CRITICAL MINERALSU.S. Moves Decisively to Avoid Dependence on China’s Rare Earths

By David Uren

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.