Jun 02, 2023
The Race for Critical Minerals in Malaysia: Upstream, Mid
HOME ARTICLES The Race for Critical Minerals in Malaysia: Upstream, Mid-Stream, or Downstream? A worker walking past a steamroller at the site of a Lynas plant in Gebeng, Malaysia. (Photo: Mohd Rasfan
HOME ARTICLES The Race for Critical Minerals in Malaysia: Upstream, Mid-Stream, or Downstream?
A worker walking past a steamroller at the site of a Lynas plant in Gebeng, Malaysia. (Photo: Mohd Rasfan / AFP)
Published 24 Aug 2023
Tham Siew Yean
The global hunt for critical minerals used in clean energy platforms such as electric vehicles has put the spotlight on some Southeast Asian countries, in particular, Malaysia.
The increasing focus on the development of clean energy and the associated demand for critical materials used in electric vehicles (EVs) have put several Southeast Asian countries in the spotlight. To harness the true potential of such new trends, Malaysia, in particular, needs to step up its game by moving towards the downstream end of the value-added production chain.
Increasingly, global attention is now zeroed in on two major categories of minerals. Critical minerals — such as lithium, cobalt, manganese, and graphite — are used to produce EV batteries. Rare earth elements such as neodymium are used for permanent magnets used in EV motors. The increasing geo-political tensions between the U.S. and China have further hastened the hunt for critical minerals to secure supplies. This will support the restructuring of supply chains in the U.S., China, and beyond, including the European Union and other North-East Asian countries.
ASEAN-IGF Mineral Cooperation’s scoping study shows that in 2020, Indonesia and the Philippines were the foremost mining countries in Southeast Asia, while Malaysia is the regional leader in aluminium, iron, and manganese production. Malaysia, however, has a history of rare earth element mining, as there were two plants operating in Perak, namely the Asian Rare Earth (ARE) and the Malaysian Rare Earth Corporation Plant (MAREC). Both were subsequently closed down due to environmental concerns, including the disposal of radioactive waste. In 2012, Australia’s Lynas Advance Materials Plant (LAMP) was established near Kuantan, in Pahang state. It is reportedly the world’s largest rare earth extraction plant outside China. The US$800 million plant, which separates and processes rare earth materials, was reported recently given an extension to import and continue its operations until January 2024.
In 2014, Akademi Sains Malaysia (ASM), together with the Ministry of Science, Technology, and Innovation (MOSTI), proposed a blueprint for the establishment of rare earth element industries in Malaysia as a new source of growth. The blueprint covered the development of the whole value chain of activities in Malaysia, ranging from upstream to midstream and downstream (Figure 1). Upstream activity pertains to mining activities, while the midstream process refers to the transformation of minerals into refined products through separation and purification. Downstream activities use these refined products in manufacturing such as the production of manufactured goods such as EV batteries.
Malaysia’s Drive to Go Downstream
Figure 1. The Rare Earth Element Ecosystem.
Although the government did not adopt the suggested blueprint, the global race for critical minerals has raised new interest in this industry. In 2022, the Malaysian Investment Development Authority (MIDA) offered incentives to attract foreign direct investments (FDI) in the production of advanced materials so as to shift Malaysia from mid-stream processing to downstream manufacturing of advanced materials such as rare earth magnets. The recently released Chemical Industry Roadmap 2030 (CIR2030) reinforced this shift towards downstream manufacturing with its emphasis on the use of inorganic chemicals, including rare earth elements, for the production of electronic chemicals for Malaysia’s electronics sector. Unlike Indonesia, Malaysia has not resorted to the use of export bans on critical minerals to develop the downstream segment of this sector and has instead favoured the use of incentives to induce the aspired FDI into the targeted sector. Nevertheless, this approach is not without its challenges due to the laws governing State and Federal jurisdictions in mining matters.
ASM’s blueprint has also identified several potential sites for rare earth element mining in the states of Perak, Selangor and Negri Sembilan, including the western flanks of Pahang. The flurry of interest in rare earth mining has led to reports of suspected illegal mining in Kedah and Negeri Sembilan this year. Some states with rare earth element deposits have also embarked on exploration, production, and export. For example, Kedah was reported to have signed a memorandum of understanding with Jangka Bakat Minerals Sdn. Bhd. and China’s Xiamen Tungsten Co. Ltd., for the exploration, technical assistance, and the mining of rare earth elements. The interests of these states lie in the royalty payments over the production and sale of these minerals. Perak, for example, was reported to have received RM1.66 million in royalty payment over the production of Rare Earth Carbonate (REC) from its rare earth pilot project, which was then exported to China.
Stronger ESG compliance will provide a crucial step forward for Malaysia to up its game in the critical mineral industry, including in rare earth element mining.
These developments may not necessarily be aligned with the Federal government’s plans for the development of critical mineral resources, which is focussed on the extraction of critical minerals, such as rare earth element, for furthering economic development through downstream developments. Instead, the respective states’ objectives may be much narrower and short-term in nature such as the extraction of economic rent from these resources. But it is the State Director of the Lands and Mines Department in each State’s Land office who issues licences and mining leases.
At the federal level, the Ministry of Energy of Natural Resources and Environment is in charge of regulations pertaining to the exploration and mining of minerals and mineral ores and for other matters that are connected with these issues. Regulatory issues are of course important given environmental, social and governance (ESG) concerns over the mining of these minerals, be it by domestic or foreign investors.
The Federal government can therefore use its regulatory authority to facilitate the shift towards downstream activities by imposing and ensuring compliance to international ESG mining requirements. This will weed out bad mining practices and over-exuberant mining at the state level. At the same time, multinationals from the developed world are looking for ESG-compliant minerals for their mid-stream and downstream activities. Stronger ESG compliance will provide a crucial step forward for Malaysia to up its game in the critical mineral industry, including in rare earth element mining.
Tham Siew Yean is Visiting Senior Fellow at the ISEAS – Yusof Ishak Institute and Professor Emeritus, Universiti Kebangsaan Malaysia.
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Khairy JamaluddinMalaysia’s Drive to Go DownstreamFigure 1. The Rare Earth Element Ecosystem.