A commodity trader's warning: How control over rare earths is bringing Europe's industry to its knees
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Published on: October 17, 2025 / Updated on: October 17, 2025 – Author: Konrad Wolfenstein
A commodity trader's warning: How control over rare earths is bringing Europe's industry to its knees – Creative image: Xpert.Digital
China's strategic scarcity of rare earths as a geopolitical weapon and the threat to Germany as an industrial location
A wake-up call from Beijing: China's show of power and its consequences
The warning issued by Frankfurt-based commodity trader Matthias Rüth in the fall of 2025 possesses a rare clarity rarely encountered in economic crisis scenarios. His statement that at some point the production lines in Germany will come to a standstill is not a rhetorical exaggeration, but rather the sober assessment of a man who has been observing the global markets for critical raw materials for a quarter of a century. As Managing Director of Tradium, a company with more than €200 million in annual revenue and 40 employees, Rüth is one of the few experts in Europe who has direct insight into the dynamics of a market that is increasingly becoming a geopolitical weapon.
The People's Republic of China further tightened its export controls for rare earths in October 2025. Five more elements were added to the seven already controlled elements since April: holmium, erbium, thulium, europium, and ytterbium. This means that twelve of the seventeen rare earths are now subject to Chinese licensing requirements. What at first glance appears to be an administrative adjustment, upon closer inspection, reveals itself as a strategic realignment of Chinese raw materials policy with far-reaching consequences for European and especially German industry.
Rare earths are no longer a peripheral issue in raw materials policy, but are moving to the center of the economic vulnerability of highly developed industrial societies. They are the invisible building blocks of modern technology, without which neither electric mobility nor wind power, nor smartphones nor precision weapons would function. Their scarcity threatens not individual production lines, but entire industrial ecosystems. This analysis examines the historical roots of this dependence, the technical and economic mechanisms of the rare earths market, the current crisis situation, and possible future scenarios for Europe.
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The planned rise: China's strategy and the West's failure
The history of rare earths as a strategic resource doesn't begin in the 21st century, but has its roots in the second half of the 20th. Until the 1990s, the United States was the world's leading producer of rare earths. The Mountain Pass Mine in California, operated by Molycorp, supplied the majority of global demand. But the turnaround came gradually and was long underestimated by Western industry.
Chinese reformer Deng Xiaoping recognized the strategic importance of these raw materials as early as 1987 when he coined his now-famous dictum: "The Middle East has oil, we have rare earths." This statement was more than just rhetoric. It marked the beginning of a multi-decade strategy that would systematically make China the dominant player in the rare earths market. Beijing pursued three parallel strategies: massive state investment in domestic mining and processing, the targeted development of processing capacities along the entire value chain, and the acquisition of raw material sources abroad.
Western industrialized nations responded to this development with a disastrous mixture of ignorance and economic calculation. The mining of rare earth ores is a technically complex and ecologically highly problematic undertaking. The production of a single ton of rare earth oxides generates between 9,600 and 12,000 cubic meters of toxic waste gases containing dust, hydrofluoric acid, sulfuric acid, and sulfur dioxide, as well as approximately 75 cubic meters of acidic wastewater and approximately one ton of radioactive sludge. The ratio of pure rare earths to processing residues is 1:2000. This enormous environmental cost made mining increasingly uneconomical and politically unfeasible in Western countries with stricter environmental regulations.
The United States closed its Mountain Pass Mine in 2000 due to environmental concerns and economic unprofitability. This marked a historic turning point. The Western market opened completely to Chinese suppliers willing to bear the environmental and social costs of mining. Between 2000 and 2010, China's market share rose from approximately 70 percent to over 95 percent. The Bayan Obo deposit in Inner Mongolia became the world's largest source of light rare earths and symbolized China's rise to a raw materials power.
A decisive moment came in 2010, when China demonstrated its market power for the first time. Following a diplomatic incident with Japan, Beijing drastically reduced export quotas for rare earths. Prices exploded ten to twentyfold within a few months. Suddenly, Western industry and politics became aware of their dependence. Research programs were launched, and alternative sources were to be developed. Germany alone invested €200 million in 40 research projects. But when prices fell again in 2011, interest waned, and the dependence became even more entrenched.
China's consistent industrial policy has led to China now controlling not only 60 percent of global production, but also 90 percent of global processing and 92 percent of rare earth magnet production. This dominance in processing is the real strategic problem. Even if other countries develop deposits, they lack the infrastructure for processing. Only three refineries outside of China process rare earths on an industrial scale, none of which specialize in heavy rare earths.
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The DNA of high technology: Why rare earths are irreplaceable
Contrary to their name, rare earths are not exceptionally rare geologically. They occur in the Earth's crust about as abundantly as copper or zinc. Rather, the name refers to the historical difficulty of isolating them and the fact that they rarely occur in concentrations worth mining. They comprise 17 chemical elements: the 15 lanthanides, plus scandium and yttrium. Technically, a distinction is made between light rare earths, which include lanthanum, cerium, praseodymium, and neodymium, and heavy rare earths such as dysprosium, terbium, europium, and yttrium.
The importance of these elements stems from their unique physical and chemical properties. Neodymium has the highest magnetic moment of all naturally occurring elements, making it indispensable for high-performance magnets. A neodymium-iron-boron magnet can support many times its own weight and retains its magnetic properties permanently without external energy input. These permanent magnets are at the heart of modern electric motors in vehicles, wind turbines, hard drives, and countless other applications.
Dysprosium and terbium are added to neodymium magnets to increase their temperature resistance. In an electric motor operating under high thermal loads, a pure neodymium magnet would lose its magnetic properties. Only the addition of up to eight percent by weight of dysprosium makes these magnets suitable for high-temperature applications. Dysprosium is therefore one of the most critical elements of all, as it is one of the heavy rare earth elements, which are even rarer and more expensive than their lighter counterparts.
Europium is found in phosphors and is responsible for the red color component in screens and LEDs. Terbium provides the green component. Yttrium is used in LED lighting, lasers, ceramics, and superconductors. Lanthanum and cerium serve as catalysts in automotive catalysts and oil refining. The list of applications reads like a catalog of modern high technology: from medical imaging and fiber optic amplifiers for telecommunications to precision weapons and radar equipment.
Their technical irreplaceability stems from a combination of properties that no other material offers in a comparable way. While intensive research into alternatives is underway, even promising approaches such as tetrataenite, an iron-nickel alloy that can be produced in the laboratory, are still in the experimental stage and years away from industrial mass production. For the next ten to fifteen years, there will be no economically viable alternatives to rare earths for most applications.
The value chain from the deposit to the finished magnet material comprises several highly complex stages. First, the ore must be mined and mechanically processed. This is followed by the chemical separation of the individual elements, a complex process requiring specialized expertise. The individual oxides must then be reduced to metals and processed into alloys. Finally, the magnets are manufactured by sintering or bonding. Each of these stages requires significant investment in infrastructure and expertise. China has built up this know-how over decades, while it has largely been lost in the West.
The crisis in the engine room: production stoppages and the acute threat situation
The current situation on the rare earth market is characterized by unprecedented shortages. Since April 2025, China has imposed export controls on seven heavy rare earths: samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. In October 2025, these controls were expanded to include five additional elements. The effects are dramatic and immediately noticeable. Matthias Rüth reports that the supply situation has become relatively unpredictable. While quantities are being released, they are very limited and often delayed.
The European Chamber of Commerce in Beijing describes the situation as extremely tense. Hundreds of European companies are affected. A survey of the Chamber's members conducted in September 2025 predicted 46 production stoppages for this month alone due to a lack of export permits for critical raw materials. The European Automotive Suppliers Association (CLEPA) is reporting initial shutdowns, and the German Association of the Automotive Industry is warning of widespread production losses.
German industry imported around 5,900 tons of rare earths in 2024, of which about 65.5 percent came directly from China. For certain elements, such as neodymium, which is needed for permanent magnets in electric motors, the dependency is almost 100 percent. According to expert estimates, the inventories of automobile manufacturers and suppliers are only sufficient for four to six weeks. Christian Grimmelt of the management consultancy Berylls warns that the situation is more serious than during the chip crisis in 2021, as there are currently few alternatives.
A conventional car contains up to 100 magnets, while a modern electric car contains more than twice that number. They are needed for window regulators, seat adjustment, ventilation, windshield wipers, and, above all, traction motors. The automotive industry is particularly exposed to this. The Japanese automaker Suzuki has already had to suspend production of the Swift subcompact. The German supplier ZF reports noticeable impacts on the supply chain. Initial production lines in the medical technology, electronics, and defense industries are at a standstill.
The shortage coincides with a phase of accelerated transformation. Electromobility, as well as wind power, are to be massively expanded. According to the federal government's plans, wind power capacity in Germany is to increase from the current 65 gigawatts to 145 gigawatts by 2030. This corresponds to an average increase of 10 gigawatts per year, a fivefold increase over the current rate. Installed photovoltaic capacity is expected to grow from 60 to 215 gigawatts over the same period. Each modern gearless wind turbine requires approximately 200 to 600 kilograms of neodymium and dysprosium for its generator.
Demand for rare earth magnets will more than quintuple by 2030, according to estimates by the International Energy Agency. Annual global consumption of neodymium magnets could rise to 229,000 tons by 2030, according to the CRE Rare Earth Report. At the same time, supplies are becoming more scarce. Experts warn that for heavy rare earths like dysprosium, only one-fifth of demand could be met in 2030 if alternative sources are not developed.
Commodity traders like Tradium act as a buffer between supply and demand. The company maintains a stockpile of over 300 tons of critical raw materials in Frankfurt am Main and moves 170 tons annually. But even these strategic reserves are insufficient to offset the current shortage. Rüth reports that the situation has become so serious that even regular customers can no longer be fully supplied. Even larger traders can currently only deliver on a limited basis. Industrial customers are starting to get nervous.
From wind turbines to electric cars: Where the shortage hits hardest
The abstract figures on the scarcity of rare earths gain significance when considering concrete applications. The first case concerns the German wind power industry, which is central to the energy transition. Modern offshore wind turbines of the latest generation, such as those being built off the German North Sea coast, use direct-drive generators with permanent magnets. This technology has decisive advantages: It requires less maintenance, is more efficient, and is more reliable than geared systems. The magnets typically contain an alloy of neodymium, praseodymium, dysprosium, and terbium.
Siemens Gamesa, one of the leading manufacturers, has attempted to reduce the dysprosium content in its magnets from over five percent to around one percent, but the company cannot completely do without the element. The annual expansion of ten gigawatts of wind power in Germany alone requires several thousand tons of neodymium and several hundred tons of dysprosium. If supply chains are disrupted, not only will the construction of individual plants be delayed, but the entire energy transition will be at stake. The industry is frantically searching for alternatives, but electrically excited generators without permanent magnets are heavier, require more maintenance, and are less efficient.
The second case illustrates the impact on the automotive industry even more clearly. A modern electric motor in a mid-range electric vehicle contains approximately one to two kilograms of neodymium and 100 to 200 grams of dysprosium in its permanent magnet rotor. German automakers have long relied on Chinese suppliers, who supply not only the magnets but often also the entire electric motors. When the first export restrictions came into force in April 2025, the weaknesses of this strategy became apparent.
A medium-sized German automotive supplier producing electric motors for several vehicle manufacturers reported in the summer of 2025 that lead times for procuring magnetic materials had increased from the usual six to eight weeks to several months. In some cases, deliveries were canceled without warning or postponed indefinitely. The company had tripled its inventory levels, but this tied up significant capital and did not solve the fundamental problem. Management is now considering discontinuing production of certain motor variants or switching to alternative technologies without permanent magnets, which would, however, result in significantly heavier and larger motors.
The consequences extend far beyond individual companies. When automotive suppliers have to slow down production, this has a direct impact on vehicle manufacturers. Production lines designed for just-in-time manufacturing cannot simply be switched to other components. A missing electric motor means a vehicle cannot be completed. The automotive industry directly and indirectly employs more than one million people in Germany. According to calculations by the German Economic Institute, approximately one million jobs in Germany depend directly or indirectly on the supply of rare earths.
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Strategic raw materials: How the EU wants to secure supply chains and autonomy
The price of progress: ecological costs and ethical dilemmas
The rare earths issue is complex and raises fundamental questions about the organization of global value chains, the sustainability of industrial development, and the limits of economic efficiency. A primary controversy concerns responsibility for the resulting dependency. Critics accuse Western governments and companies of outsourcing production to China for short-sighted cost considerations, thereby sacrificing their own strategic autonomy. The US decision to close the Mountain Pass Mine in 2000 appears, from today's perspective, to have been a grave mistake.
But this criticism falls short. Rare earth mining is associated with significant environmental impacts. The decision by Western societies to no longer bear these environmental costs was based on understandable ecological and political considerations. The real problem lies deeper: in the illusion that global markets always function and that political considerations play no role. Globalization was understood as a technical-economic process, not as a politically designed and thus potentially fragile system. China has systematically exploited this naiveté and established its raw materials power as a geopolitical instrument.
A second controversy concerns the ecological costs of rare earth mining. The situation in Chinese mining areas is dramatic. In Inner Mongolia, gigantic lakes of toxic and radioactive sludge have formed. The lagoon in Baotou is estimated to cover several square kilometers. Local residents report increased cancer rates, respiratory diseases, and contaminated water sources. In Jiangxi Province, where ion-absorbing clays are leached to extract rare earths, vast tracts of land have been devastated by primitive mining methods. Trees have been felled, the soil is contaminated with chemicals, and groundwater and rivers are contaminated.
The question is: Is it ethically justifiable for the West to externalize the ecological and social costs of its technologies and shift them onto Chinese regions? Electromobility and wind power are celebrated as pillars of the energy transition, but their environmental friendliness is only regional, not global. The downsides occur far away from the end consumers. This spatial and temporal shifting of problem areas is characteristic of many sustainability narratives and raises the question of the true environmental impact of supposedly green technologies.
A third line of conflict lies between the aspirations for diversification and economic realities. The European Union has formulated ambitious goals with the Critical Raw Materials Act: By 2030, 10 percent of the demand for strategic raw materials should come from European mining, 40 percent should be processed in Europe, and 25 percent should come from European recycling. Furthermore, no third country should be dependent on more than 65 percent of its supply. These benchmarks sound impressive, but their implementation faces enormous hurdles.
The largest rare earth deposit in Europe was discovered in Sweden in 2023. The Per Geijer deposit near Kiruna is said to contain more than one million tons of rare earth oxides. The state-owned mining company LKAB has already begun exploration. However, it will take another ten to fifteen years before actual production begins. Environmental assessments must be conducted, permits obtained, and processing facilities built. Furthermore, the mining areas are located in the habitat of the Sami, Europe's only indigenous people, which is likely to lead to significant conflicts.
Vietnam, Brazil, and Russia possess significant deposits, but even they lack the processing infrastructure. Vietnam increased its rare earth production tenfold between 2021 and 2022, from 400 to 4,300 tons. However, these quantities are marginal by global standards and cannot break China's dominance. Furthermore, Vietnam exports a large portion of its production to China for further processing. Creating its own processing capacity requires billions in investments and years of capacity building.
Rare earth recycling is still in its infancy worldwide. Less than one percent of rare earths are currently recycled. Heraeus commissioned Europe's largest recycling plant for rare earth magnets in Bitterfeld-Wolfen in 2024, with a capacity of 600 tons per year, expandable to 1,200 tons. This is an important step, but a drop in the ocean given Europe's annual demand of several tens of thousands of tons. Furthermore, there is a lack of sufficient quantities of end-of-life products for recycling. The wind turbines and electric vehicles that will be decommissioned in the coming years will not be available in relevant quantities until the mid-2030s.
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Four paths to the future: Between escalation and technological innovation
The future of rare earth supply depends on several factors, some of which contradict each other and open up different development paths. A first scenario is the continuation and intensification of the current situation. China could further expand its export controls and use rare earths even more intensively as a geopolitical lever. In this scenario, supplies to Europe would be further restricted, prices would explode, and production losses in European industry would expand. The energy transition would slow down massively, as wind turbines and electric vehicles could not be produced in the planned quantities.
The economic consequences would be severe. Experts estimate that a complete halt in the supply of Chinese rare earths would plunge European industry into a severe crisis within a few months. The automotive, wind power, and electronics industries would be particularly affected. Hundreds of thousands of jobs would be at stake. Matthias Rüth's warning that production lines in Germany would eventually come to a standstill would become reality.
A second scenario is gradual diversification and the development of alternative supply chains. In this more optimistic scenario, Europe succeeds in building its own production capacity and establishing partnerships with third countries. The Swedish deposit is developed, recycling capacity is massively expanded, and new refineries outside China begin operations. The USA has taken a first step with the reopening of the Mountain Pass Mine by MP Materials. The company currently produces approximately 38,000 tons of rare earth oxides per year, a fraction of China's production of 210,000 tons, but a start.
Australia, through its company Lynas Rare Earths, operates a mine in Western Australia and a processing plant in Malaysia. Lynas was temporarily the only processor outside of China after the bankruptcy of its American competitor Molycorp in 2015. The company plans to build a processing center in Western Australia to become more independent from Malaysia. Canada and India are also investing in exploration projects. The United States, Japan, and South Korea agreed to a trilateral cooperation agreement in June 2024 to build resilient supply chains. Japan and the European Union are exploring joint public-private partnerships for the procurement of critical raw materials.
These initiatives are important and correct, but they won't have a significant impact until the mid-2030s at the earliest. Until then, Europe will remain highly dependent on China. The danger is that political attention will wane once the acute crisis eases. This already happened after 2011, when prices fell again after a brief surge, and many alternative projects were discontinued.
A third scenario concerns technological breakthroughs in material substitution. Researchers worldwide are working on alternatives to rare earths. The most promising project is the development of tetrataenite, an iron-nickel alloy that previously only occurred in meteorites. Scientists from the Austrian Academy of Sciences and the University of Cambridge succeeded in producing tetrataenite in the laboratory in 2022. By adding small amounts of phosphorus and carbon to a molten iron and nickel, a material is created with magnetic properties comparable to those of neodymium magnets, but without rare earths.
The process has been accelerated by 11 to 15 orders of magnitude, allowing production to take place in milliseconds instead of millions of years. The technology company Heraeus has already filed a patent. However, there is still a long way to go from laboratory development to industrial mass production. Experts estimate it will take ten to fifteen years until such alternatives are market-ready. They offer no solution to the current crisis.
Parallel developments concern increasing the efficiency of rare earth elements. Engineers are working to further reduce or completely eliminate the dysprosium content in magnets. Siemens has already reduced the content in its offshore wind turbines to about one percent. The goal is zero percent. Electric motors are also being developed that operate with electrical excitation instead of permanent magnets. Although these are heavier and less efficient, they could serve as a temporary solution.
Research into rare earth-free organic light-emitting diodes is also making progress. OLEDs do not require rare earth-containing phosphors and are already used in smartphone displays. However, for other applications, such as permanent magnets in motors, there are currently no comparable alternatives. The substitutability of rare earths is limited and will remain so for the foreseeable future.
A fourth scenario is geopolitical in nature: a relaxation of the trade war between China and the US, which would also benefit Europe. The export controls on rare earths are primarily China's reaction to US tariffs and export restrictions on semiconductors. Should a compromise be reached between Washington and Beijing, the export controls could be relaxed. Indeed, the US and China agreed to a temporary reduction in tariffs in May 2025. However, the export restrictions on rare earths have not been lifted.
The likelihood of a sustained détente is slim. The systemic rivalry between China and the West is likely to intensify in the coming years. China has recognized that its control over critical raw materials is an effective tool for pursuing geopolitical goals. It would be naive to expect Beijing to relinquish this tool. Rather, China is expected to further expand its market power, and the export controls in October 2025 are just another step in this strategy.
Time to act: Europe's response to the raw materials challenge
The rare earth supply crisis is more than a commodity policy issue. It is a symptom of more fundamental faults in the architecture of the globalized economy. For decades, the West has relied on the efficiency of global supply chains without adequately considering their political fragility. The illusion was that economic interdependence automatically leads to stability and interdependence. China has refuted this assumption and demonstrated that resource power is an instrument of geopolitical assertiveness.
Matthias Rüth's statement that production lines in Germany will eventually come to a standstill is not a pessimistic assessment, but a realistic assessment of the situation. German and European industry finds itself in a situation of acute vulnerability. Dependence on Chinese supplies of rare earths is so high that even short-term interruptions have serious consequences. The current shortage coincides with a phase of accelerated transformation in which electromobility and renewable energies are to be massively expanded. Demand for rare earths will rise exponentially in the coming years, while supply is being restricted for political reasons.
While European policy responses point in the right direction, they are far too slow and hesitant. The European Union's Critical Raw Materials Act sets ambitious goals, but their implementation faces enormous hurdles. Developing new mines takes ten to fifteen years, and building processing capacity requires billions in investments and political will. Recycling is in its infancy and cannot meet the acute demand. Research into alternatives is making progress but will not deliver industrially viable solutions in the foreseeable future.
The ecological dimension must not be forgotten. Rare earth mining is one of the dirtiest industries of all. Those who celebrate electromobility and wind power as green technologies must be aware of their downsides. The environmental costs are externalized spatially and temporally. This is a form of problem displacement, not problem solving. A truly sustainable energy transition would also have to consider the raw materials side and find ways to reduce the demand for critical materials.
The current crisis is a wake-up call. It shows how dependent highly developed industrial societies are on a few critical raw materials and how vulnerable global value chains are to geopolitical upheavals. The next few years will be crucial. Either Europe succeeds in substantially reducing its dependence on China and establishing alternative supply chains, or Matthias Rüth's warnings will become bitter reality. The production lines could indeed come to a standstill, and with them, a central element of industrial value creation in Europe would collapse.
The response to this challenge requires a triad of industrial policy foresight, massive investments in research and infrastructure, and the willingness to ask even uncomfortable questions about the sustainability of the energy transition. China has systematically built its raw materials power over three decades. Europe cannot reverse this development in just a few years. But it can begin to set the course for a more resilient raw materials supply. Time is of the essence.
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