Bullets:
The Pentagon just announced a large equity stake in MP Materials, the only operational mine in the US for some rare earth minerals.
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Defense contractors are scrambling to secure new sources of metals and magnets, now in critically short supply because of export bans by China, who has monopolies on refining and magnet production.
US stockpiles of strategic minerals and metals are at 50-year lows, while US and NATO arsenals are running down in Ukraine and the Middle East.
China has declared a nationwide effort at all levels to crack down on the illegal smuggling of rare earths, which Beijing considers a key strategic asset.
Report:
Good morning.
The Pentagon and weapons contractors are wide awake now, on the rare earth metals problem. China has monopolies over the refining and processing of the rare earth metals crucial for building advanced weapons. And there is a perfect storm on the demand side, as the Israeli Defense Forces and Ukraine are burning through NATO and US stockpiles of those advanced weapons.
This is a good summary to begin. China is the dominant supplier of rare earth metals and magnets, and China is relaxing some of the exports, for civilian applications. But for defense contractors who need rare earths and magnets from China, the answer remains a hard no. So Western governments and companies are trying to build new supply chains, independent of China.
There is a huge black market that has developed in these metals, and Chinese authorities are going after exporters here, in China, who are trying to get around the export controls. Last year there were more rare earth shipments intercepted than in all previous years combined.
China’s intelligence agencies report that foreign intelligence services are organizing the illicit trafficking of the rare earths, which Beijing considers a strategic asset. This is the official post on Wechat, and the English for the first paragraph.
Recently, there was a big meeting of top officials from the Commerce Ministry, intelligence services, customs and postal. If it seems strange that intelligence officers were meeting urgently with the mailman, here’s the reason: a foreign intelligence agency – which was not publicly identified – was going through the postal system to illicitly acquire rare earths. Smugglers used fake shipping labels, or divided up large shipments into small ones so more were likely to get through. Others mixed them with different materials, and identified rare earth metals as other products on shipping manifests.
So China now has a whole-of-government effort: everyone, everywhere is directed to strictly enforce bans on transshipments, false declarations, and are authorized to blacklist anyone attempting to go around.
Washington fights trade wars with tariffs and import bans, while China shuts off access to supply chains. Tariffs are irrelevant, in the case of products that have no substitute, or in the absence of friendly countries that can provide them instead. Nobody has more money than the Pentagon, and US defense contractors are still doing without the magnets they need to build new missile and bombs that are blowing up every day in the Middle East and Ukraine.
Nobody was paying much attention to the problem at all, not really, but now it’s every day we get pieces like this. The Rare Earth crunch threatens the development of the F-47 fighter, a 6th-generation plane that will cost over $300 million each. If we wonder if that’s a good use of taxpayer money, compared to all the other problems we’ve got, hopefully this part is helpful: The steep cost of these planes is justified by all the cutting-edge tech the aircraft is going to have.
But the analysis here explains, system-by-system, why the plane won’t get put together at all without those rare earth metals that China has locked up export markets for. Boeing has the contract to build the plane, and Boeing’s defense unit is on China’s export ban list, and so until Boeing can figure another way to get all these rare earths, then get them refined, they can forget about getting any of this $20 billion.
This is from Modern War Institute. There is a nice photo here of an assembly line for warplanes, and with a headline that complains that China is weaponizing their supply of shiny rocks that those guys in the photo need to make their planes work. China’s export controls on rare earth elements were “a shot across the bow of the US defense industrial base.” Fighter jets, satellites, missiles, submarines—nobody can build them without materials made in China. 90% of the rare earth magnets come from here, and 85% of the refined rare earths, so the United States and their allies don’t have the raw materials to fight a future war. At the peak of the Cold War, over 40 years ago or so, the United States had $42 billion of reserves, now it’s under $1 billion.
So the Defense Department has no choice now, but to get into the mining business. The Pentagon is investing directly in some companies that can do some rare earth mining, but it won’t be until 2027 at the earliest that any new production comes out of the ground, if then. And that’s just raw materials. Then they still need to be refined, and turned into magnets.
The Pentagon bought a 15% stake in MP Materials to build some magnets. The entire world is reliant on China for rare earth metals, and MP Materials is the only mine in the United States that is operational, right now. MP produces only a handful of the materials the Pentagon needs to build stuff, but something is better than nothing, and better late than never.
The company will invest the Pentagon money into building a facility that makes magnets, with the hope that it’s producing by 2028, and the Pentagon will buy all the magnets produced for the next ten years, at a minimum price of $110 per kilogram. MP Materials stock took off, more than tripling since the beginning of the year:
Even with all the new Pentagon money, and the order minimums that protect MP from falling market prices, it’s probably not nearly enough to matter. It is $400 million in preferred stock and some warrants, which will go toward the new magnets facility. Nobody has even figured out yet where that new facility will be. The company has begun trial production of magnets at another location, in Texas, where they hope to eventually produce 1,000 tons a year.
That may seem impressive, until we pull back a bit, and learn that China’s annual production is 240,000 tons. Even at full production, much later, MP will still be less than one half of one percent of China’s output. And remember that MP is focused only on a small number of the rare earths needed by Boeing to get their plane in the air in ten years, and needed in Israel and Ukraine right now.
MP, at full production, might move the needle, slightly, on the magnets problem, but not for any of the other rare earths that go into a missile or a bomb or an artillery shell, let alone a phone or a car.
This is all getting super expensive now though. It almost makes us wonder if we should be doing it at all.
Resources and links:
China’s Dominance in Rare Earth Magnet Manufacturing
https://rareearthexchanges.com/news/chinas-dominance-in-rare-earth-magnet-manufacturing/
MP Materials Restores U.S. Rare Earth Magnet Production Chain
https://rareearthexchanges.com/news/rare-earth-magnet-production/
Wechat announcement
https://mp.weixin.qq.com/s/FMhLk6B0pTFg0zfB3ciq4w?poc\_token=HB8bf2ijNJpeS0ww1BuAx0p\_Gi45HXQVZdwI-VpxBloomberg, China Vows ‘Zero Tolerance’ for Smuggling of Critical Minerals
Bloomberg, China Spy Agency Accuses Foreign Agents of Stealing Rare Earths
Reuters, China’s spy agency attacks foreign efforts to ‘steal’ rare earths
China’s spy agency accuses foreign agencies of smuggling rare earths
Rare Earth Crunch Threatens the F-47 NGAD Fighter Program-Is Pentagon Deal Making Sufficient?
Rare Earths, Rare Power: The Global Race for the World’s Most Strategic Resource
Minerals, Magnets, and Military Capability: China’s Rare Earth Weaponization Should Be a Wake-Up Call
Pentagon to become rare earth mining company’s largest stockholder
Forbes, U.S. Becomes Largest Shareholder In MP Materials—Rare Earth Miner—To Counter China
Boeing secures $20 billion contract for F-47 NGAD fighter to replace F-22—Is this a game changer for U.S. air superiority?
Finviz, MP
https://finviz.com/quote.ashx?t=MP&p=d
Nikkei, China says it stopped rare-earth smuggling by foreign spy agency
Israel may run low on missile interceptors, putting US in a ‘bind’
Wall Street Journal, Israel Is Running Low on Defensive Interceptors
NBC, Pentagon halts weapons shipment to Ukraine amid concerns over U.S. stockpile
Politico, Pentagon halting some promised munitions for Ukraine
https://www.politico.com/news/2025/07/01/pentagon-munitions-ukraine-halt-00436048
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