U.S. rare earth deal raises concerns

The U.S. government has invested $400 million in MP Materials, a rare earth mining company. Stakeholders are criticizing the move, comparing it to China’s approach to market control. 

The United States government is facing backlash for investing $400 million in a domestic rare earth firm. The investment includes a price guarantee that is nearly double the market rate, raising concerns about market distortions.

U.S. rare earth deal raises concerns

Critics of the U.S. Department of Defense’s decision to invest $400 million in MP Materials, the country’s only rare earths mining company, claim that the move is similar to China’s style of intervention and could cause a distortion in the global market for rare earth elements.

The deal was announced last week, making the Pentagon the largest shareholder in MP Materials. It also guarantees a decade-long price floor for the company’s key product NdPr oxide, at $110 per kilogram, nearly double the current market rate of about $60.

The U.S. government has committed to purchasing about 7,000 tonnes of magnets per year from MP.  The company will also stop selling to its former top customer, Shenghe Resources, a Chinese company that is still a minority shareholder.

The Trump administration sees this intervention as a necessary step in breaking America’s dependence on Chinese rare earth supply chains and strengthening domestic production.

Market distortion concerns will not go away

One of the biggest concerns about this deal is the impact of the guaranteed price floor on the competition. By committing to pay $110/kg for NdPr, the Pentagon has created what some critics call an artificial market, allowing MP Materials to operate with a significant financial cushion.

David Abraham, a former White House official and current affiliate professor at Boise State University, noted that the U.S. government now plays a huge role in the NdPr market, which is relatively small. He described the scale of the deal as “peculiar” and potentially destabilizing.

Gracelin Baskaran, director of the critical minerals security program at the Center for Strategic and International Studies, said the level of government intervention mirrors the kind of price controls typical of China. She added that the price floor may allow MP to undercut competitors in the commercial market, shielding the company from real market pressures.

A former Pentagon official agreed, suggesting MP Materials could “underbid on commercial tenders” with little financial risk.

While MP Materials has not yet begun producing magnets at scale, the potential production of 7,000 tonnes for a decade has also drawn criticism.

Despite the concerns, the deal is supported in Washington. Lawmakers have backed the agreement, seeing it as a step to secure domestic supply chains.

Erik Raven, an adviser at Beacon Global Strategies, said the move indicates a shift in Pentagon strategy.

“Leaders with business backgrounds are looking for new ways to get results,” he said.

A Department of Defense official supported the approach, calling it a tailored solution to the challenges of building a sustainable rare earth industry. “We’ve selected a unique model that balances national security needs with the risks of a commercially dominated market,” the official said.

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