The U.S. government, which has been lamenting China’s rare earth controls, is now plotting its next move. A Reuters report on July 14 revealed that the U.S. government is accelerating efforts to establish an independent rare earth pricing mechanism, providing price subsidies to mining companies in an attempt to stimulate industry investment and weaken China’s dominance in the global rare earth market.
However, analysts warn that while this immediate pricing mechanism may benefit producers, it could raise costs for downstream consumers and clients like automakers, and it remains uncertain whether it can achieve scale in the future.
For years, Western rare earth miners have called for an independent pricing mechanism to help them compete in the rare earth market.
The report suggests that one reason the West has struggled to challenge China’s control over 90% of global rare earth supply is that China’s low prices have dampened investment incentives elsewhere. To break this deadlock and spur domestic industry investment, the U.S. government has begun pushing for an independent, higher-priced pricing system.
Under an agreement disclosed last week, the U.S. Department of Defense will set a minimum purchase price for MP Materials, the only domestic U.S. rare earth miner, at nearly double the current market rate.
According to a July 10 CNBC report, MP Materials announced that the Pentagon has agreed to buy $400 million in preferred shares, making it the company’s largest shareholder.
The Pentagon will support the company in building a second rare earth magnet manufacturing plant in the U.S. MP Materials plans to add 7,000 tons of annual production capacity, with an overall goal of 10,000 tons per year—equivalent to the U.S. domestic magnet consumption in 2024.
MP Materials operates the only active rare earth mine in the U.S., located in Mountain Pass, California. The company expects to begin commercial magnet production at its Texas facility around 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 magnet production at its Texas plant, starting with an annual output of 1,000 tons before expanding to 3,000 tons.
“This benchmark price will become the new ‘center of gravity’ for the industry, pushing up overall prices,” said Ryan Castilloux, managing director of consultancy Adamas Intelligence.
Under the plan, the Pentagon will subsidize the difference between the market price—set primarily by China—and $110 per kilogram for MP Materials’ two most commonly used rare earths, neodymium and praseodymium. If prices exceed $110, the Pentagon will receive a 30% share of the additional profits.
Castilloux noted that indirect beneficiaries of this pricing system may include companies like Belgian chemical group Solvay, which announced plans to expand capacity in April.
“This will give Solvay and others the incentive to set similar price levels—or, you could say, a pricing ‘floor,'” he added.
While Solvay declined to comment, other rare earth miners, developers, and their shareholders welcomed the news.
Aclara Resources, a Canadian company developing rare earth mines in Chile and Brazil and planning a separation plant in the U.S., said the agreement opens a “new strategic path,” according to Alvaro Castellon, its strategy and development manager.
Reuters noted that as U.S.-China trade talks continue and China imposes rare earth export controls, global reliance on Chinese rare earths has come under renewed scrutiny.
So far, Western governments have made little progress in helping their industries compete. Previous attempts to set magnet premiums through fragmented agreements failed to establish a systematic pricing mechanism.
Analysts warn that this immediate pricing agreement will have global repercussions. While beneficial to producers, it may increase costs for downstream consumers like automakers and their clients.
Dominic Raab, former U.K. deputy prime minister and foreign secretary, pointed out that the Trump administration realized tax cuts alone couldn’t drive the necessary investment levels, so he wasn’t surprised by the pricing mechanism.
“The next question is: Can they achieve scale?” Raab asked.
The Financial Times has noted that the U.S. government rarely makes direct investments in companies, typically only supporting technologies critical to national interests or rescuing vital firms from bankruptcy in extreme cases.
A July 8 article in the paper stated that while the West has long recognized the importance of rare earth minerals, it has only paid lip service to “enhancing resilience” without real financial commitment. For decades, the West has eyed this “weapon,” so it shouldn’t be surprised when China finally pulls the trigger.
The Pentagon’s $110-per-kilogram price for neodymium and praseodymium slightly exceeds the $75–$105 range that consultancy Project Blue estimates will be needed to meet future demand. The current market price is around $63.
David Merriman of Project Blue said it’s unclear whether commercial clients will accept higher prices or increase rare earth investments, given their diversified supply sources.
“Major non-government-backed customers are unlikely to replicate this investment model, as they don’t necessarily rely on a single regional supply chain,” he said.
When asked about supporting the Pentagon’s floor price, German automaker Volkswagen declined to comment on pricing but said it “welcomes all efforts to strengthen the long-term stability and diversification of global supply chains for critical materials.”
However, mining veteran and former Molycorp CEO Mark Smith told Bloomberg last month that Western countries may need years to develop meaningful rare earth processing capabilities. “We need to build the necessary onshore facilities to address this, but it will be a long and difficult process.”
Cameron Johnson, a senior partner at Shanghai-based consultancy TidalWave and former vice president of the American Chamber of Commerce in Shanghai, predicted that rare earth diversification strategies in the U.S. and elsewhere face challenges like time, cost, and human capital. “Just the time required would be at least 10 to 20 years, with costs in the trillions. And where will the talent come from? Who knows how to process these materials? Who understands purification? How do you achieve high purity? These skills don’t exist in most countries.”
