Across the Malaysian Peninsula, a Rare Earth Tide Is Turning

16.2 million tonnes of this hazardous treasure sit in Malaysia. This is a once-in-a-generation opportunity to reshape the country’s wealth and power.

by Christopher Lim, External Contributor

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Developing Malaysia’s highly lucrative rare earth industry can significantly strengthen its geostrategic importance and generate broad-based economic wealth. Done right, it could create shared prosperity; done wrong, it will create shared consequences. To make this a win for Malaysians, the Federal Government must lead with strategy and clarity, execute safely, and balance competing interests — between federal vs. state royalties, private sector players, and foreign powers. This analysis explains why Malaysia must move forward despite the risks and how the country can successfully navigate the many challenges involved.

Setting the global context

Should X mark the spot, the treasure will lie squarely in Malaysia. Sitting upon 16.2 million tonnes of Rare Earth Elements (REEs) deposits coveted by much of the world, these elements represent a once-in-a-generation opportunity to reshape the country’s future. Holding fantastical names like neodymium, praseodymium, or dysprosium, these tongue-twisting elements hint at their outsized roles in modern life. Take neodymium and praseodymium as an example. They go into the strong magnets used in EV motors and wind turbines. Other rare earths polish smartphone screens and enable radar, navigation, and secure communications.

Understanding the complex REEs value chain

From mine to magnet, the chain is long and failure-prone. It starts with mining hard-rock ores or ion-adsorption clays and concentrating them. The concentrate is cracked and leached, then separated into individual rare-earth oxides. Those oxides are reduced to metals, alloyed, and formed into magnets — with REEs for heat-tolerant grades. Each step generates complex (and dangerously nasty) waste streams and demands tight quality control. Most of the value and technical risk sit in the middle: separation, metals/alloys, and magnet-making. These stages capture the lion’s share of the value chain, while simply digging hard-rock ores yields but a fraction.

The market size of rare earths varies between USD 3.9–13 billion in 2024, and is expected to more than double to USD 6–28 billion by 2030, according to estimates from Malaysia’s Science, Technology, and Innovation Ministry.

The market, however, is dominated by a single country. China accounts for roughly 70% of mine output and close to 90% of processing and magnet production, a dominance reinforced by tightened export controls on technologies and magnet products.

Other notable players include Australia and the United States, who have upstream supply with midstream capabilities. Meanwhile, Vietnam and Myanmar have notable resources, with Myanmar being a volatile but major source of heavy rare earths flowing into China. Japan remains a magnet powerhouse, while Malaysia plays within the midstream space.

Significantly, Malaysia is the largest non-Chinese midstream separator. Its Lynas plant in Kuantan has lifted NdPr oxide nameplate capacity to ~10,500 tonnes per year and, in 2025, began producing dysprosium and terbium oxides, making Malaysia the key non-China processing hub.

Geopolitics and electrification drive demand

With China dominating the rare-earth midstream and having proven willing to weaponize its control through export bans on related technologies and magnets, world powers are responding in kind. The United States reacted with the Defense Production Act: the Pentagon has backed an end-to-end high-performance magnet (NdFeB) supply chain with MP Materials, with the US Department of War guaranteeing a price floor twice the current Chinese market level. Japan, stung in 2010 when Beijing effectively choked shipments after the Senkaku trawler incident, diversified supply and strategically set up joint ventures with Lynas to create the world’s only operational heavy rare earth supply chain outside China’s control. The European Union, having ceded ground in the midstream chain, is now executing the critical raw materials act, which sets a 2030 benchmark for 40% of processing to occur inside the bloc.

With supply chains bifurcating and export controls hardening, governments’ friend-shoring of critical inputs is a major demand driver. The IEA’s latest risk work shows why: even if global balances look adequate, excluding the largest supplier leaves rare earths with only ~35–40% of demand covered in 2035, underscoring the push for alternative production sites.

Electrification is also accelerating demand. The IEA expects clean-energy uses of rare earths to climb from about 16 kt in 2023 to 46 kt in 2030 and 64 kt in 2040. Total rare-earth demand rises from roughly 93 kt to 169 kt over the same timeframe.

Furthermore, downstream engines are moving fast: global EV sales topped ~17 million in 2024 with strong growth expected into 2030–35, while the wind sector added a record 117 GW in 2024 and is on track for ~1 TW of new installs by 2030. Even in conservative cases, these point to a premium on credible, clean midstream capacity and diversified magnet supply.

For Malaysian policymakers and investors, the opportunity is clear: the money sits midstream to downstream, and that honeypot is getting ever sweeter. Upstream mining, in contrast, delivers thin margins while burdening it with environmental and physical risk. The route to real returns is moving credibly up the chain (think separation, metals/alloys, and magnet production), where value compounds and diplomatic leverage grow.

But is the decision matrix this simple?

Like a poison that tastes sweet before the bitter consequences, rare earths expose Malaysia to two key risks: toxic residues that endanger public health and the environment, and geopolitical radiation that seeps into its foreign policy and national security calculus.

So where, precisely, does Malaysia stand, and how can the country build a durable advantage?

Positioning Malaysia to win in a USD 160 billion rare earths race

Malaysia is estimated to hold 16.2 million metric tonnes of inferred rare earth resources across Terengganu, Kelantan, Kedah, Perak, and Sarawak. With such a broad geological footprint, the potential payoff is enormous. The national mineral industry transformation plan 2021–2030 estimates that Malaysia’s rare earth reserves could be worth as much as USD 160 billion—an opportunity too significant for the country to overlook.

Should the nation build an integrated rare earth ecosystem, connecting upstream mining all the way to super magnet production, government estimates put an eye-watering figure of USD 3 billion in revenue by 2030. This is almost 10% of Malaysia’s GDP in 2024 figures.

Should it come to fruition, Malaysia is estimated to increase its market share of REEs production from 4% to 9% by 2030, becoming a significant alternative supplier of REE feedstock and a backup of last resort for major global powers.

With such reserves, how should Malaysia strategize its expansion into REEs?

One may expect an upstream mining boom to capture fast economic gains, but as argued previously, mining ores itself has little economic value. The competitive advantage is not of abundance, but of restraint.

Therefore, Malaysia’s REEs strategy is to capitalise on its midstream capabilities to scale in parallel both mid- and downstream activities, and only connect its upstream feedstock when production reaches scale economics. Thus, in September 2023, the government announced a ban on exports of raw rare earths, explicitly forcing value-added processing at home. The policy is held through 2025, and is now reinforced by standard operating procedures for non-radioactive rare earth element mining distributed to state governments.

This is complemented by its existing midstream industry. Malaysia already hosts Lynas’ separation plant in Pahang — the largest processor of rare earths outside China — providing midstream capabilities that most peers lack.

Leaning into this strategy further, Malaysia has just announced plans with foreign partners to establish a 3,000-tonne neodymium magnet plant in Pahang, a first step in anchoring downstream capability next to midstream feedstock.

Regionally, Malaysia is better placed to come out on top. Vietnam is re-benchmarking its resource base after the USGS significantly revised reserves downward in 2025, delaying timelines. Myanmar remains a dominant external supplier of heavy rare earths to China, but conflict volatility undermines reliability. Indonesia is exploring REEs from tin by-products, but is still solving for technologies and cost structures.

Building a domestic REEs industry also sits within Malaysia’s wider strategic industrial policies. Spillovers to growth come from integrating midstream with selective downstream products, linking together NIMP2030 missions to create a connected industrial cluster around the Kuantan-Peninsular corridors.

Lastly, being able to produce these critical REEs increases Malaysia’s importance to its international allies. In future trade negotiations with partners like the US or China, preferential access to their markets can be bargained for with their highly sought-after REEs products. Further cross-investment and partnerships with governments into REEs create solidarity, tightening woven threads of shared outcomes.

By establishing an REE industry, Malaysia can become a country that produces a truly indispensable commodity. From mines to magnet, this is how a minerals story becomes an industrial policy and strategic win.

Balancing serious risks to health, environment, corruption, and geopolitics

For all the benefits outlined above, the risks are equally, if not more, dangerous. What lies ahead will be a gigantic test of Malaysia’s ability to manage the risks to (i) public health, (ii) environment, (iii) corruption, and (iv) geo-strategic tensions.

Malaysia’s 1980s failed rare earth experiment

Malaysians remember the 1982 Bukit Merah saga all too well. Roughly 11,000 residents in Papan and Bukit Merah were exposed to radioactive waste from yttrium and thorium, with long-lasting repercussions that resulted in deformed births, early death, and at least eight cases of leukaemia reported.

The tragedy was compounded by the government’s failure to protect its citizens. First by dismissing reports of foul odours and rising health problems, then by siding with the operator, Asian Rare Earths, and allowing the plant to run for more than a decade. Only after residents invited international atomic experts did tests reveal radiation levels 88 times above accepted limits and improper waste dumping far beyond permitted thresholds.

Despite this, the community endured an eight-year legal battle that ended in defeat when the Supreme Court overturned a ruling to shut the plant. The ordeal dragged on until residents appealed directly to Mitsubishi Corp in Japan, prompting top-level intervention and mounting public pressure that finally forced the plant’s closure in 1994-twelve years after operations began, and long after the suffering had taken root.

(i) Public health regulation playing catch-up

Rare earth processing can concentrate thorium and uranium, creating radiological risks to public health if residues are mismanaged. The same radioactive waste in the Bukit Merah saga, thorium, has a half-life of 13.9 billion years. Even though the plant closed in 1994, it was only 21 years later in 2015 did the authorities build a permanent storage facility in Bukit Kledang to safely monitor it.

Malaysia’s painful history with rare earth processing has pushed regulators to tighten oversight. Lynas is a major test. Its Permanent Disposal Facility (PDF), now 72% complete and due by end-2026, must meet strict AELB requirements, including detailed engineering plans and ensuring residue stays below 1 becquerel per gram. Government estimates suggest public exposure remains under the 1 millisievert-per-year limit. Lynas must also scale thorium extraction to reduce radioactive waste and has committed 1% of its revenue to local R&D.

On paper, these are meaningful safeguards. But like most problems in Malaysia, implementation is often the issue. Civil society groups warn of limited transparency on the radiological profile of WLP residue and doubts about the PDF’s long-term integrity. If safeguards fail, the health burden will fall on nearby communities.

(ii) Mining vs Environment: A natural tension between growth and preservation

In Malaysia, projected mining zones include over 144,000 hectares outside permanent forest reserves, according to the Minerals and Geoscience Department.

In Perak, proposed lanthanide extraction in Kenering lies near the headwaters of Sungai Rui, putting Orang Asli communities in nearby Kampung Pong and Bukit Asu at risk. Their water sources could be contaminated, especially given that mining may increase concentrations of ammonium and thorium in surface and groundwater. The site is also in an environmentally sensitive area rank 1, part of the Central Forest Spine – a critical corridor for endangered species like tigers and elephants.

On top of environmental concerns, mining activities often displace entire small villages. Take, for example, the Orang Asli community in Kampung Pos Lanai (Pahang), who are fighting legal battles over a 220-hectare mining approval around Sungai Wang — land they claim as ancestral. They lament that mining would not only destroy forest held under customary use, but also pollute rivers that they rely on.

Ultimately, any REEs policy requires the government to be intentional from the start on protecting the environment and the community. Longer term, Malaysia should continue to invest in safer extraction technologies and rare-earth recycling to reduce reliance on high-risk sites.

(ii) Uneven State vs Federal regulations create an opportunity for corruption to fester

In Malaysia, mining remains largely a state matter — states grant exploration and mining licences under their own State Mineral Enactments, while the federal government sets overarching norms via the Mineral Development Act (1994), the Atomic Energy Licensing Act (1984), and the Environmental Quality Act (1974).

This dual system regularly creates friction: enforcement is uneven across states, while royalty rates vary wildly (for instance, Kedah has set a 15% royalty on rare-earth elements starting in 2024). Meanwhile, the lack of a unified federal-state compact on permitting procedures, environmental data transparency, and enforcement funding means that policy signals remain mixed – and the door remains wide open to corruption and cronyism.

Revenue-sharing is especially murky. Although REE is pitched as an RM 1 trillion industry, there are no plans to set up a dedicated national REE-specific law; states like Kedah resist centralised control, seeing in-state resource control as part of their sovereign rights.

Consider comparative examples below from fellow countries that highlight both the risks and different models to manage them.

In Australia, states control mineral rights, but transparent royalty schedules and federal oversight allow national-level intervention to protect critical habitats, as seen in the Tarkine rainforest dispute. In Brazil, fragmented state oversight contributed to disasters like the Samarco (2015) and Brumadinho (2019) dam collapses, prompting federal reforms: a strengthened mining regulator, mandatory tailings standards, and disaster-risk reporting.

Closer to ASEAN, Indonesia recently re-centralised mining under the 2020 Mining Law after widespread provincial corruption and illegal concessions. The federal government now directly oversees permitting and environmental compliance, especially for critical minerals like rare earths.

Across these examples, the lesson is clear: transparent federal oversight and enforceable standards are essential to prevent regulatory capture, environmental harm, and revenue loss. These are lessons Malaysia must heed for a credible REE industry.

(iv) The international spotlight on Malaysia can be glaring

The world is moving from de-risking to active industrial policy. China has tightened controls on rare earth technologies and magnet exports; the EU now hard-targets domestic processing; the US is using Defense Production Act (DPA) funds to reshore magnets and recycling.

With Malaysia playing a larger role in such a critical industry, the upside is the growing influence and diplomatic standing of Malaysia in the global arena. The downside is the intervention attempts that come from attraction.

History is littered with examples of great powers intervening in foreign sovereignty to serve their domestic politics. Look to examples of oil in the Middle East in the early 2000s to the 1800s spice trade in India, today’s increasingly multi-polar nationalist world echoes lessons from the past.

In a bifurcating world, Malaysia’s neutrality is its strongest resource. Hedging both sides is the country’s best bet. It is when its rare earths industry combines investment and technologies from the US, Europe, and China (among others) that Malaysia can create a common beneficial outcome among all stakeholders.

That said, neutrality requires competence. Capable leaders must screen investments, insist on technology access, and avoid single-buyer dependence — without collapsing into bloc politics.

The tide turns for Malaysia’s rare earths

From poison to prosperity, this is Malaysia’s rare earth moment. In a once-in-a-generation moment, the stars align for the country. It has sizable inferred resources, an existing midstream beachhead, a policy that restricts raw exports, and an industrial plan that prioritizes advanced manufacturing. All of this is reinforced by strong demand tailwinds from global supply-chain restructuring driven by geopolitics, as well as the continued rise of renewable electrification.

It is worth repeating. Malaysia’s leverage lies not in abundance, but in restraint. It is the quiet confidence that comes from just, responsible, and clean execution.

In a world short of trust, selling reliability may be the most valuable product Malaysia can make.

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Edited by Thant Thura Zan, Frontier Analysis Editor

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