US moves decisively to avoid dependence on China’s rare earths
The Pentagon’s package of support for rare earths company MP Minerals, announced on 10 July, should free the US military and eventually much of US industry from dependence on Chinese supply chains for rare earth magnets.
It resembles the decisive Japanese government support for Australia’s Lynas Rare Earths in 2010, which included a guaranteed offtake agreement and patient capital.
The Pentagon deal goes further, providing MP Minerals with a government-backed floor price for neodymium and dysprosium of US$110 a pound, double the prevailing price set by the Chinese market. It guarantees to deliver customers for the company’s entire output of rare earth magnets for 10 years, with the minimum price similarly underwritten for a decade. Completing the deal, Apple has provided a US$500 million offtake agreement.
While the share prices of Lynas and other local rare earths companies Iluka, Arafura and Northern Minerals jumped on news of the deal, in the hope that the United States would supplant China as the price-setting market for rare earths products, this is far from certain.
The MP Minerals floor price will need to be backed by tariffs if the US market is not to be flooded by offshore supplies. This could potentially threaten access to US markets for Australian rare earths producers.
Canadian critical minerals analysis company Adamas Intelligence commented that the US subsidies to MP Minerals would need to be complemented by ‘robust trade policies to counter potential Chinese dumping and allied competition.’
Processing rare earths at scale has required government intervention to secure both offtake agreements and basic funding because of its technical complexity and lack of transparent pricing.
There are 17 rare earth elements, which combine in different ways in each deposit. Pilot plants to work out the chemical processes for separating them do not automatically translate to a full-scale operation. It took Lynas more than five years to get its Malaysian plant up to full-scale operation with product reaching the required standards of its Japanese customers.
Pricing is based on consultant surveys of Chinese rare earths sellers and buyers. There are no futures markets. Funders can have no assurance that a greenfield refinery, typically costing more than $1 billion, will either deliver product to customer requirements, let alone do so at a profit. Hence, the need for determined government support.
The Pentagon’s support for MP Minerals follows China’s imposition of export controls on rare earths and magnets in retaliation for US controls on chip exports and the Trump administration’s tariffs. It resulted in an effective embargo on sales to the US.
It mirrors the Japanese support for Lynas in the wake of China’s first use of rare earths as an economic weapon with a brief embargo on sales to Japan amid a dispute over the Senkaku Islands in 2010.
A week after the embargo was lifted, the Japanese and Australian governments signed an agreement on rare earths supply and the Japanese trading company Sojitz arranged US$325 million in finance for Lynas which would provide the Japanese market with rights to 9,000 tonnes of rare earth oxides a year for a decade. Finance for those sales would be provided by the state-owned Japan Oil, Gas and Metals National Corporation, JOGMEC.
The Trump administration has at times appeared to have a scatter-gun approach to rare earths, variously pitching to annex Canada and Greenland and appropriate Ukraine’s untapped reserves as payment for past military aid and extracting a promise of access to the rare earths reserves of the Democratic Republic of the Congo and Rwanda in return for brokering a peace deal between the two.
Australia has been trying to elicit US government support for Australian rare earths projects ever since the period of the first Trump administration. One tangible outcome was a US Department of Defense agreement in 2020 to provide US$288 million to fund a joint venture between Lynas and US chemicals company Blue Line to build a separation plant in Texas for heavy rare earths. That was supposed to have been completed by 2025–2026, however site development has been frozen over an issue with wastewater permits.
As part of AUKUS’s enabling legislation, the US Congress agreed in late 2023 to make Australian and British companies eligible for Defence funding.
The Australian government had hoped that an offer to guarantee US access to Australian critical minerals would lead the US to drop its 10 percent tariff on imports from Australia and bring an influx of US investment. The offer was rejected.
The US government’s preference, revealed in its deal with MP Materials, is to prioritise US interests. In July 2023, The Strategist published an article by Georgetown University academic Shubham Dwivedi and US critical mineral analyst Greg Wischer arguing that US should be prepared to fund mines in Australia for minerals that were not readily available in the US or Canada but that any US investment in refining or further processing should be located in the US.
That article should be required reading for anyone wanting to understand where Australia sits in the Trump administration’s critical minerals policy. Wischer is now deputy chief of staff for policy at the US Department of the Interior with charge of critical minerals policy.
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