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| Rare earth |
New US Pricing Model Aims to Strengthen Domestic Rare Earth Industry
The US government has introduced a new rare earth pricing system to reduce China’s dominance in global supply. This system guarantees a minimum price for MP Materials, the only domestic rare earth miner, nearly doubling current market prices. The Department of Defense (DoD) will cover the price gap, incentivizing investment in US rare earth production. This policy targets critical metals such as neodymium and praseodymium, vital for magnets in EV motors, wind turbines, and defense applications.
This rare earth pricing system marks a strategic shift to secure supply chains and boost domestic output. MP Materials plans to expand magnet production from 1,000 to 10,000 metric tons annually, meeting US demand projected to grow strongly. Meanwhile, analysts expect the new pricing benchmark to elevate global rare earth prices, encouraging other producers like Belgium’s Solvay to follow suit. However, higher prices may raise costs for manufacturers and consumers.
Global Impact and Industry Reactions to US Pricing Strategy
China controls roughly 90% of rare earth supply, and the US pricing system challenges this by setting a “floor price” at $110/kg for key rare earths. The DoD will share profits if prices exceed this level, creating a unique public-private partnership. This approach aims to overcome the underinvestment caused by China’s historically low prices, which stifled competitors.
Industry experts predict the pricing system will reshape global markets. Aclara Resources, developing mines in Chile and Brazil, views the move as opening “new strategic paths.” However, uncertainty remains about how non-government industrial consumers will react, as many are not aligned with specific supply routes. German automaker Volkswagen expressed cautious support for supply chain diversification but withheld comments on price impacts.
Strategic and Economic Implications for Rare Earth Supply Chains
The US rare earth pricing system could catalyze a long-needed expansion in Western rare earth production and processing. It incentivizes MP Materials and potential new entrants to scale operations. This, in turn, reduces reliance on Chinese exports amid ongoing geopolitical tensions.
Nevertheless, the policy may increase material costs, affecting downstream industries like automotive and electronics. The rare earth magnet demand is projected to more than double by 2035, underscoring the urgency for reliable and diversified supply chains. Western governments now face the challenge of scaling this pricing model while balancing industrial competitiveness and consumer price sensitivity.
ScrapInsight Commentary
The US rare earth pricing system signals a pivotal shift toward supply chain resilience and strategic autonomy. While prices will likely rise short-term, increased domestic production capacity will benefit the circular economy and national security. Ongoing cooperation between industry and government is essential to sustain this momentum and mitigate cost pressures.
