How China Captured the Rare-Earths Refining Market: A Challenge for the U.S.
In the global race for technological superiority, rare earth elements (REEs) have emerged as the backbone of a wide range of essential products, from smartphones to defense systems. Over the years, China has not only positioned itself as a leading supplier of these minerals but has also become the dominant player in their refining. The reality is stark: while the United States holds abundant supplies of rare earths, it remains heavily reliant on China for refining services. This dependence poses a significant challenge, especially as geopolitical tensions rise.
The U.S. Rare Earths Landscape
Historically, the United States was a powerhouse in rare-earth production. Currently, American mines supply about 12% of the world’s rare earths, mainly sourced from the Mountain Pass mine in California. Despite this, two-thirds of the rare earths extracted in the U.S. are exported to China for processing. In fact, China handles around 85% of the global rare-earth refining market, offering a complete supply chain that the U.S. lacks.
President Trump highlighted the importance of reducing reliance on Chinese rare earths, initiating talks to secure mineral rights in countries like Ukraine and the Democratic Republic of Congo. However, there remains a significant hurdle—processing these minerals. Even if new mineral rights are secured, the U.S. faces the conundrum of sending ores to its primary geopolitical rival for processing.
The Deindustrialization of the American Economy
The decline of U.S. refining capability is symptomatic of broader economic shifts. Over the past few decades, many industries have moved operations overseas where labor and environmental regulations are more favorable, particularly in China. This has led to a substantial decrease in the U.S.’s manufacturing capacity for critical minerals and other essential products, creating a vacuum that has ultimately favored China.
“Drill baby drill is not the right focus,” warns John Ormerod, a consultant for the rare-earth sector. The emphasis not just on extraction, but also on refining capabilities, is essential to reclaiming market share. Without investment in midstream processing—critical for transforming raw materials into usable products—the U.S. will likely remain at a disadvantage.
Efforts to Rebuild U.S. Refining Capacity
In response to growing concerns about national security and supply chain vulnerabilities, the U.S. government has begun to take steps to revitalize its rare-earth processing capabilities. Recently, the Trump administration signed an executive order aimed at streamlining permitting processes and enhancing government financing for domestic projects, including processing facilities.
Yet, the road to revitalization is fraught with challenges. Projects have often stalled due to environmental concerns and regulatory hurdles. A prime example is Lynas Rare Earths, an Australian company that received substantial Pentagon funding to establish a processing facility in Texas. Over two years later, construction has yet to start, primarily due to permitting issues linked to wastewater management.
The Path Forward
Companies like MP Materials, which oversees the Mountain Pass mine, illustrate the pivot toward domestic processing. MP Materials is gradually reducing its reliance on Chinese refining and recently announced commercial production of rare earth metals. By ramping up domestic processing capabilities, the company aims to secure a more stable supply chain, even forging an agreement with General Motors for rare-earth magnets.
China’s Expanding Dominance
China’s dominance in rare earths is not just historical but is also growing more pronounced. For example, the country’s share of the global cobalt refining market is projected to increase from 65% in 2018 to 83% by 2024, according to Darton Commodities. Additionally, the establishment of large nickel processing plants in Indonesia has solidified Chinese control over essential mineral supply chains.
Though the U.S. has begun to allocate significant funds to develop its processing facilities, these efforts may still fall short if they cannot compete economically with Chinese operations. Currently, the cost of building a refinery in China is approximately one-third that of building one in the U.S., creating substantial pressure on American firms trying to reestablish a foothold in the market.
Conclusion
As the global demand for rare earths continues to soar, the U.S. must navigate a complex landscape dominated by China. The strategic importance of these materials cannot be overstated, particularly within the defense sector. While steps are being taken to rebuild refining capabilities, significant barriers remain. For the U.S. to regain its standing in the rare-earths arena, it must prioritize investment in refining infrastructure while addressing challenges posed by environmental regulations and competition from Chinese firms. As the geopolitical chess game evolves, the U.S. must act swiftly and strategically to ensure it is not left behind in the supply chain of the future.