The world's most prolific producer of rare earth elements (REE) - China - had revealed that 40% of its supply was from illegally mined sources in the country, market-focused research house Benchmark Mineral Intelligence analyst Simon Moores reported on Tuesday.

REE market expert Dudley Kingsnorth of Industrial Minerals Company ofAustralia revealed the figure at a high-level conference in Milan, the European Rare Earths Competency Network.

Kingsnorth cited experts within China who were not only involved in the miningthe elements, but also affiliated with the government-led rare earths association.

China continued to dominate REE supply despite two new mines opening in the US (Molycorp) and Australia (Lynas) since the well documented price crisis of 2010. Despite the country's share of global REE having waned from 95% in 2013, to 90% in 2014, future supply security for the West was far from being solved.

High-strength magnets were most significant market for the current market’s volume demand and growth projections over the next five years, which was why the revelation about China's sourcing was significant, Moores said.

REEs such as neodymium, dysprosium, terbium and praseodymium are used as the critical magnetic components in electric motors that drive some of the world's most important technologies including wind turbines and some electric vehicles.

China is not only the leading supplier of these elements but also of the magnets used by some of the world's largest corporations including Siemens and General Electric.

UNSUSTAINABLE SITUATION

Kingsnorth explained that in 2020, the magnet market would consume about 30% of total rare earth elements produced in the world. The magnet market was forecasted to rely on China for 70% of its elements.

“The question is whether the country can make up the shortfall from illegal sources if it decides to crack down on these activities.

“China's tolerance for illegal mining is quickly diminishing. While the country is not likely to damage its own prospects by cutting a vital source of rare earths to a key industry, the longevity of this illegal source is in serious doubt,” Moores said in a note to clients.

He added that the Chinese government, naturally, disliked any unlicensedmining activity that took place in many mineral and metal industries in the country.

“It is a wasteful process, environmentally damaging and gives the country bad press. It also undermines the larger, licensed miners that the government has hand-picked to become the next generation of more efficient, international suppliers,” he said.

Moores noted that should China have its way, as it invariably does, the reliance on illegal sources of REE was likely to come to end or significantly diminish sooner than many might expect.

This left the industry with a key question to answer: “With an alarming lack of investment in new global sources, where will buyers turn to if China's black market supply was eliminated?” Mooores asked.