Highlights
- China controls 91% of refined rare earth output.
- China has significantly lower profit margins compared to Western companies.
- Refining rare earth elements is capital-intensive, with costs accounting for up to 75% of the supply chain.
- Refining requires government price guarantees.
- US and European governments are now intervening with price backstops and funding to develop competitive rare earth refining capabilities.
Western governments may finally be waking up to China’s dominance in rare earths. Still, the real stranglehold lies not in mining, but in refining economics, according to a new commentary by Reuters Breakingviews. While Europe and the U.S. scramble for new projects, the article highlights a sobering truth: refining rare earths is a small-margin, capital-heavy business that most Western miners can’t justify without government price guarantees.
According to Project Blue, the global rare earths market in 2024 was just $3.5 billion—tiny compared to copper’s $300 billion (magnet market space is several times bigger). Yet, refining costs can account for up to 75% of the REE supply chain, due to high energy consumption and stringent environmental regulations. As Breakingviews notes, companies like China Northern Rare Earth Group survived on a meager 5.6% margin, while Western majors like Rio Tinto target 30% or more, highlighting a fundamental mismatch in business models.
China accounted for 91% of the world’s refined rare earth output in 2024 (IEA), thanks in part to subsidies, its large scale, and state-controlled pricing. Smelters like Shenghe Resources and China Rare Earth Resources operate at price levels Western firms struggle to match. For example, neodymium-praseodymium (NdPr) oxide has plummeted to $65/kg, far below the $140–$150/kg price non-Chinese producers need to break even.
The U.S. Department of Defense is now stepping in: a newly announced deal will backstop NdPr prices at $110/kg for MP Materials through 2035. France and Japan are backing a $250 million refinery for Caremag to supply Stellantis starting in 2027 (opens in a new tab). These government interventions aim to address price volatility and stabilize long-term production, but are they enough?
Key Questions for Investors & Policymakers
- Will Western capital markets ever accept refinery economics with sub-10% margins?
- Can sovereign stockpiles and price floors replicate China’s vertically integrated model?
- What happens if China drops prices further to defend market share?
As REEx has long emphasized, the West’s rare earth challenge isn’t access to ore—it’s funding, expertise, and policy alignment to compete in refining. This latest report underscores the need for international consortia, sovereign offtakes, and a robust industrial policy to build sustainable REE capacity outside China.
REEx will continue to monitor how this price war unfolds—and who ultimately controls the magnet metals of the future. Is Washington, D.C., ready for these stakes?
Source: Reuters Breakingviews, Karen Kwok &George Hay, “China’s tightest rare-earths headlock is financial” (July 16, 2025).
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