KUALA LUMPUR, Dec 13 — Malaysia is quietly emerging as a game-changer as the global race for rare earth minerals intensifies, especially for countries seeking non-China suppliers.
Rare earth elements (REE) are crucial to make high-performance permanent magnets in electric vehicles, wind turbines and advanced electronics.
Globally, China is the largest producer and refiner of rare earth elements, but Malaysia is gradually catching up.
Malaysia is currently the world’s second-largest exporter of refined rare earths, controlling five per cent of the market share, and hosts one of the world’s largest REE refineries, the Lynas Rare Earths Ltd.
The country also accounted for 13 per cent of all refined REE imports to the United States in 2024, according to reports from the US Geological Survey.
The REE industry can broadly be divided into three categories:
- Upstream activities: exploration, mining and mineral processing
- Midstream activities: cracking, separation and purification
- Downstream activities: metal and alloy production, device and component manufacturing and recycling of REE byproducts
Malaysia, however, is still concentrated in midstream activities with little appetite for the more lucrative downstream segments, a policy brief from the Institute of Strategic and International Studies (ISIS) Malaysia reported recently.
Citing official projections from Putrajaya, the “From mine to magnet: Positioning Malaysia as a robust player in the emerging global supply chain” policy brief said downstream REE activities could generate up to RM91.9 billion in revenue and create some 90,000 jobs by 2050.
This estimate, however, does not take into account how the adoption of robotics and artificial intelligence (AI) could impact the job market.
Why Malaysia hesitates on downstream expansion
ISIS Malaysia’s economics, trade and regional integration analyst Qarrem Kassim, who co-authored the policy brief, said downstream processing is capital- and resource-intensive and could significantly bite into midstream refiners’ profit margins.
Another reason, he said, is that the federal and state governments prefer to venture into upstream segments since they can dictate their own royalty taxes for mining.
Under the Federal Constitution, Putrajaya can govern mineral resources but states have the authority over land management, vetting of ownership, fees and mining rights.
Article 110 of the Federal Constitution also allows states to customise their royalty tax rates for individual minerals.
In addition, the policy brief found that supply arrangements between Lynas and its Japanese partners have also resulted in fewer local pathways from REE refinery to downstream manufacturing of permanent magnets, alloy production and batteries.
Lynas signed an agreement with Japan in 2023 to give Japanese firms priority supply rights over Lynas’ growth capacity until 2038.
Environmental concerns are also a factor.
Though Malaysia bans mining in gazetted Permanent Forest Reserves (PFR), the policy brief notes an important concern: less than 20 per cent of estimated REE reserves lie outside forest reserve areas.
Section 13(1) of the National Forestry Act 1984 also allows state governments to excise (remove) land from PFRs through a gazette notification for extractive purposes.
When available sites for mining outside PFRs are depleted, pressure may mount on Putrajaya to degazette PFRs.
What’s the way forward?
Qarrem and his co-authors, Zayana Zaikariah and Fahad Ijlal Nizam, called on Putrajaya to develop a clear upstream-to-downstream pathway and establish a viable full-cycle REE sector, among other measures.
They also proposed that officers from the Department of Environment and the Department of Minerals and Geoscience at both federal and state levels jointly review Environmental Impact Assessment (EIA) submissions for REE projects.
The authors also urged the government to develop a circular economy framework to recover, recycle and repurpose secondary by-products from REE processing into the production cycles of other sectors like agriculture and construction.
Malaysia currently lacks such a framework, with most REE residue still discarded as waste.
