https://www.nasdaq.com/articles/exclusive-rare-earths-magnet-firms-turn-to-vietnam-in-china-hedge

Korean and Chinese magnet firms, including an Apple supplier, are set to open factories in Vietnam, according to documents and people familiar with the plans, amid a push to diversify supply chains away from China and defend against Sino-U.S. tension.

South Korea's Star Group Industrial (SGI) and China's Baotou INST Magnetic would join companies in sectors as varied as electronics and automobiles in shifting assembly lines against a backdrop of increasing trade restrictions, with clients even requesting the move, the people said.

China is dominant in magnets and the rare earth metals they are made from. The magnets are central to the manufacturing of such products as electric vehicles, wind turbines, weapons and smartphones, making the sector strategically important. Even so, there has been only limited effort to challenge China's lead.

Neighbouring Vietnam, however, has untapped rare earth deposits second only to China's, as well as a fledgling processing industry, giving the country the potential to be a much bigger competitor, industry insiders said.

Still, Vietnam produces just 1% of the world's magnets, showed Adamas Intelligence data cited in a U.S. Department of Energy report, compared with China's 92%.

Moreover, some Chinese factories can produce 10 times as many magnets as SGI's project, and China dominates the mining and processing of the ores.

Nevertheless, Vietnam's rise is significant.

Moreover, U.S. officials have signalled growing interest in Vietnam's rare earths potential amid discussion to upgrade bilateral ties this year, and South Korea signed a deal with Vietnam in June to boost its supply chain of critical minerals.

Magnet makers are also drawn to Vietnam by low labour costs and market access afforded by multiple free-trade deals. They also want to move closer to Vietnam-based clients, such as automakers and electronics firms, which are increasingly wary of over-reliance on Chinese supplies as relations worsen between Washington and Beijing, industry insiders said.

Vietnam is the only country beyond China with all stages of the magnet supply chain, from mining rare earths to downstream production, said a Vietnam-based industry consultant, who was not authorised to speak to media so declined to be identified.

The government plans a vast expansion of rare earths production by the end of the decade and is boosting refining capacity, which the U.S. energy department estimated accounts for 3% of the global share.

However, "anyone who is trying to build from scratch a mine-to-magnet supply chain is going to face a lot of challenges," said David Merriman of Project Blue.