Agus Analysis: Japan's Shortage Of Rare Earth Supplies Is Likely To Persist Until 2027-2028

HOUSTON, August 14th (Argus) - As the projects related to diversifying Japan's supply chain are expected to achieve large-scale production capacity only by 2027-2028, Japanese manufacturers can currently obtain only about two-thirds of the required rare earth supplies. The shortfall mainly concentrates in the heavy rare earth sector.
According to a survey conducted by Tokyo's Supply Chain Risk Management Platform Resilire in June this year among 400 Japanese manufacturing procurement managers and executives, over 90% of the respondents indicated that at least one type of rare earth or related material could not be obtained in sufficient supply.
The survey revealed that the average procurement satisfaction rate of the respondents' related materials was only 68%, with 66% of the enterprises receiving supplies that were less than 80% of their actual demand. This survey covered 151 material producers; 128 component manufacturers; and 121 end-product manufacturers.
Shortages have affected production
The shortage of rare earth supplies is gradually being transmitted to the production end. Approximately 88% of the respondents indicated that production or delivery has been affected, with 41% experiencing delivery delays; 18% being forced to suspend production; and only 12% stating that they were not affected. Meanwhile, procurement costs have continued to rise. Over the past year, the average procurement cost of the respondents' enterprises increased by 22%. 83% of the enterprises saw an increase in procurement costs; 53% of the enterprises experienced a cost increase of more than 20%.
The supply from outside China is still insufficient
The respondents believe that the current supply pressure mainly stems from the export control measures implemented by China since the beginning of 2025. Although some export licenses have been approved, it is still very difficult for markets outside China to obtain related products. The survey participants reported that the procurement of neodymium was the most difficult, with 74% of the companies listing the difficulties in purchasing this material, followed by samarium, 71%, gadolinium, 69%, yttrium, 68%, dysprosium, 62%, and terbium, 62%.
Among these, five belong to the heavy rare earth elements included in the export licensing management of China in April 2025.
Although neodymium was not included in the above list, as it is the core raw material of neodymium iron boron permanent magnets, and China subsequently extended the export licensing system to magnet products, neodymium has also become one of the most difficult-to-obtain materials.
In contrast, the situation for light rare earth elements with a more complete supply base is slightly better. Lanthanum and cerium are the light rare earths with the most abundant supply and production in China outside of China.
Only 9% of the respondents indicated that all their purchased materials did not encounter supply difficulties.
The progress of supply chain diversification is not balanced
The respondents stated that the average proportion of China's supply in their rare earth sources still reached 61%, and 62% of the enterprises relied on China for more than half of their rare earth supplies.
Since China restricted rare earth exports in 2010, Japan began to vigorously promote the diversification of supply sources and authorized the Japan Metal and Energy Security Agency (JOGMEC) to invest in overseas rare earth projects.
However, due to the low prices of rare earths in the past, many projects outside China lacked economic viability, so the development of global alternative supply chains has been relatively slow.
In light rare earths, Japan has achieved more significant results.
JARE, jointly established by JOGMEC and Sojitz in 2011, has become an important pillar of Japan's light rare earth supply system. In March this year, JARE signed an agreement with Australia's Lynas to purchase 5,000 tons of oxide praseodymium-neodymium annually, with the contract valid until 2038.
In heavy rare earths, Sojitz imported for the first time from Australian ore and completed the separation in Malaysia in October 2025, and imported dysprosium and terbium products.
The survey results also confirm this difference. Due to Japan having basically established a stable supply system for lanthanum and cerium, enterprises have less concern; while samarium and gadolinium, etc., heavy rare earths, due to the lack of stable and sufficient supply sources outside China, have become the most concerned materials.
It is expected that there will be a relief from 2027 to 2028.
Several projects supported by JOGMEC are currently being planned to address the most urgently needed heavy rare earth elements. However, they will not be able to alleviate the supply pressure in the short term.
Toyota Tsusho of the Lofdal project in Namibia is conducting a feasibility study on the Lofdal ore deposit in Namibia and plans to make a commercial decision within the fiscal year ending March 2027.
The designed production capacity of the project is approximately: total rare earth oxides 2,000 tons/year; dysprosium 117 tons/year; terbium 17.5 tons/year.
The Caremag project in the southwestern France, invested by Iwatani of Caremag, will process: 2,000 tons/year of used rare earth magnets; 5,000 tons/year of rare earth ores. About half of the heavy rare earth products will be supplied to the Japanese market.
At the same time, Lynas is also promoting the expansion of its heavy rare earth separation capacity.
However, whether the Lofdal project, the Caremag project, or Lynas's expansion plan will reach a large-scale operational level by 2027-2028 is expected to take some time.
The time lag is the core issue.
The report indicates that Japan's problems are more about "time mismatch" rather than a strategic direction error.
Japan has locked in key heavy rare earth resources; participated in overseas mine development; signed long-term sales agreements; and invested in separation and refining facilities.
But these projects have not yet provided sufficient actual production to the Japanese manufacturing industry.
Therefore, the current 68% supply satisfaction rate is not an abnormal short-term phenomenon, but should be regarded as a realistic benchmark that enterprises need to consider when formulating business plans in the coming years.
For enterprises that have already stopped production due to raw material shortages, before the first batch of dysprosium products from the Namibia project starts production, they may need to go through the next two budget cycles to digest this supply gap.