【By Observer Net, Juan Jiaqi】
"I don't want to bet on a bunch of losing horses." Last year, when talking about MP Materials, CNBC analyst Jim Cramer turned serious, openly expressing his skepticism toward the company, calling its market performance "disappointing."
Now, with the massive investment and policy support from the U.S. Department of Defense, this once struggling largest U.S. rare earth producer is seen as a potential project to end China's dominance in the rare earth sector.
But can pouring money really reverse the situation? The Wall Street Journal gives an answer that is not very optimistic. U.S. media reported on the 14th that from the development history of MP Materials, it is clear that American producers face many obstacles in reviving the rare earth industry.
China still holds multiple "aces" in the rare earth field: not only does it have top-level mines around the world, but it also has low-cost processing chemicals, a large number of skilled workers, and mature capabilities for handling toxic rare earth mine waste. This makes the path to revitalizing the U.S. rare earth industry difficult and full of challenges.
The only U.S. rare earth mine - Mountain Pass Rare Earth Mine. Visual China
According to the Wall Street Journal, the co-founders of MP Materials, James Litinsky and Michael Rosenthal, entered the rare earth industry by accident.
Since the mid-20th century, the "Pass Mountain" deposit in California's Mojave Desert has been a major hub for rare earth mining, dominating global production for decades. Until 2015, due to the inability to compete with Chinese companies, the company operating this mine declared bankruptcy.
This caught the attention of the two brothers, Litinsky and Rosenthal. At that time, they both held bonds of the bankrupt company, worried that no one would want to acquire the mine, fearing that this key strategic asset would be abandoned, so they took control of the Mountain Pass mine two years later.
After taking over, MP Materials urgently needed to make quick profits, but Litinsky and Rosenthal were soon shocked: after the ore was mined, it had to go through complex processes to separate rare earth elements from the rock, and further purify them into individual elements. And apart from China, almost no one has the technology to achieve this process at a low cost.
Hiring people was also a problem: at that time, the mine located in a remote area had only eight workers, and there were wild donkeys around.
"We didn't have money, only eight employees, the mine had already gone bankrupt, and everyone thought the U.S. couldn't do rare earth," Rosenthal recalled, "We couldn't go to engineers and say, 'Do you want to leave (the global mining giant) Rio Tinto to come here?'"
Later, MP Materials reached an agreement with Chinese rare earth companies: the Chinese companies provided initial funding in exchange for a small stake in MP Materials. Then the Chinese companies sold MP Materials' ore to China, where Chinese buyers refined it into magnets.
As the company gradually stabilized, MP Materials used the revenue from this collaboration to start its own rare earth processing business, and the U.S. Department of Defense also provided approximately $100 million in grants.
Litinsky believes that the strategic importance of the company will eventually translate into financial returns. Therefore, MP Materials needs to learn how to truly make magnets, rather than just processing ores and selling them to others. However, significantly reducing the U.S. rare earth industry's reliance on China is no easy task.
China's share in the global rare earth supply chain, including mining, refining, and magnet production. Wall Street Journal map
The first challenge is the talent dilemma. The U.S. rare earth magnet industry is nearly obsolete, and those with commercial experience are mostly in their sixties or seventies. MP Materials searched globally for technical talents, eventually recruiting a senior executive who previously worked in a European magnet factory, as well as other experts not from Chinese companies.
To lead this project, MP Materials also hired metallurgist Alan Lund, who previously led a high-performance metal alloy R&D company. Lund went to great lengths to find a core customer, General Motors, willing to sign a long-term sales contract.
When looking for production equipment, MP Materials got into new trouble because they did not want to purchase machines from China. They turned to suppliers in North America and Europe for air-jet mills, furnaces, etc., but these devices not only cost more, but the delivery time could sometimes be as long as nearly two years.
More importantly, there are technological barriers. MP Materials must also master the complex engineering technologies required to produce high-quality magnets, such as "grain boundary diffusion technology" (GBD). But outside of China, a veteran player, few countries have made breakthroughs.
After all the efforts, by 2023, MP Materials finally became the only company in the U.S. capable of achieving commercial separation of rare earths, allowing it to bypass Chinese refineries and directly supply buyers in the U.S., Japan, and South Korea. However, MP Materials has never managed to lower costs, and production cannot be increased, leading to the company's difficulty in sustaining profitability, with poor market performance, which led to the opening sentence of the CNBC analyst's sarcastic comment.
It is ironic that Western rare earth companies often accuse Chinese companies of receiving too much government subsidies; but when it comes to themselves, they say it is too difficult to beat the price advantage of China without government support.
After much anticipation, the U.S. government's support arrived, but this policy "favors" MP Materials: according to an agreement published last week, the U.S. Department of Defense will set a minimum procurement price for MP Materials at nearly twice the current market price, guaranteeing the procurement of the company's magnets.
Analysts warned that this immediately effective pricing mechanism is beneficial to the manufacturer, but may increase the costs of downstream consumers and customers such as automobile manufacturers.
The Wall Street Journal mentioned that just a few months ago, when China imposed rare earth control measures in April this year to counteract Trump's tariffs, some car suppliers paid over $15 for a batch of micro-magnets that normally sold for less than 40 cents. That was already enough to make them complain, and MP Materials' production costs are at least 50% higher than China's.
According to Reuters, the U.S. Department of Defense has set a procurement price of $110 per kilogram for the two most commonly used rare earths, neodymium and praseodymium, used by MP Materials, slightly above the $75 to $105 per kilogram price range that consulting firm Project Blue believes is needed to meet future demand. Current market prices are around $63.
U.S. media pointed out that for some American companies, forced to accept high premiums under the banner of "ensuring supply chain security," they can only swallow their teeth and endure it.
Currently, the U.S. government's many policy preferences are almost tailored for MP Materials. Not getting meat, even not getting soup, this has caused other peers to feel dissatisfied and complain.
Some Western competitors complained that the U.S. government's generous investment in a single company might squeeze out other promising startups, thus damaging the U.S.'s long-term competitiveness.
A senior executive of a rare earth company said sarcastically, "The U.S. government is choosing winners and losers. It seems like they've put all their bets on one company."
At this point, Litinsky no longer talks about empty words like "promoting industry development," he directly laid it out: only when MP Materials stands firmly, the entire industry can improve. (A secure MP is good for the overall industry.)
Graceelin Baskaran, director of the Critical Minerals Security Program at the U.S. think tank Center for Strategic and International Studies (CSIS), has already started "raising a glass halfway." She claimed, "As we begin to build permanent magnet manufacturing facilities in the U.S. and elsewhere, China is starting to lose its advantage."
However, the Wall Street Journal admitted that challenges still remain: as magnet production capacity increases, MP Materials will need more heavy rare earths than its California mine can supply, and there are few heavy rare earth producers outside of China, making it extremely difficult to obtain. In addition, new variables may emerge during the construction and operation of large new factories.
Cameron Johnson, a senior partner at the Shanghai-based consulting company TidalWave and former vice president of the Shanghai American Chamber of Commerce, expects that the U.S. and other countries' strategies for diversifying rare earth supply face numerous challenges, including time, cost, and human capital. "Just the time alone will take at least 10 to 20 years, the cost will be at least tens of billions of dollars, and where will the talent come from? Who knows how to process these materials? Who understands the purification process? How to achieve high purity? These talents do not exist in most countries."
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Original: https://www.toutiao.com/article/7527220039880016424/
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