China's rare earths ban could impact Indian industries, banks: SBI
What's the story
India's core industrial sectors, including transport, electronics, and machinery, heavily rely on rare earth imports from China. A recent analysis by the State Bank of India (SBI) warns that ongoing Chinese export curbs could disrupt domestic production and exports. The study also highlights potential impacts on banks with exposure to these sectors.
Dependence on imports
Rare earths critical for India
The SBI analysis highlights that rare earths are a critical mineral for India, with transport equipment, basic metals, machinery, construction, and electrical/electronics being the top sectors impacted by China's ban. It warns that any disruption in the supply of rare earth could impact not only domestic production and exports but also the financial exposure of banks linked to these industries.
Financial implications
Potential transmission mechanisms to banks due to supply shock
The SBI analysis outlines several potential transmission mechanisms to banks due to a rare earth supply shock. These include elongation of the working capital cycle due to accumulation of semi-processed inventory and idle capacity, and volatility in demand due to output inoperability. It could also lead to stress emergence in upstream and downstream sectors, interlinkages from non-banking financial companies (NBFCs) to the banking sector, and export/trade uncertainties for committed yet unfulfilled obligations.
Import statistics
India has imported rare earths worth $33 million annually
An analysis of India's trade data shows that the country has imported rare earth elements and compounds worth around $33 million annually over the last four years, with FY25 imports at $31.9 million. However, magnet imports, which are closely tied to rare earths, have been much higher at an average of $249 million during this period and rising to $291 million in FY25.
Sectoral impact
Direct absorption of rare earths concentrated in 6 core sectors
The SBI study highlights that the direct absorption of rare earths is concentrated in six core sectors, especially basic metals and electrical/optical equipment. In terms of magnets, usage is mainly concentrated in automotive, electrical/electronics, and machinery sectors. A granular sector-by-sector analysis was done considering both direct rare earth inputs and embodied rare earth content in magnets (33% by weight).