Jinping, signaling Beijing’s willingness to leverage its dominant position in critical mineral supply chains as a geopolitical tool.

The timing of China’s expanded export curbs reflects the country’s strategic calculus in using its rare earth dominance as leverage in international negotiations and trade disputes. China’s Ministry of Commerce has increasingly utilized export controls as a policy instrument, particularly in response to Western restrictions on advanced semiconductor technology and other high-tech exports to Chinese companies.

These export restrictions are part of a broader pattern of China asserting control over strategic resources and supply chains. The country has steadily expanded its regulatory framework governing the export of critical materials, including implementing a comprehensive Export Control Law in 2020 that provides legal authority for restricting exports of goods, technologies, and services related to national security.

China’s Overwhelming Supply Chain Dominance

In a comprehensive research note released on Monday, Goldman Sachs detailed the extent of China’s control over the rare earth supply chain, revealing figures that underscore the country’s near-monopoly position. According to the bank’s analysis, China controls approximately 69% of global rare earth mining operations, an astonishing 92% of rare earth refining capacity, and a dominant 98% of permanent magnet manufacturing worldwide.

These statistics represent more than mere market share figures; they illustrate China’s strategic positioning at virtually every critical stage of the rare earth value chain. From extraction of raw materials to processing and manufacturing of finished products, Chinese companies and state-owned enterprises have established an ecosystem that is extraordinarily difficult for competitors to replicate or challenge.

Rare earth elements (REEs) have emerged as a critical flashpoint in contemporary geopolitics, as these seventeen metallic elements are essential to high-tech industries and indispensable in applications ranging from electric vehicle batteries and wind turbines to computer chips, artificial intelligence systems, and advanced defense equipment. The U.S. Geological Survey has classified rare earths as critical minerals due to their economic importance and supply chain vulnerabilities.

While the rare earth market was valued at approximately $6 billion last year—a fraction of the copper market’s value, which is roughly 33 times larger—Goldman Sachs warned that the economic implications of supply disruptions far exceed the market’s nominal size. The bank’s analysis suggests that a disruption of just 10% in industries reliant on rare earth elements could result in a staggering $150 billion in lost economic output globally, in addition to significant inflationary pressures triggered by acute shortages of these critical materials.

Specific Minerals Face Heightened Vulnerability

Goldman Sachs identified several specific rare earth elements as particularly vulnerable to potential export restrictions, including samarium, graphite, lutetium, and terbium. Each of these materials plays crucial roles in advanced manufacturing and technology applications, making their supply security a matter of both economic and national security concern.

Samarium, used extensively in the production of heat-resistant samarium-cobalt magnets, is especially critical for aerospace and defense applications where performance under extreme conditions is essential. These magnets maintain their magnetic properties at temperatures up to 350 degrees Celsius, making them indispensable in jet engines, missile guidance systems, and satellite technology. The aerospace industry relies heavily on samarium-cobalt magnets for applications where neodymium magnets would fail due to excessive heat.

Disruptions in the supply of widely-used elements such as lutetium and terbium also pose significant risks of substantial GDP losses across multiple sectors. Lutetium is used in petroleum refining catalysts and in various medical imaging technologies, while terbium is essential for green phosphors in fluorescent lamps, magnetic materials, and solid-state devices.

The investment bank highlighted light rare earth elements, including cerium and lanthanum, as potential future targets for export restrictions. Despite being more abundant than heavy rare earths, China maintains a dominant role in both refining and mining these materials, giving Beijing considerable leverage over global supply. Cerium is used in catalytic converters for automobiles, glass polishing compounds, and as an alloying agent in various metallurgical applications, while lanthanum is crucial for nickel-metal hydride batteries and camera lenses.

Goldman Sachs noted that while Western producers such as Lynas Rare Earths, an Australian company operating one of the few significant rare earth processing facilities outside China, and Solvay, a Belgian chemical company with rare earth processing capabilities, could potentially ease shortages, the global economy’s reliance on China for these critical materials remains substantial and difficult to quickly reduce.

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Formidable Barriers to Independent Supply Chain Development

Countries around the world are scrambling to build independent rare earth element and permanent magnet supply chains to reduce their strategic vulnerability to Chinese export restrictions. However, Goldman Sachs identified multiple substantial barriers ranging from geological scarcity and technological complexity to environmental challenges and capital requirements that make rapid development of alternative supply chains extraordinarily difficult.

The bank’s analysis emphasized that heavy rare earth elements are particularly scarce outside of China and Myanmar, with most known deposits worldwide being either small in scale, lower-grade in concentration, or containing radioactive materials that complicate extraction and processing. This geological reality means that even with significant investment, many countries face fundamental natural resource constraints in developing domestic rare earth mining capabilities.

The timeline for developing new rare earth mines presents another major obstacle to supply chain diversification. According to Goldman Sachs, bringing a new rare earth mine from discovery to production typically requires eight to ten years, encompassing exploration, feasibility studies, permitting, construction, and commissioning phases. This extended development timeline means that even aggressive investments made today will not yield substantial production increases until the early 2030s at the earliest.

Refining rare earth elements requires highly specialized expertise and sophisticated infrastructure that has been developed and perfected in China over several decades. Goldman Sachs noted that establishing new rare earth refining facilities typically takes approximately five years and requires substantial technical knowledge regarding separation chemistry, waste treatment, and quality control. The rare earth refining process involves complex chemical separation techniques to isolate individual elements from mixed ore concentrates, requiring precise control of chemical conditions and generating significant volumes of waste products.

The environmental challenges associated with rare earth mining and processing represent another significant barrier to supply chain development. Rare earth extraction and refining generate substantial quantities of toxic and radioactive waste materials that must be carefully managed to prevent environmental contamination. Many Western countries have stringent environmental regulations that increase the cost and complexity of rare earth operations, contributing to China’s competitive advantage in this sector where environmental standards have historically been less rigorous.

Additionally, magnet production capacity outside China, though expanding in strategic locations including the United States, Japan, and Germany, faces significant constraints due to China’s control of critical inputs such as samarium and other rare earth elements. Permanent magnet manufacturing requires not only rare earth materials but also specialized equipment, technical expertise, and quality control processes that have been concentrated in China for decades.

The United States government has recognized these challenges and is taking steps to rebuild domestic capabilities. The Department of Defense has provided funding for rare earth processing facilities, while the Department of Energy has invested in research and development programs aimed at improving rare earth extraction and processing technologies. However, these efforts face the reality that China has a multi-decade head start and continues to invest heavily in maintaining its dominant position.

Investment Strategies and Key Industry Players

Goldman Sachs suggested that equity investments in rare earth mining and processing companies could provide investors with a mechanism to manage exposure to potential rare earth supply disruption risks. The bank specifically cited several key players in the industry that are positioned to benefit from efforts to diversify global rare earth supply chains.

Iluka Resources, an Australian mineral sands company, is developing rare earth refining capabilities and has secured government support for establishing a refinery in Western Australia that could help reduce dependence on Chinese processing capacity. The company’s Eneabba rare earth refinery project represents one of the most significant Western investments in rare earth processing infrastructure.

Lynas Rare Earths, also based in Australia, operates the Mount Weld mine and a processing plant in Malaysia, representing one of the largest rare earth operations outside China. The company has expanded its footprint with plans for a processing facility in Texas, supported by the U.S. Department of Defense as part of efforts to secure domestic rare earth supply chains.

MP Materials Corp, which operates the Mountain Pass mine in California—the only active rare earth mining operation in the United States—is working to establish a vertically integrated supply chain from mining through magnet manufacturing. The company has announced plans to construct a rare earth processing facility and magnet manufacturing plant in Texas with government support.

Goldman Sachs forecast an emerging deficit in supplies of Neodymium-Praseodymium Oxide (NdPrO), a critical material for manufacturing high-strength permanent magnets used in electric vehicle motors, wind turbine generators, and various industrial applications. This supply deficit is expected to intensify as demand for electric vehicles and renewable energy technologies accelerates globally, while supply expansion remains constrained by the barriers previously discussed.

The bank’s commodity analysts project that NdPrO prices could experience significant volatility and upward pressure over the coming years as the market transitions from surplus to deficit conditions. This price trajectory would benefit producers with existing production capacity while potentially constraining growth in industries dependent on these materials.

Broader Commodity Supply Chain Risks

Beyond rare earth elements, Goldman Sachs issued broader warnings about rising risks of supply disruptions across multiple critical commodities due to escalating geopolitical tensions. The bank’s analysis highlighted cobalt, oil, and natural gas as facing particularly elevated risks of supply interruptions that could have far-reaching economic consequences.

Cobalt, another critical material for lithium-ion batteries used in electric vehicles and consumer electronics, faces similar concentration risks as rare earths. The Democratic Republic of Congo produces approximately 70% of the world’s cobalt, with much of that production controlled by Chinese companies or exported to China for refining. This concentration creates vulnerability to both geopolitical disruptions and potential export restrictions.

Oil and natural gas markets face ongoing risks from geopolitical tensions in key producing regions, including the Middle East, Russia, and parts of Africa. The International Energy Agency has warned about potential supply disruptions that could trigger price spikes and economic instability. Russia’s position as a major energy exporter to Europe has been particularly scrutinized following geopolitical tensions, while Middle Eastern supplies remain vulnerable to regional conflicts and shipping route disruptions through strategic chokepoints like the Strait of Hormuz.

Goldman Sachs’ comprehensive analysis underscores how critical mineral supply chains have become central to economic security and geopolitical competition in the 21st century. The bank’s warnings reflect growing recognition among financial institutions and policymakers that access to these materials represents a potential vulnerability that could constrain economic growth, technological advancement, and national security capabilities.

Policy Implications and Strategic Responses

The vulnerabilities highlighted by Goldman Sachs have prompted governments worldwide to reassess their approach to critical mineral supply chains and develop strategies to enhance resilience. The United States, European Union, Japan, and other developed economies have all announced initiatives aimed at reducing dependence on Chinese rare earth supplies.

The European Commission has established the European Raw Materials Alliance to secure supply chain access to critical materials, while the Critical Raw Materials Act sets targets for domestic extraction, processing, and recycling of strategic materials. These initiatives aim to diversify supply sources and build resilience against potential disruptions.

International cooperation has also intensified, with like-minded countries forming partnerships to develop alternative supply chains. The Minerals Security Partnership, launched by the United States with allies including Australia, Canada, Japan, and European countries, aims to catalyze public and private investment in critical mineral supply chains that adhere to high environmental and social standards.

Conclusion: Navigating a New Era of Resource Competition

Goldman Sachs’ comprehensive warning about rare earth supply chain vulnerabilities reflects a fundamental shift in how strategic resources are perceived in the global economy. Rare earth elements, once obscure industrial materials known primarily to specialists, have become flashpoints in great power competition and essential considerations in national security planning.

The bank’s analysis makes clear that China’s dominant position in rare earth mining, refining, and manufacturing is not easily challenged or quickly overcome. The combination of geological advantages, decades of infrastructure investment, accumulated technical expertise, and willingness to tolerate environmental impacts has given China a commanding position that will persist for years to come regardless of efforts by other countries to develop alternative supply chains.

For businesses dependent on rare earth materials, Goldman Sachs’ warnings underscore the importance of supply chain risk management, including diversification strategies, inventory management, and investment in materials research aimed at reducing dependence on critical elements. Companies in sectors ranging from automotive to consumer electronics, renewable energy to defense are reassessing their supply chain strategies in light of these vulnerabilities.

For investors, the rare earth sector presents both risks and opportunities. While supply disruptions could negatively impact companies dependent on these materials, producers and processors outside China stand to benefit from efforts to diversify global supply chains and from potential price increases driven by supply constraints.

For policymakers, the challenges outlined by Goldman Sachs highlight the need for sustained, long-term commitment to building alternative supply chains. Quick fixes are impossible given the timelines required for mine development, refinery construction, and manufacturing capacity expansion. Success will require coordinated policy support, including financial incentives, regulatory streamlining, environmental standards that balance sustainability with strategic needs, and international cooperation among allied countries.

As the world transitions toward technologies requiring intensive use of rare earth elements—including electric vehicles, renewable energy systems, advanced electronics, and defense equipment—the strategic importance of these materials will only increase. Goldman Sachs’ warning serves as a reminder that the path to this technological future depends on securing access to the basic materials that make these innovations possible.

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By: Montel Kamau

Serrari Financial Analyst

23rd October, 2025