【By Observer Net, Shao Yun】

To reduce reliance on China, the U.S. Department of Defense spent $400 million on shares on the 10th, becoming the largest shareholder of MP Materials, the largest U.S. rare earth producer. However, a U.S. industry executive warned on the 11th in an interview with Hong Kong's South China Morning Post that if the United States cannot break through the midstream refining technology challenges and solve pollution issues, its "independent rare earth supply chain" will still face challenges.

According to reports, David Argyle, CEO of REalloys, a U.S. rare earth and high-end magnet supplier, said whether the United States can achieve the goal of building an "independent" rare earth supply chain depends on its strategy and execution. But to make "significant progress," meeting 40% to 50% of the U.S. strategic needs, he expects it to take until 2027 or 2028, and it also relies on the combination of multiple conditions such as policy, technology, and regulation.

It is introduced that MP Materials is the only U.S. producer with the entire rare earth industry chain, and the only large-scale mining and processing rare earth enterprise in North America. The company has the world's second-largest rare earth mine, Mountain Pass, in California. Before the Pentagon invested in shares, Chinese company Shenghe Resources was one of the largest shareholders of MP Materials.

The Wall Street Journal reported on the 10th that MP Materials previously relied mainly on exporting to China for refining. In recent years, it has started investing in domestic refining capabilities in the U.S. to reduce complete reliance on Chinese factories. In April 2022, MP Materials launched the construction of a factory in Fort Worth, Texas, to produce rare earth metals and magnets.

The South China Morning Post stated that this is partly because China has mastered the refining and purification technology of midstream rare earth products through years of R&D. The Wall Street Journal said many buyers have realized the "risk" of relying on China but have been unwilling to sign long-term procurement agreements with Western companies to manufacture magnets, as this might force them to pay high prices.

At the same time, without orders, American and European producers are unable to come up with funds to buy equipment and build factories. The report said, "The 'chicken or egg' dilemma has allowed China to consolidate its dominant position." According to estimates by the International Energy Agency (IEA), over 60% of global rare earths were mined in China in 2023, and as high as 92% of rare earths were refined and processed in China.

MP Materials' rare earth mining and processing facilities at Mountain Pass, California MP Materials website

This April, China announced export controls on seven types of heavy rare earth-related items, including samarium and gadolinium. Argyle admitted that China's move to control rare earth exports is a "hard leverage." "Will China suffer any pain if it stops rare earth exports?... That's leverage. China is playing its own card, and it's playing it hard."

On the same day the Pentagon announced its investment in MP Materials, U.S. Secretary of State Rubio began his first "Asia trip" since taking office, arriving in Malaysia to attend the ASEAN Regional Forum Foreign Ministers' Meeting, where he discussed key mineral cooperation with Malaysian Prime Minister Anwar. Previously, the U.S. signed a minerals agreement with Ukraine in May to obtain "a large amount of very high-quality rare earths," which all show the U.S.'s "rare earth anxiety."

Although Argyle claimed that he believes there will be countries that establish a physical market for "non-China source rare earth materials" in the future, he also admitted that the U.S. is not doing enough in establishing a rare earth reserve. He said that Japan has accumulated "a lot of magnet inventory" in recent years, which "has made them feel secure and protected," but "the U.S. hasn't done this yet."

According to the agreement between the U.S. Department of Defense and MP Materials, under the support of the Department of Defense, the company will build a second rare earth magnet manufacturing plant in the U.S., expected to start production in 2028, with an annual capacity of 10,000 tons of rare earth magnets, serving U.S. defense and commercial customers.

The U.S. Department of Defense has committed to ensuring 100% procurement of rare earth magnet products produced by the new factory within 10 years after its completion. The U.S. Department of Defense has also set a minimum price of $110 per kilogram for MP Materials' neodymium-praseodymium oxide products, with the same 10-year term. James Littinsky, CEO of MP Materials, revealed that if the market price falls below $110 per kilogram, the U.S. government will pay the difference to the company on a quarterly basis.

Is building an "independent rare earth supply chain" difficult? Argyle is not the only one who has raised doubts. Previously, Mark Smith, former CEO of Molycorp, told Bloomberg that Western countries need several years to develop certain rare earth processing capabilities. "We need to establish the required facilities onshore to solve this problem, but this will be a long and difficult process."

Cameron Johnson, senior partner at TidalWave, a Shanghai-based consulting company and former vice president of the Shanghai American Chamber of Commerce, recently told the media that the rare earth supply diversification strategies of some countries like the U.S. face numerous challenges, including time, cost, and human capital.

"Just the time required is at least 10 to 20 years, and the cost is at least in the trillions of dollars," Johnson said. "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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