The US pricing system for rare earths is set to challenge China’s dominance

Washington's plan to create an independent, higher-priced pricing system has stepped up U.S. efforts in breaking China's dominant position on the rare earths markets and driving investment into its own industry.

Low prices in China have made it difficult for the West to compete with China in the rare earths market.

The West has long demanded a different pricing system that would help miners compete to supply the 17 rare earth metals required to produce magnets with super-strong magnetic fields of strategic importance. They are used for military applications, such as fighter jets and drones. They also power motors on EVs and in wind turbines.

According to a deal announced last week, the U.S. Department of Defense guarantees a minimum price of nearly twice what the market is currently paying for MP Materials, its only domestic rare earth miner.

MP, a Las Vegas-based company that already mines and processes rare earths, said it expected to begin commercial magnet production in its Texas facility by the end of the year.

Analysts believe that the price deal, which is effective immediately, will have global effects. It should be positive for producers but could increase costs for consumers such as automakers, and their customers.

Ryan Castilloux is the managing director at Adamas Intelligence.

The DoD pays MP the difference of $110 per kilogram between the current market price set by China and the DoD's price for the two most popular rare earths. If the price goes above $110 the DoD gets 30% more profit.

Castilloux added that other companies could be indirect beneficiaries of this pricing system, including Solvay, a Belgian chemicals company, which has launched an expansion since April.

It will encourage Solvay to set a similar level of price. Castilloux continued, "It will give them the floor to stand upon."

Solvay refused to comment but other rare earth miner, developers, and their shareholders welcomed this news.

Aclara Resources plans to build rare earth mines in Chile, Brazil and the United States. Alvaro Castellon is the strategy and development manager of the company. He said that the deal opened up "new strategic pathways" for the firm.

MP'S GRADUAL INCREASE IN OUTPUT

MP Materials, who suffered a net of $65.4m last year due to China's low prices, will increase magnet production in its Texas plant to initially 1,000 metric ton per year and later expand to 3,000 ton per year.

According to the deal signed on Thursday, the DoD would become the largest shareholder, with a 15 percent stake, and MP would build a second rare-earth magnet manufacturing facility in America, adding up to 7,000 tons of magnets per year. Total production would equal the U.S. magnet consumption in 2024.

Adamas consulting said that this does not include the 30,000 tonnes imported by the United States and already installed in products.

The U.S. is expected to see the highest growth in the coming years, at 17%.

China's restrictions on exports have brought to light the world's dependence upon China as trade negotiations between the United States & China continue.

Western governments have not been able to do much to boost their own industries' competitiveness.

Magnets are the only thing that has been subject to a premium.

Dominic Raab said that he wasn't surprised by the conclusion of the Trump administration that tax incentives alone wouldn't create the required level of investment.

The next question is: Can they scale up? Raab is now the head of global affairs for Appian Capital Advisor, a firm that invests mining projects.

The DoD's $110 per kilogram guarantee for neodymium or praseodymium (NdPr) is slightly higher than the $75 to 105 per kilogram range Project Blue estimates would be required to sustain enough production in order to meet future demand. The current price is about $63.

David Merriman, Project Blue, said that it was not clear how industrial consumers will react to the higher price and whether they would invest in rare Earths since they have more sources of supply.

He said that major non-government consumers were less likely to invest in the same way, because they weren't so aligned with a specific regional supply route.

When asked about the DoD's floor price, a spokesperson for German automaker Volkswagen declined to comment. However, they said: "We are in favor of all efforts that strengthen and diversify global supply chains to ensure long-term stability."

(source: Reuters)