The United States’ ambition to loosen China’s stronghold on the global rare earth minerals supply chain encounters a multitude of challenges. In a secluded field outside Houston, Texas, plans are underway for a rare earth processing plant to be constructed by Lynas Rare Earths, an Australian company. This plant, while promising, represents just a fragment of the US’s broader multibillion-dollar endeavor to rival China’s dominance, which currently commands about 70% of the world’s rare earth output and over 90% of its refining capacity.
US Investment: Slow Progress in a High-Stakes Race
Rare earth elements play a pivotal role in various cutting-edge applications such as smartphones, wind turbines, and military gear. The forthcoming Texas plant by Lynas is part of a burgeoning US initiative to diminish dependency on China for rare earth minerals. With more than $300 million in contracts secured from the Pentagon for the 149-acre site, Lynas aims to have the facility operational within two years, significantly bolstering the US’s rare earth processing capabilities. This plant is just a fraction of the substantial subsidies and loans pledged by the US and its allies to foster domestic rare earth production.
The American government views the development of a domestic rare earth supply chain as a matter of national security, seeking to disrupt China’s near-complete control over refining and production. However, despite clear intentions, prevailing market conditions pose a formidable challenge. Since 2022, global prices for rare earth elements have plummeted due to increased supply from China and a slowdown in its domestic economy. This downturn has cast doubts on the long-term financial viability of many new projects outside China, leaving the establishment of a robust, independent supply chain in uncertainty.
Market Volatility Threatens New Rare Earth Ventures
Despite the global demand for rare earth elements, their extraction and processing are rife with economic and environmental hurdles. While not truly scarce, rare earths are seldom found in concentrations high enough to justify environmentally intensive mining operations. These 17 chemically related elements are crucial for manufacturing electronics, renewable energy components, and defense technology. Current market conditions pose a threat to new entrants, with CEO James Litinsky of MP Materials Corp. noting that many anticipated projects have been thwarted by the prevailing market conditions.
Even with domestic mining operations in place, refining and processing remain predominantly under Chinese control, underscoring the dominance of China’s supply chain. In response to these market challenges, Laura Taylor-Kale, the US Assistant Secretary of Defense for Industrial Base Policy, pledged earlier this year to establish a “sustainable mine-to-magnet supply chain capable of supporting all US defense requirements by 2027.” She highlighted that the Lynas project in Texas could potentially produce around 25% of the world’s supply of rare earth oxides once operational.
China’s Dominance: Strategic Price Manipulation at Play
China’s grip on the rare earth market stems from its aggressive mining and refining activities, bolstered by government policies. The country consolidated its five largest producers into a single entity, further tightening its control over the global rare earth supply. By increasing mining quotas for rare earths in 2023 and 2024, the Chinese Ministry of Natural Resources, along with its industry ministry, drove down global prices, applying additional pressure on competing projects. This market environment has left many rare earth mines struggling to break even, leading to delays and funding shortages for early-stage projects.
This current situation mirrors past geopolitical maneuvers, such as in 2011 when China temporarily halted rare earth supplies to Japan amid a territorial dispute. This move prompted Japan to diversify its rare earths supply chain, eventually investing in Lynas. It illustrates how geopolitics and market control can intersect to significantly impact global supply chains. Despite securing substantial investments, some rare earth projects outside China, like Arafura Rare Earths, are already facing setbacks due to funding gaps, hindering construction progress.
The Key to Rare Earth Supply Chain Independence
Japan’s experience offers valuable insights into the complexities of establishing an independent rare earth supply chain. Following China’s export restrictions in 2011, Japan invested $250 million in Lynas, enabling the company to commence trial production two years later. However, it took until 2018 for Lynas to turn profitable, underscoring the protracted timeline and substantial financial backing required for such projects. Lynas CEO Amanda Lacaze stressed the necessity for “patient capital” in the rare earths market, particularly for ventures breaking new ground.
Recent delays with the Texas facility, attributed to issues with wastewater permits, highlight the challenges facing new rare earth projects in the West. The US’s endeavor to cultivate a competitive rare earths supply chain encounters obstacles stemming from market conditions and geopolitical maneuvers. As global rare earth prices decline and China’s strategic control persists, the quest for a robust, independent supply chain remains uncertain. Achieving the Western world’s goal of establishing a competitive supply chain will necessitate not only investment but also strategic patience and international collaboration.
