U.S. efforts to break China’s dominance of the rare earths market and to drive investment in its own industry have moved up a gear with a Washington-backed plan to create a separate, higher pricing system.
The West has struggled to weaken China’s grip on 90% of the supply of rare earths, in part because low prices set in China have removed the incentive for investment elsewhere.
Miners in the West have long called for a separate pricing system to help them compete in supplying the rare earths group of 17 metals needed to make super-strong magnets of strategic importance. They are used in military applications such as drone and fighter jets, as well as to power motors in EVs and wind turbines.
Under a deal made public last week, the U.S. Department of Defense will guarantee a minimum price for its sole domestic rare earth miner MP Materials (MP.N), opens new tab, at nearly twice the current market level.
Las Vegas-based MP already produces mined and processed rare earths and said it expects to start commercial magnet production at its Texas facility around the end of this year.
Analysts say the pricing deal, which takes effect immediately, should have global implications – positive for producers, but may increase costs for consumers, such as automakers and in turn their customers.
“This benchmark is now a new centre of gravity in the industry that will pull prices up,” said Ryan Castilloux, managing director of consultancy Adamas Intelligence.
The DoD will pay MP the difference between $110 per kilogram for the two most-popular rare earths and the market price, currently set by China, but if the price rises above $110, the DoD will get 30% of additional profits.
Castilloux said other indirect beneficiaries of the pricing system may include companies, such as Belgian chemicals group Solvay (SOLB.BR), opens new tab, which launched an expansion in April.
“It will give Solvay and others the impetus to command a similar price level. It will give them a floor to stand on, you could say,” Castilloux added.
While Solvay declined to comment, other rare earth miners, developers and their shareholders welcomed the news.
Aclara Resources (ARA.TO), opens new tab is developing rare earths mines in Chile and Brazil, as well as planning a separation plant in the United States. Alvaro Castellon, the company’s strategy and development manager, told Reuters the deal added “new strategic paths” for the company.
MP’S GRADUAL OUTPUT INCREASE
MP Materials, which suffered a net loss of $65.4 million last year largely because of China’s low pricing, will build up magnet production at its Texas plant initially to 1,000 metric tons a year, later expanding to 3,000 tons a year.
Under last Thursday’s deal, the DoD will become its largest shareholder with a 15% stake and MP will construct a second rare earth magnet manufacturing facility in the U.S., eventually adding 7,000 tons per year. In total, production would be 10,000 tons a year – equalling U.S. consumption of magnets in 2024.
That does not include, however, the 30,000 tons imported by the United States already installed in assembled products, Adamas consultancy said.
It predicts global demand for rare earth permanent magnets will more than double over the next decade to about 607,000 tons, with the U.S. seeing the strongest percentage annual growth rate in coming years at 17%.
