India’s trade ties with neighbouring countries are becoming increasingly strained. First, trade with Pakistan came to a halt. Then came tensions with Bangladesh, where goods were restricted from entering via inland ports. Now, friction with China is rising. In retaliation to US President Donald Trump’s tariffs on multiple countries, including India and China, Beijing not only imposed counter-tariffs but also restricted the export of rare earth magnets — a move that’s causing concern not just for American firms but Indian companies too.
But here’s the real question: Are rare earth magnets really so crucial that they are impacting major economies like the US and India? In this article, we break down the current situation and explore the industries most affected by this strategic move.
What’s Happening?
China’s restrictions on rare earth magnet exports are creating major hurdles for Indian automotive companies. Several manufacturers anticipate their existing stock will run out by the end of June. If the issue remains unresolved, production could come to a halt, potentially leading to price hikes for consumers.
Leading manufacturers such as TVS Motor and Bajaj Auto have raised concerns. They say India’s electric vehicle (EV) sector is facing a serious supply chain disruption, with shipments of rare earth magnets — crucial for EV components — stuck at Chinese ports. According to Moneycontrol, TVS Motor’s MD, Sudarshan Venu, warned that this could result in production delays and increased costs in the near term.
In response, automakers have approached officials from the Prime Minister’s Office, the Ministry of Heavy Industries, and the Commerce Ministry. To resolve the matter, they have proposed offering certification from India’s Directorate General of Foreign Trade, confirming that these magnets won’t be used in defence or re-exported to the US.
Why Rare Earth Magnets Matter More Than You Think
To understand why this supply crunch is so significant, it helps to know where rare earth magnets are used. Made from elements like neodymium, dysprosium, terbium, and samarium, these magnets are much stronger, smaller, and more efficient than regular ones — and they are indispensable to modern technology.
They are used across a broad range of industries: from electric and traditional vehicles to consumer electronics like speakers and headphones, wind turbines, computer storage devices, and even medical equipment. Importantly, they also play a key role in defence systems.
China’s Dominance Over Rare Earth Magnets
Over the last decade, China has solidified its position as the world’s leading supplier of permanent magnets, essential components in everything from appliances and electronics to EVs. As of 2024, China is estimated to account for over 80% of global rare earth magnet production, according to Moneycontrol.
From 2012 to 2024, China’s share of global exports of metal-based permanent magnets surged from 49.6% to 63.5%. For non-metal magnets, its share increased from 50.8% to 59.1%, showing a dominant presence in both segments.
However, the impact of the recent curbs was immediate. In April 2024, just a month after the restrictions were implemented, China’s exports of permanent magnets plummeted 51% YoY to just 2,626 tonnes, as reported by The Economic Times. This sharp fall has alarmed manufacturing economies worldwide — including India.
Is India Alone in Relying on China’s Rare Earth Magnets?
India’s rising demand for permanent magnets has increased its dependence on Chinese imports. In 2024, China accounted for 82.9% of India’s metal-based magnet imports, up from 73.5% in 2013. Imports of non-metallic magnets have also surged, and since 2019, India’s total import volume of magnets has nearly tripled.
India, like several other nations, remains heavily dependent on China for importing rare earth magnets.
That said, India isn’t alone in this reliance. Globally, 41 of the 78 countries that import permanent magnets depend on China for more than 60% of their needs. For instance, the European Union imports 90% of its magnets from China. Pakistan depends entirely on China, while South Korea sources 87.4% and the US around 75% of its supplies from Chinese exporters. India’s dependence, therefore, is part of a wider global pattern — not an outlier.
What’s in it for Investors?
For investors, China’s export restrictions raise some red flags — particularly for automotive companies that rely heavily on these magnets. If inventories dry up and production halts, it could dent company performance and impact share prices.
However, there are some reassuring signals. Maruti Suzuki, India’s leading automaker, has stated that it doesn’t foresee an immediate impact from China’s restrictions. Meanwhile, the auto industry is taking proactive steps, including sending a high-level delegation to China to negotiate faster import clearances.
Market performance offers further comfort. As of June 4, the Nifty Auto Index has not only remained stable but has outperformed the Nifty 50, delivering a 14.37% return over the past three months compared to the Nifty’s 11.62%. This reflects sustained investor confidence in the sector, despite emerging headwinds.
What’s Next?
The situation has slightly eased following a clarification from India’s DGFT that imported magnets won’t be used for defence purposes or re-exported to the US. But a larger question looms: Can India cut its reliance on China?
Interestingly, India holds the world’s third-largest reserves of rare earth elements (REEs), mostly in Andhra Pradesh, Karnataka, Odisha, and Kerala. Yet it contributes less than 1% to global production — primarily due to limited private sector involvement, with mining historically handled by IREL (India) Ltd.
This may soon change. The government is now looking to open REE exploration to private players and is planning a multi-pronged strategy that includes financial incentives, public-private partnerships for processing and magnet manufacturing, and sourcing raw materials from other countries. These steps aim to strengthen India’s domestic supply chain and reduce its overdependence on China.
*The companies mentioned in the article are for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
