From mine to magnet: Malaysia's rare earths meed more than a ban

KUALA LUMPUR: Malaysia needs to attract investors for rare earth elements (REE) who are willing to bring technology, capital and expertise into the country as it seeks to move beyond exporting raw materials and build higher-value industries around its critical mineral resources.

Academy of Sciences Malaysia (ASM) Fellow and geologist P. Loganathan said restrictions on REE exports could encourage domestic processing and manufacturing, but would only deliver results if Malaysia developed capabilities across the entire value chain.

REEs are 17 critical metals used in technologies ranging from EVs and renewable energy to electronics and defence. Demand for key elements such as neodymium, praseodymium, dysprosium and terbium is rising with electrification and advanced manufacturing, while China dominates global mining and processing. This has driven the US, Australia and Japan to diversify supply chains, creating an opportunity for Malaysia to attract investment and technology and move into higher-value REE processing and manufacturing.

According to Loganathan, Malaysia has not been exporting raw REEs or rare earth carbonates (RECs) under the current moratorium on raw mineral exports.

Domestic mining activity also remains extremely limited, with the Gerik mine in Perak being the only operation currently producing RECs from ion-adsorption clay deposits.

The lack of operating mines highlights a key constraint facing Malaysia's ambitions to develop a complete REE value chain. While the country has established downstream processing capabilities, including facilities capable of handling rare earth carbonates, a shortage of locally mined feedstock means these facilities cannot yet rely on a steady domestic supply of REEs.

Malaysia's estimated RM4.11 trillion mineral resource base could become a major engine of economic growth, with the REE sector alone projected to contribute RM8 billion to the country's gross domestic product (GDP) and generate 24,800 jobs across the upstream, midstream and downstream value chain by 2030.

Malaysia's REE ambitions hinge on expanding domestic processing and developing downstream industries that can produce higher-value technologies, including magnets, EV components and semiconductor applications.

Loganathan said an ASM report published in 2023 identified three stages for developing the industry — upstream mining and extraction, midstream separation and processing, and downstream manufacturing.

"There is no policy in place that the nation must stockpile its REE resource but endeavour to process it locally and continue to develop midstream and downstream industries to value-add to the resource," Loganathan said.

His comments follow Universiti Kebangsaan Malaysia academic Idzat Idris, who recently said restrictions on raw REE exports could encourage local processing and manufacturing, allowing Malaysia to capture more value than from exporting lower-value material.

Potential higher-value products include purified rare earth oxides, alloys, high-performance permanent magnets and advanced materials used in electric vehicles, high-efficiency motors, wind turbines, electronics, robotics, aerospace, defence and medical equipment.

The Ministry of Investment, Trade and Industry (Miti) will play a central role in driving investment, industrial integration and downstream manufacturing to ensure Malaysia captures more value from its REE resources, experts said.

Miti Minister Datuk Seri Johari Abdul Ghani said last month that Malaysia wants REE investors to bring and share technology while participating across the supply chain, from upstream activities to downstream manufacturing.

The approach is intended to ensure Malaysia captures more value from its critical minerals rather than simply exporting raw materials, Johari said after attending the Invest in Perak Day 2026 programme.

He said REEs were in high demand globally and were critical minerals for the development of almost every major technology today.

Global demand for REEs remains strong, with the minerals considered critical inputs for many major technologies, he said.

Malaysia has an estimated 16 million tonnes of REE resources identified through reconnaissance studies by the Department of Mineral and Geoscience Malaysia, or JMG, during the 11th Malaysia Plan and earlier studies.

The figure, however, refers to inferred resources, meaning further exploration is needed to establish their scale and economic viability, Loganathan said.

In Peninsular Malaysia, REEs are found mainly in ion-adsorption clay deposits associated with weathered granite.

MINING BOTTLENECK

Loganathan said Malaysia's immediate priority should be expanding local mining capacity to supply existing processing facilities.

Perak is currently the only state to have permitted mining of ion-adsorption clay REEs. Rare earth carbonate produced from a mine in Gerik is exported to China under an agreement signed before Malaysia imposed a moratorium on raw mineral exports for 2025 to 2027.

Malaysia has two facilities capable of processing ion-adsorption clay rare earth carbonate — Lynas Malaysia in Gebeng, Kuantan, and Malaco Sdn Bhd in Simpang Pulai, Ipoh.

But a shortage of domestic feedstock means the facilities are not yet processing locally produced rare earth carbonate, Loganathan said.

The next constraint is further downstream, where Malaysia lacks facilities to convert purified rare earth oxides into metals and alloys required for advanced manufacturing.

"This requires chemical engineering facilities to separate and purify individual rare earth oxides, as well as metallurgical facilities to produce pure rare earth metals and alloys," he said.

Developing that capacity will require capital, infrastructure, technology and skilled workers, particularly in chemical engineering and metallurgy.

The opportunity extends to permanent magnets, electric motors and components for EVs, as well as electronics, robotics, aerospace and medical equipment.

While magnet-making technology is commercially available, the ASM study found that Malaysia's ability to develop such facilities is constrained by limited domestic supplies of purified rare earth oxides, including neodymium, praseodymium and dysprosium.

Expanding local separation capacity could eventually provide the feedstock required to support downstream manufacturing, Loganathan said.

BEYOND AN EXPORT BAN

The export moratorium is intended to encourage domestic value addition and is unlikely to significantly affect Malaysia's competitiveness in the short term, given that it is expected to remain in place until 2027, Loganathan said.

Its success, however, will depend on coordinated action across government agencies and the states.

The Ministry of Natural Resources and Environmental Sustainability, state governments and JMG oversee upstream issues including resource development, land and mining requirements.

Miti has a central role in attracting investment, integrating REE activities with Malaysia's manufacturing base and developing downstream industries.

The Ministry of Science, Technology and Innovation can support research, technology development, separation processes, advanced materials and skills development, Loganathan said.

The policy window should therefore be used to build the infrastructure and capabilities needed to process REEs domestically and manufacture higher-value products, rather than relying on export restrictions alone.

The key is to align export controls with investment, technology transfer, skilled manpower and processing capacity so Malaysia can retain a larger share of the value generated by its REE resources, he said.

DON'T JUST CURB REE EXPORTS – BRING IN CAPITAL, TECHNOLOGY

Dr Yeah Kim Leng, PhD, professor of economics at Sunway University said restricting raw REE exports could help Malaysia shift from low-value ore exports toward higher-value processing and manufacturing, but the strategy would depend on how quickly the country can build processing capacity, acquire technology and develop sufficient market demand.

Without these foundations, he said export restrictions could instead result in stockpiling, illegal exports or excessive dependence on a single foreign buyer.

He told Business Times that to develop a viable domestic REE industry, Malaysia would need advanced separation and refining technology, supported by skilled workers in metallurgy, chemical engineering and materials science.

The country would also need better geological mapping to establish its reserves while addressing fragmented federal and state governance over mining permits and concessions.

At the same time, substantial capital investment and technology-transfer partnerships would be needed with countries that already possess the expertise and financing to develop an integrated REE supply chain, from mining to magnet production.

Dr Yeah identified high-performance magnets, electric motors, aerospace, defence and medical equipment as potential downstream areas for Malaysia.

He said the development of a Lynas-linked magnet plant in Kuantan, targeting the automotive, wind energy and electronics sectors, demonstrated the potential for downstream investment.

However, attracting more high-value projects would require policy certainty, streamlined approvals and strong environmental, social and governance (ESG) standards.

Concrete technology-transfer agreements would also be important to give investors greater confidence in the long-term viability of projects.

Dr Yeah cautioned that imposing export restrictions before domestic capacity and markets are ready could make local mining operations unviable if there are insufficient domestic buyers.

"Importantly, foreign investors may be deterred by governance issues and policy unpredictability, as seen in the trade disputes following Indonesia's nickel ban. If domestic processing costs remain uncompetitive, downstream manufacturers may still import cheaper processed materials from China or other low-cost suppliers, thereby undermining the policy's goals completely," he said.

He said Malaysia could consider a phased and conditional approach, linking export restrictions to enforceable commitments on technology transfer and local processing.

This should be supported by clearer federal-state coordination and targeted fiscal incentives to attract strategic international partnerships and joint ventures in downstream REE activities.

Dr Yeah said the policy mix should also include investment in human capital and research and development, strict ESG standards and safeguards against excessive reliance on any single country or supplier.

Pacific Research Centre of Malaysia principal adviser Dr Oh Ei Sun said restricting the export of raw materials such as rare earth can leave more resources available for domestic industrial development.

"If we look at examples and lessons from Malaysia and other countries, including Jamaica, restricting the export of raw materials such as rare earth can leave more resources available for domestic industrial development," he told Business Times.

"However, that alone is not enough. Malaysia would need to develop the educational, vocational and technical training required to support such an industry.

"We also need funding. Many African countries, for example, have abundant gold resources, but without the capital and technology to extract and process them, those resources cannot easily be developed domestically.

"Funding could come from domestic or foreign investment, so Malaysia would need a strong investment framework," he told Business Times.

Dr Oh said that traditionally, as a major manufacturing country, Malaysia has had good incentives to attract foreign direct investment, and these could potentially be adapted for the rare earth sector.

"Take Lynas, for example. If Malaysia wants to develop a local equivalent, where would the necessary know-how, skilled personnel and funding come from? I am doubtful that Malaysia can build all of that from scratch.

"So, while Malaysia could restrict the export of raw rare earth materials, it should also welcome foreign investors to establish processing plants here and develop rare earth resources into higher-value materials domestically," he said.

BUSINESS CASE, NOT POLICY, MUST DRIVE DOWNSTREAM INVESTMENT

Economist and founder of Williams Business Consultancy Sdn Bhd, Dr Geoffrey Williams said developing domestic REE processing and downstream manufacturing would not be straightforward, with short-term export restrictions unlikely to be sufficient to attract the scale of investment needed to move Malaysia up the value chain.

He said Malaysia's continued export of raw materials reflected prevailing market conditions, where this remained the most effective, efficient and profitable option for producers.

"If there was significant value-added in processing, it would already be taking place. Since it isn't, then it is reasonable to assume that the business case does not show the value added yet," Williams said.

Policy measures alone could not create a viable industry unless the underlying economics supported investment. Williams said that if there is a strong business case, investors will not need policymakers to intervene to develop the supply chain.

He said the experience of Malaysia's palm oil industry offered a similar example, noting that the country had exported crude palm oil for decades without fully developing higher-value processing activities.

"The reason is the same in palm oil as REE, which is that the profit is in the raw material or commodity economy and that is the business case," Williams said.