[Reported by Observatorist Network, Liu Bai] The U.S. government, which has been complaining about China’s rare earth control measures, is now plotting another strategy. According to a report by Reuters on July 14th, the U.S. government is accelerating the development of an independent rare earth pricing mechanism, providing price subsidies to mining companies in an attempt to stimulate industrial investment and thereby weaken China’s dominant position in the global rare earth market.
However, analysts have warned that this immediate-effect pricing mechanism, while beneficial for producers, could push up costs for downstream consumers such as automobile manufacturers and their customers, and whether it can achieve scale remains uncertain.
For a long time, Western rare earth miners have been calling for the establishment of an independent pricing mechanism to help them compete in the rare earth market.
The report suggests that one reason why the West has difficulty undermining China’s control over 90% of the global rare earth supply is because China’s low prices have diminished other countries’ investment incentives. To break this situation and promote local industry investment, the U.S. government has begun pushing for the establishment of an independent and more expensive pricing system.
According to a public agreement last week, the Department of Defense will set a minimum purchase price for its sole domestic rare earth miner, MP Materials (MP Materials), at nearly double the current market price.
As reported by CNBC on July 10th, MP Materials announced that the Department of Defense had agreed to purchase its $400 million preferred stock, becoming the company’s largest shareholder.
The Pentagon will support the company in constructing its second rare earth magnet manufacturing plant within the United States. MP Materials plans to add an annual production capacity of 7,000 tons, with a total goal of producing 10,000 tons by 2024, equivalent to the domestic consumption of magnetic materials in the United States.
Currently, the only rare earth mine in the United States is the Mantid Minerals rare earth mine located in California.
The company expects to commence commercial magnet production at its Texas factory by the end of this year.
Affected by China’s low-price strategy, MP materials reported a net loss of $65.4 million last year. The company will gradually increase the magnet production capacity at its Texas factory, initially producing 1,000 tons per year, and then expanding it to 3,000 tons.
“This benchmark price will become the new ‘gravitational center’ in the industry, thereby driving up overall prices,” said Ryan Castilloux, Managing Director of consulting firm Adamas Intelligence.
According to the plan, the U.S. Department of Defense will subsidize MP Company for the difference between the market price and the price per kilogram of two of the most commonly used rare earths (Nd and Dy), which are currently set by China. If the price exceeds $110, the Department of Defense will receive an additional 30% profit share.
Castilloux pointed out that the indirect beneficiaries of this pricing system might also include companies like Belgium’s chemical group Solvay, which announced in April this year its expansion of capacity.
“This will give companies like Solvay the motivation to set similar price levels, or rather, a ‘floor price’ for them,” he added.
Despite Solvay’s refusal to comment on the matter, other rare earth miners, developers, and their shareholders welcomed the news.
Aclara Resources, a Canadian rare earth mining company, is developing rare earth mines in Chile and Brazil and plans to establish a rare earth separation plant in the United States. Alvaro Castellon, the company’s Strategic and Development Manager, stated that this agreement brings “a new strategic path” to the company.
Reuters reports that due to ongoing Sino-US trade negotiations, China’s export controls on rare earths have once again raised concerns about the global dependence on these minerals.
To date, Western governments have been largely ineffective in helping their industries compete. Previous attempts to set magnet prices through decentralized agreements failed to establish a systematic pricing mechanism.
Analysts warn that this immediate price agreement will have global implications, which are beneficial for producers but could push up costs for downstream consumers such as car manufacturers and their customers.
In Stilwell, Oklahoma, USA: Screws used for assembly lines inside a rare earth factory
Dominic Raab, former Deputy Prime Minister and Foreign Secretary of the UK, mentioned that the Trump administration was not surprised by the realization that tax cuts alone would not drive the required level of investment.
“The next question is: Can they scale up?” Raab asked.
The Financial Times noted that the US government rarely makes direct investments in businesses, typically only supporting technological development crucial to national interests or saving important companies from bankruptcy in extreme cases.
A July 8 article in the newspaper pointed out that the West had long recognized the importance of rare earth minerals, yet it only spoke of “strengthening resilience” verbally without actually investing funds—for decades, the West has been watching this “weapon,” and when China finally pulled the trigger, they should not have been surprised.
The Department of Defense sets the procurement price for neodymium at $110 per kilogram, slightly higher than the price range Project Blue believes is needed to meet future market demand, which is between $75 and $105 per kilogram. The current market price is around $63.
Project Blue’s David Merriman believes that it remains unclear whether commercial clients will accept higher prices and increase their investments in the rare earth sector due to their diversified supply sources.
“Main non-governmental support clients are unlikely to replicate this investment model, as they may not necessarily rely on a specific regional supply chain,” he said.
When asked about whether they support the Department of Defense’s set price, German car giant Volkswagen declined to comment on the price issue but stated, “We welcome all efforts that contribute to the long-term stability and diversification of the global supply chain for critical materials.”
However, Mark Smith, a mining veteran and former CEO of Molycorp, expressed in an interview with Bloomberg last month that it would take several years for Western countries to develop a certain level of rare earth processing capabilities. “We need to establish the necessary facilities onshore to solve this problem, but it will be a lengthy and difficult process.”
Cameron Johnson, a senior partner at TidalWave, a consulting firm based in Shanghai, and former Vice President of the Shanghai American Chamber of Commerce, expects that the diversification strategy for rare earth supplies in some countries like the United States faces numerous challenges including time, cost, and human capital. “The required time alone is at least 10 to 20 years, the costs are at least trillions of dollars, and where do we get the talent? Who knows how to process these materials? Who understands purification processes? How can we achieve high purity? Talent is not available in most countries.”