【By Guan察者网, Yuan Jiaqi】
Trying to hastily learn from China's rare earth national strategy, the Trump administration in the US has created a "hybrid" approach. Moreover, the Pentagon's preference for the largest US rare earth producer, MP Materials, has caused internal conflicts among American companies.
MP Materials owns the only currently operating rare earth mine in the US and is seen as the biggest hope for revitalizing the US rare earth industry. To weaken China's dominant position in the global rare earth market, the US government "unusually" invested in a domestic company: at the beginning of this month, the Pentagon agreed to invest 400 million dollars to purchase preferred shares in the company, becoming its largest shareholder; meanwhile, it accelerated the promotion of an independent rare earth pricing mechanism, setting a minimum procurement price for MP Materials at twice the current market price.
The UK media, Financial Times, reported on the 18th that this "unusual" transaction has raised concerns among many mining executives and former government officials. They complained that although the Trump administration's move was intended to emulate China's industrial policy, it was done improperly, pouring all resources into MP Materials.
Some critics said this transaction "went too far," giving MP Materials an unfair advantage, allowing it to undercut competitors and disrupt the market, thereby harming the US's long-term competitiveness.
A senior executive from a rare earth company told the US media, The Wall Street Journal, that "the US government is picking winners and losers. It seems they have bet everything on one company."
Previously, Western countries often promoted the narrative that China uses subsidies to support industries. Now, seeing their own government's actions, a senior executive from a rival company couldn't help but sarcastically mock, saying that the US wants to replicate the "Chinese model," supporting industries with state backing, and it's also a costly approach.
Regarding the continuous criticism from the industry, a former high-ranking Pentagon official did not agree. He told the Financial Times that these people's complaints were just because they hadn't received the "benefits they thought they deserved," "this kind of thing is common."
The only rare earth mine in the US - Mountain Pass Rare Earth Mine. Visual China
China's industrial development relies on continuous technological innovation, a complete supply chain system, sufficient market competition, and abundant human resources. It is based on real capabilities, not subsidies.
However, the Trump administration's "hasty and desperate" measures are clearly questionable.
According to earlier disclosed agreement content reported by US media, according to the plan, the US Department of Defense set a procurement price of $110 per kilogram for two of the most commonly used rare earths - neodymium and praseodymium. If the price exceeds $110, the Department of Defense can get a 30% additional profit share.
This price is slightly higher than the range of $75 to $105 calculated by consulting companies for meeting market demand, and far exceeds the current market price of about $63. The current market price is set by China.
Additionally, although MP Materials has not yet achieved commercial-scale magnet production, the US government has committed to purchasing approximately 7,000 tons of magnets annually over the next decade. These magnets will be produced by MP Materials in its yet-to-be-completed factory using its own praseodymium and neodymium production. Industry experts pointed out that this procurement volume far exceeds the US defense needs.
"There are many unusual aspects to the deal between MP Materials and the US government," said David Abraham, a professor at Boise State University and a former White House official, mentioning that the market for praseodymium and neodymium is already small, "the US government may end up stockpiling a large amount of raw materials."
A former Defense Department official also worried that the price guarantee might allow MP Materials to "bid low in commercial tenders and then make up the profit gap through government subsidies."
The Financial Times reported that despite industry concerns, this rare earth agreement has gained bipartisan support in Washington. A Pentagon official claimed that the Pentagon "chose a unique agreement model to address the challenges of establishing and maintaining critical rare earth magnet production," and the agreement will ensure "acquiring key defense resources while sharing the inherent risks in the commercial market."
MP Materials declined to comment on the industry's reaction. However, earlier this week, James Litinsky, co-founder of MP Materials, told The Wall Street Journal that only when MP Materials is secure can the entire industry benefit. (A secure MP is good for the overall industry)
According to British media, MP Materials praised its collaboration with the Pentagon as a key step in developing the domestic rare earth industry in the US and reducing global reliance on China. Apple has announced a prepayment of 200 million dollars to purchase magnets produced by the company for use in iPhone and computer manufacturing.
The British media also mentioned that after Trump launched a global tariff war in April, MP Materials announced a suspension of exports of rare earth concentrates to Chinese company Shenghe Resources due to high tariffs. Shenghe Resources subsequently announced that due to the diversification of the supply chain, the suspension of supply would not have a significant impact on its operations.
In the announcement, Shenghe Resources introduced that the company has built a diversified supply channel for rare earth raw materials, including Sichuan mines, monazite, and other country imports as alternative supplies.
Meanwhile, most of MP Materials' revenue comes from Shenghe Resources. According to the Financial Times, last year, this US company's sales to Shenghe Resources accounted for about 80% of its 204 million dollars in revenue.
According to Reuters, for many years, MP Materials has relied on Chinese partners to refine rare earths. The company sells most of its concentrates to Shenghe Resources, its fourth-largest shareholder, for processing.
In fact, MP Materials can separate and process light rare earth elements, but cannot process the equally important heavy rare earth elements, especially dysprosium and terbium. These two elements are the newly added export-controlled rare earth categories by China in April. They are core raw materials for manufacturing high-performance magnets, which are used in F-35 fighter jets, cars, magnetic resonance imaging machines, and other electronic products.
The Wall Street Journal also mentioned that as magnet production capacity increases, MP Materials' need for heavy rare earths will exceed the supply capacity of its California mine, and there are very few heavy rare earth producers outside of China, making it extremely difficult to obtain. In addition, new variables may arise during the construction and operation of large new factories.
Mark Smith, a senior mining expert and former CEO of Molycorp, told the US media Bloomberg that Western countries still need several years to develop certain rare earth processing capabilities, "We need to build the required facilities onshore to solve this problem, but this will be a long and difficult process."
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