As China tightens restrictions on rare earth exports, Japanese corporations are accelerating efforts to build a "China-plus supply chain," centered on Southeast Asia. They are expanding mine development and smelting facility investments in the Philippines, Vietnam and Malaysia to reduce dependence on China.
According to Nikkei Asia on the 18th, Japan's Sumitomo Metal Mining plans to increase production of scandium, a rare earth element used in fuel cells, by 20% in fiscal 2026. The corporation aims to meet the target by processing ore mined at a Philippine site in which it holds equity at its plant in Hyogo Prefecture, Japan.
Rare earths are metallic elements with high scarcity and refer to 17 elements that have superconductive, ferromagnetic, catalytic, optical and fluorescent properties. In the case of scandium, it is a material that lowers the operating temperature of fuel cells and improves durability, and usage is surging along with growing demand for next-generation power sources for artificial intelligence (AI) data centers. Global demand for scandium doubled last year, Nikkei Asia reported.
In addition to Sumitomo Metal Mining, general trading corporation Sojitz teamed up with Lynas Rare Earths to pursue rare earth mine development in Vietnam and Malaysia. The two sides signed a contract in Mar. through a joint venture between Sojitz and the Japan Organization for Metals and Energy Security (JOGMEC). Sojitz is also pushing to expand rare earth smelting facilities in Malaysia, with completion slated for 2027.
The reason Japanese corporations are moving to expand supply chains in Southeast Asia is that China is weaponizing the rare earth industry. China currently accounts for about 70% of global rare earth production and more than 90% of refining. In particular, it effectively controls supply chains for key rare earths used in high-performance magnets, such as dysprosium and neodymium.
China has recently been using rare earths as diplomatic and security tools to pressure Japan. Relations between Japan and China cooled rapidly after Prime Minister Sanae Takaichi's remark in Nov. last year about "intervening in the event of a Taiwan contingency." Since then, in Jan. this year China announced export controls on dual-use items, including rare earths, targeting Japan. Earlier, in Apr. last year, as tensions with the United States deepened, it implemented export restrictions on seven rare earth elements, including scandium.
In Japan, concerns are growing that rare earth supply disruptions could spread across industries. Nomura Research Institute projected that if supplies of Chinese rare earths were cut off for one year, Japan's real gross domestic product (GDP) would fall by 0.43% and economic losses would reach 2.6 trillion yen (about 25 trillion won).
The auto industry is reacting most sensitively. That is because of the potential disruption in supplies of neodymium magnets used in electric vehicle (EV) and hybrid vehicle (HV) motors. Japan's auto industry said, "Unlike general-purpose semiconductors, rare earths have almost no substitutes," stressing the need for a government-level response.
Meanwhile, after experiencing China's rare earth export restrictions during the Senkaku Islands dispute in 2010, Japan has pursued supply chain diversification as a national strategy. The Japanese government has designated rare earths as "specified critical materials" and, centered on the Japan Organization for Metals and Energy Security (JOGMEC), is supporting overseas mine investments and stockpile expansion, as well as the development of alternative technologies.