As global manufacturers increasingly seek to diversify their supply chains away from China due to rising geopolitical tensions many have turned to Vietnam as a source of hard-to-source magnet manufacturing, Reuters reports on August 22.

Korean and Chinese magnet companies, including a supplier for Apple, are gearing up to establish factories in Vietnam, harnessing the nation's untapped rare earth deposits and burgeoning processing capabilities.

China's extensive control over various critical minerals and rare earth elements has already made the Middle Kingdom a global rare earths powerhouse with a stranglehold over many of the materials that are essential for the development of the EV, battery and renewable power sectors, as highlighted in recent report published by the US Department of Energy (DoE) at the end of July.

Magnets was one of the 23 materials the DoE identified as “critical” in its assessment of which key materials the US is extremely dependent one China for. As of a result of growing tensions, the US and its allies are actively seeking alternative sources for all of these materials.

Among these magnet firms, South Korea's Star Group Industrial (SGI) and China's Baotou INST Magnetic stand out, with plans to establish production facilities in Vietnam, which has significant mineral deposits including things like lithium. This strategic move aims to exploit the Vietnam’s rare earth potential, positioning it as a major competitor to China, which has traditionally held a dominant position in the rare earth metals sector.

Magnets play a critical role in the production of various items, including electric vehicles, wind turbines, weapons, and smartphones.  Vietnam's latent rare earth resources, second only to China's, have captured the attention of magnet firms. Additionally, the nation boasts a nascent processing industry that could facilitate the development of a robust magnet supply chain, Reuters reports.

SGI's venture in Vietnam, slated for 2025, aims to produce 5,000 tonnes of high-end neodymium (NdFeB) magnets per year. This output could cater to approximately 2mn electric vehicles. However, Vietnam currently contributes just 1% of global magnet production, with China commanding a substantial 92% market share, according to data from Adamas Intelligence, as cited by Reuters.

"The world has witnessed a global surge in adoption of EVs, resulting in increased demand for vital components like lithium-ion batteries, rare earth magnets, electrical steel, and power electronics, the DoE said in its report. "EV use has continued to grow rapidly worldwide, with global sales increasing from 716,000 vehicles in 2015 to 10.6 million vehicles in 2022. While growth in EV use has been strong throughout the world, it has been led by China, which accounted for 60% of new EV registrations worldwide in 2022, including sales of cars, trucks, vans, and buses, according to the IEA."

The rapid growth in electric vehicle sales has put pressure on key components such as lithium-ion (Li-ion) batteries (or LIBs) and neodymium-iron-boron (NdFeB) magnets, says the DoE. And with EV sales expected to surge again by 30-35% by 2023 the demand for magnets will only increase.

In 2021, on the list of 17 rare materials, China was capable of producing 44m tonnes out of the total global output of 116m tonnes, ahead of Vietnam (22) and Brazil (15). And China is still expanding its production of rare earths to further consolidate its grip on the business, according to the DoE.