“China is going to tighten regulations around exports, there’s no question about that,” said Pini Althaus, CEO of USA Rare Earth. “So the EU, US, Japan, etcetera, are going to have a far more difficult time of acquiring what they need.” And because China now needs more rare earths than it can produce, he said, withholding exports for internal use will not be regarded by the WTO as a breach of international trade laws.

The other issue, as MP Materials CEO Jim Litinsky put it in a recent interview, is “a demand-driven challenge.” As global industries electrify, demand for the rare earths will only continue to grow, making it a key strategic priority for countries to secure a reliable supply of the critical minerals.

Though military use makes up “low single-digit percentages” of total US demand for rare earths, it’s a matter of “commercial national security” for the US to be able to meet its own demand for rare earths, he said.

Easier said than done

The task of building a rare earth supply chain that’s more independent from China is a complex one.

Just look at MP Materials. It is almost one-tenth owned by a Chinese company, Shenghe Resources. That was enough to prompt concerns from US government scientists over Pentagon funding for MP Materials, though funding has now resumed following a review. Meanwhile, MP Materials currently has to send much of its rare earth concentrates to China for processing because it doesn’t have the capacity to do so itself.  The company hopes to process and refine its own rare earths by 2022, so as to keep the entire supply chain on US soil.

Rare earths companies also depend on China for revenue. Chinese customers currently account for all of MP Materials’ annual revenue of around $100 million. Arafura, an Australian rare earths producer, similarly illustrates this tension when it notes in the same section of its annual report (pdf) that it’s both actively targeting customers “not aligned with China’s vertically integrated ‘Made in China 2025’ strategy,” while at the same time seeking to negotiate potential deals with firms in China. In fact, Arafura has signed deals with two Chinese companies that together will buy 40% of its annual production of neodymium-praseodymium (NdPr) oxide, a critical material for industrial magnets.

China, meanwhile, is well aware of the risks it faces as it continues to expend its rare earth resources at a rapid clip. A recent article in a journal published by the Chinese Academy of Geological Sciences noted that as countries like the US and Japan ramp up rare earths production, they may soon “build a rare earth industry chain completely independent of China” and crimp China’s global pricing power in rare earths. Coupled with their existing strength in high-end uses of rare earths, the authors warned that Japan and the US could counteract China’s dominant position in the industry.

“Being completely independent of the Chinese supply chain will take many, many years,” said Althaus. “The important thing to understand is no one company, no one business, is going to put China out of business. What we need to do is provide alternatives so we’re not solely dependent on China.”

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