Highlights
- The US defense industry is not fully prepared to meet the January 2027 deadline for sourcing rare earth magnets from non-Chinese sources.
- Significant challenges include:
- Limited domestic production
- Market volatility
- Technological dependence
- Tight time constraints
- The US is making progress through:
- Domestic investments
- Legislative regulations
- International collaborations
- Substantial work remains to achieve supply chain independence.
As of December 31st, 2024, the defense industry is not fully ready to meet the January 2027 deadline for sourcing all rare earth magnets from non-Chinese sources. Of the top defense companies, some are making what Rare Earth Exchanges is told under conditions of anonymity significant progress. However, the reality is that many companies may not be ready. While the US government has set ambitious goals and is actively working towards this objective, achieving complete independence from China’s supply chain for rare earth magnets by 2027 remains a significant challenge.
The Situation
As cited (opens in a new tab) by Marcos Gonzalez (opens in a new tab) in a May 31, 2024 summary via McCarter & English (opens in a new tab) on the imminent changes in procurement rules, “In order to combat this near-monopoly and to limit supply chain vulnerabilities and risk to the US defense industry, a final Defense Federal Acquisition Regulation Supplement (DFARS) rule, published May 30, 2024, applies broader sourcing prohibitions to the language of DFARS 225.7018 and operative clause DFARS 252.225-7052 to prohibit the use and acquisition of magnets mined in China as of January 1, 2027.”
The Washington DC-based government contracts specialist attorney also points out that to avoid dependence “on other nonaligned countries allied with China, Congress addressed the matter in the 2018 National Defense Authorization Act (NDAA) by prohibiting the acquisition of certain magnets mined in China, North Korea, Iran, and Russia. See 10 U.S.C. 4872.” Contractors may utilize the material for covered magnets mined in these countries now through the effective date of the regulation, reports the attorney. What’s included under covered magnets and materials? Samarium-cobalt and neodymium-iron-boron magnets, tungsten metal powder, tungsten heavy alloy, or any finished or semifinished component containing tungsten heavy alloy, and tantalum metals and alloys.
What Challenges and Progress?
Rare Earth Exchanges provides a brief overview of the challenges and progress. First, supply chain development represents a major initiative. The US is actively working to develop a domestic “mine-to-magnet” supply chain for rare earth materials. This includes investments in domestic mining, processing, and manufacturing capabilities. Rare Earth Exchanges, which was launched just in October of this year, has started to chronicle some of this unfolding initiative.
On the legislative and regulatory front, the Department of Defense (DoD) has implemented regulations that will require defense contractors to source rare earth magnets from non-Chinese sources starting in 2027.
The US has made progress in establishing domestic rare earth production, with companies like MP Materials leading the way. But most media, industry spokespersons, government officials, and politicians downplay just how far behind America really has become in the world of the rare earth supply chain.
U.S. defense contractors must establish compelling rare earth critical mineral supply chain strategies, including comprehensive planning and risk management. Technological and process disruption where and when helpful. The US is also collaborating with allies like Australia, Canada, and the UK to secure a more diverse and reliable supply of rare earth materials.
Research into alternative magnet technologies and materials is ongoing, and this could reduce reliance on rare earth elements.
But several challenges ensue. Yes, despite progress, the US still faces significant hurdles in achieving full independence from rare earth production in China. These challenges include the dynamics and elements Rare Earth Exchanges chronicles daily.
| Challenges | Summary |
|---|---|
| Limited Domestic Production | The current domestic production capacity for rare earth materials is still significantly smaller than China’s. |
| Market Volatility | The global rare earth market is susceptible to price fluctuations and supply chain disruptions. |
| Technological Dependence | Many advanced technologies in the defense sector rely on rare earth magnets, and finding substitutes for these materials can be challenging. |
| Time Constraints | The 2027 deadline presents a significant challenge, and the US needs to accelerate its efforts to establish a secure and reliable supply chain. |
So, where is the industry at as we approach the end of 2024? Certainly, the DoD and industry contractors are actively scrambling to meet the 2027 goal. For example, the DoD has announced initiatives to establish a domestic rare earth supply chain and is investing in research and development efforts to reduce reliance on China. However, discussions with multiple experts in the field who must remain anonymous suggest the defense industry may be behind the auto industry, for example.
Progress is occurring, but the hurdles, well, many of them, remain. While the US, in the aggregate, makes the claim to be on track to meet its goal of a sustainable, mine-to-magnet supply chain, the challenges are substantial. And we cannot be certain as to the actual progress at this point with any clarity.
One major issue remains the 2027 deadline itself. The US needs to accelerate its efforts to establish a secure and reliable supply chain for rare earth materials to meet the 2027 deadline.
As Rare Earth Exchanges often reports, the future of the rare earth market itself remains uncertain, with mounting tension given relations with China. Some expert consultants advise that the imbalance due to the rare earth leverages is far more onerous than is conveyed to the public.
The geopolitical landscape and potential shifts in global demand could impact the future of rare earth production and supply. An aggressive stance by the incoming POTUS could trigger more severe responses involving rare earth elements, impacting the entire value chain.
While the US is making progress towards its goal of establishing a domestic rare earth supply chain and reducing reliance on China, the defense industry is not fully ready to meet the January 2027 deadline for sourcing all rare earth magnets from non-Chinese sources.
Here at Rare Earth Exchanges, we suggest the U.S. overall situation involving rare earth supply chains is far more of a danger than the media, industry, politicians, and government spokespersons acknowledge. In the aggregate, this remains a collective societal challenge of substantial magnitude. Far more concerning the national security of the United States than, say, spending $86 billion to round up every illegal alien in the country. However, few understand the severity and magnitude of the problem.
The US faces significant challenges in achieving full independence from China’s rare earth production. Yet the nation’s defense sector is actively working to address and secure a more secure and resilient supply chain for critical materials per the administrative rule in the defense sector. However, the U.S. will need to do far more than it is now, and this will include the need for what we believe at Rare Earth Exchanges will be massive injections of capital invested strategically in the appropriate rare earth value chain segments. This does not mean that the United States must create a duplicate complex concentrated in the homeland.
This is not feasible: what would be a network of allies making up what will ultimately emerge as dynamic parallel markets that China’s complex would have to ultimately accept, embrace, and work with?
At this stage, to truly overcome the imminent crisis, a market-based solution alone is not sufficient, unfortunately. The Chinese have set the rules of the market, given their control over supplies, processing and refining, and magnet production, for example. This means a mixed centralized and market economy that provides vital resources for advanced industries.
To conclude, while the US DoD is making progress, the 2027 deadline is likely overly ambitious, and the defense industry likely must work overtime to achieve the goal of sourcing all rare earth magnets from non-Chinese sources by that date. We have asked the question, would not the defense industry be the industry most dialed into such resiliency already out of necessity?
Daniel
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