【By Guo Jian, Observer Net】The U.S. government, which has been complaining about China's control over rare earths, is once again trying to find solutions. According to a Reuters report on July 14, the U.S. government is accelerating the development of an independent pricing mechanism for rare earths, providing price subsidies to mining companies in an attempt to stimulate industrial investment and thus weaken China's dominant position in the global rare earth market.

However, analysts have warned that this immediately effective pricing mechanism, although beneficial to producers, may increase costs for downstream consumers such as automotive manufacturers and their customers, and it remains unknown whether it can achieve scale in the future.

For a long time, Western rare earth miners have called for an independent pricing mechanism to help them gain competitiveness in the rare earth market.

The report suggests that one reason why the West has struggled to reduce China's control over 90% of global rare earth supplies is that China's low prices have weakened the investment incentives of other countries. To break this situation and promote domestic industry investment, the U.S. government has started to push for an independent and higher-priced pricing system.

According to a recently publicized agreement, the U.S. Department of Defense will set a minimum purchase price for MP Materials, the only domestic rare earth miner in the United States, at nearly twice the current market price.

According to a report by CNBC on July 10, MP Materials announced that the U.S. Department of Defense has agreed to purchase its $400 million preferred shares, becoming the company's largest shareholder.

The Pentagon will support the company in building a second rare earth magnet manufacturing plant within the United States. MP Materials plans to add an annual production capacity of 7,000 tons, with an overall goal of producing 10,000 tons annually, equivalent to the domestic consumption of magnets in the United States in 2024.

The only rare earth mine in the United States - Mount Pass Rare Earth Mine, Visual China

MP Materials owns the only currently operating rare earth mine in the United States, located in Mountain Pass, California. The company expects to start commercial magnet production at its plant in Texas around the end of this year.

Due to China's low-price strategy, MP Materials recorded a net loss of $65.4 million last year. The company will gradually increase the production of magnets at its Texas plant, starting with an initial annual output of 1,000 tons, followed by an expansion to 3,000 tons.

"This benchmark price will become a new 'gravitational center' for the industry, thereby pushing up overall prices," said Ryan Castilloux, managing director of consulting firm Adamas Intelligence.

According to the plan, the U.S. Department of Defense will subsidize the difference between the price of two of the most commonly used rare earths (neodymium and praseodymium) and the market price at $110 per kilogram. Currently, the market price is set by China. If the price exceeds $110, the Department of Defense will receive a 30% share of the additional profits.

Castilloux pointed out that other potential beneficiaries of this pricing system could include companies like Belgium's chemical group Solvay, which announced in April that it would expand its capacity.

"This will give companies like Solvay the incentive to set similar price levels, or in other words, it gives them a pricing 'floor'," he added.

Although 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 to build a rare earth separation plant in the United States, said this agreement brought "a new strategic path" for the company. Alvaro Castellon, the company's director of strategy and development, said this.

Reuters reported that due to ongoing U.S.-China trade negotiations, China's control over rare earth exports has once again raised concerns about the world's reliance on Chinese rare earths.

So far, Western governments have had limited success in helping their industries compete. Previously, various parties tried to set magnet premiums through separate agreements, but none succeeded in forming a systematic pricing mechanism.

Analysts warn that this immediately effective pricing agreement will have global implications. Although it benefits producers, it may increase costs for downstream consumers such as automotive manufacturers and their customers.

Oklahoma City, U.S.: Bolts used in the assembly line of a rare earth factory, Visual China

Dominic Raab, former UK Deputy Prime Minister and Foreign Secretary, mentioned that the Trump administration realized that tax cuts alone were not enough to drive the required level of investment. He was not surprised about the pricing mechanism.

"The next step is: Can they achieve scalability?" Raab asked.

The Financial Times previously noted that the U.S. government rarely directly invests in companies, usually supporting only technology developments vital to national interests or, in extreme cases, rescuing important companies from bankruptcy.

The newspaper's article on July 8 stated that the West has long recognized the importance of rare earth minerals, but only spoke about "strengthening resilience" verbally without investing real funds. For decades, the West has been watching this "weapon", and when China finally pulled the trigger, they should not have been surprised.

The U.S. Department of Defense's purchase price of $110 per kilogram for neodymium and praseodymium is slightly higher than the $75 to $105 per kilogram range that Project Blue believes is needed to meet market demand. The current market price is approximately $63 per kilogram.

David Merriman of Project Blue said it is unclear whether commercial customers will accept higher prices and whether they will therefore increase investments in the rare earth sector, as they have more diversified supply sources.

"Major non-government supported clients are unlikely to replicate this investment model, as they may not clearly depend on a particular regional supply chain," he said.

When asked if he supports the Department of Defense's floor price, German automaker Volkswagen refused to comment on the price issue but said, "We welcome all efforts that help strengthen the long-term stability and diversification of the global supply chain for critical materials."

However, Mark Smith, a mining veteran and former CEO of Molycorp, told Bloomberg in an interview last month that it would take Western countries several years to develop any significant rare earth processing capabilities. "We need to establish the necessary facilities onshore to solve this problem, but it will be a long and difficult process," he said.

Cameron Johnson, senior partner at TidalWave, a Shanghai-based consulting firm and former vice president of the Shanghai American Chamber of Commerce, expects that the U.S. and other countries' strategies for diversifying rare earth supplies face numerous challenges, including time, cost, and human capital. "It will take at least 10 to 20 years, costing at least trillions 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," he said.

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