Half the world's heavy rare earth production grinds to a halt amidst civil war.

Myanmar's top exports have long been oil and natural gas, followed by fruits and vegetables, wood, fish, clothing, and rubber. Its main export partnerships are with China, India, Japan, South Korea, Germany, Indonesia and Hong Kong. Today, this small country has found itself to be an essential source of heavy rare earth elements (HREEs), vital ingredients for the magnets used in electric vehicles and renewable energy wind turbines worldwide.

With countries scouring their own backyards for resources, Myanmar's geological wealth has caught the eye of battery-producing world powers; as much as 50% of the global heavy rare earths supply has come from the small country's mines directly to China, controlling almost 90% of global rare earth processing, backed by 60% of global production.

Most of Myanmar's HREEs originate from Kachin, bordering China. The state has suffered decades of civil war between the Myanmar military and ethnic communities struggling for greater political autonomy.

Amid the ongoing conflict, the Kachin Independence Army managed to overrun a leading mining center in mid-October of this year, a hub that includes production sites in Pang War, Chipwi, Phimaw and Hsawlaw, with Chinese media reporting that mining operations have effectively been halted.

The takeover of Myanmar's most prolific rare earth mines has disrupted the global supply chain, with China imposing a trade embargo in response to the seizure, further exacerbating the shortage of rare earth minerals and driving prices up. While operations remain suspended, supply is dwindling.

Previously, rare earth mining areas in Kachin state were under the control of government-allied militia group NDA-K, which welcomed payments from Chinese companies looking to establish mines.

According to Myanmar news sources, during military operations, the Kachin Independence Army occupied Pang War – hosting the largest rare earth mine in Myanmar – in October. China retaliated with a trade embargo on Myanmar, cutting off electricity and imports of essential goods including fuel and foodstuffs. Locals said that most of the rare earth mining had to be suspended after China's closure of the border and import ban.

Last year, Myanmar exported approximately 50,000 metric tons of rare earth oxides (REOs) from ion-adsorption clays to China, surpassing China's domestic IAC mining quota of 19,000 tons and positioning Myanmar as the leading global exporter of heavy REOs according to broker Ord Minnett.

Last month, China halted rare earth imports from Myanmar and suspended exports of ammonium sulfate used to leach rare earths there due to the conflict. The Kachin Independence Army is expected to "resume the REO business provided China is prepared to accept the exports and supply the technicians and ammonium sulphate. But I reckon it will expect payments before letting the companies do so," according to Ord Minnett analyst Matthew Hope.

"Once the conflict passes, we expect financial deals with Chinese miners will be renegotiated, likely delaying restarts until early-2025," Hope said.

The combination of these factors will likely lead to a period of price consolidation shortly followed by a rise as the market absorbs the impact of reduced supplies and potential trade restrictions. Reports of disturbing developments around Myanmar's mostly unregulated extraction of heavy rare earth elements may also figure into future supply and pricing concerns.