The Heavy Rare Earth Squeeze Is No Longer a Theory: The Shortage is Already Visible

Highlights

• China's April 2025 export controls on dysprosium, terbium, and yttrium have effectively cut off Japan and strained Western supply chains to near-critical levels.
• Western alternatives like REalloys, Serra Verde, and Energy Fuels show promise but cannot deliver sufficient commercial heavy rare earth volumes within the next 12 to 24 months.
• Mountain Pass, America's flagship rare earth mine, is rich in light rare earths—its stockpiled concentrate contains only about 4% dysprosium and terbium combined.
• Beijing retains decisive leverage over Washington by controlling not just ore, but licensing, refining, magnet conversion, and export enforcement of heavy rare earths.
• Experts urge a wartime-style bridge strategy: expand strategic stockpiles, accelerate allied supply qualification, fund recycling, and pursue pragmatic diplomacy with China.

No, the United States has not publicly “run out” of heavy rare earths. But the market is already behaving like a system running on fumes. China’s April 2025 controls on seven categories of medium and heavy rare earths, including dysprosium and terbium, were global in scope, not just bilateral. In Europe, traders warned that many automotive groups and suppliers held only two to three months of rare-earth magnet inventory. In Japan, China’s exports of dysprosium, terbium, and yttrium to the country were still nearly nonexistent in May 2026, a stunning signal for the world’s largest magnet producer outside China.

The Smoking Guns Are Everywhere

The most damning evidence is not rhetoric but behavior. Rare Earth Exchanges® reports, for example, that Japan has effectively been cut off from several heavy rare earths since late 2025; officials have been releasing stockpiles, while major manufacturers such as Shin-Etsu have moved to build new refining capacity and, earlier, halted new orders involving dysprosium.

In the West more broadly, REEx’ supply-chain analysis finds that China could still supply 90% of Western heavy rare-earth needs even by 2030. Note that, based on forecasts, the mines outside China may meet only 25% to 30% of heavy rare-earth demand for key sectors by 2035. Unless a multi-national alliance can secure a deal with Myanmar, for example—part of a visionary move involving environmental remediation. Even MP Materials, the flagship U.S. rare earth story, has acknowledged the problem indirectly: Mountain Pass (America’s rare earth treasure trove) is rich in light rare earths, not heavies, and we reported its stockpiled medium-and-heavy concentrate contains only about 4% dysprosium and terbium.

Industry Is Racing the Calendar

The clearest U.S. alarm bell may be coming from industry itself. REalloys says it expects high-purity dysprosium and terbium oxides from Saskatchewan in the fourth quarter of 2026 specifically so customers can begin qualification before the January 1, 2027 DFARS deadline, after which Chinese-origin rare earth materials become non-compliant for covered U.S. defense procurements. REEx has suggested these are optimistic timelines, and we also noted we expect waivers and workarounds for DFARS.

Its March 2026 quarterly filing shows why that matters: REalloys still had not received equipment, goods, or services tied to its Saskatchewan Research Council (SRC) advances as of March 31, while outlining roughly $69.3 million of anticipated SRC-related commitments through 2028. In plain English, one of the West’s most talked-about replacement channels is still being built while the defense clock is ticking.

What about REalloys' news of late involving separation of heavies by end of 2026? Based on REalloys' announcements, the expectation is qualification-scale separated rare earth materials by the end of 2026, not full commercial production. Specifically, the company says the SRC is expected to supply high-purity NdPr oxide, dysprosium oxide, and terbium oxide in the fourth quarter of 2026 for customer qualification and supply-chain validation ahead of the January 1, 2027 DFARS deadline. Commercial-scale production from SRC's Rare Earth Processing Facility, however, is still targeted for early 2027, with staged commissioning already underway. In other words, if the schedule holds, REalloys should have limited quantities of separated rare earth oxides available for qualification within the next six months, but not sustained commercial output until 2027.

And what about USA Rare Earth’s Serra Verde? Will it generate 6,000 tons or more of TREO by end of 2027? Our forecasts suggest the odds are against it. What about Energy Fuels? Again, where do the heavies derive from?

USA Rare Earth, Serra Verde, and Energy Fuels all represent important pieces of the emerging ex-China rare earth supply chain—but none is likely to solve the heavy rare earth shortage within the next six to 12 months. USA Rare Earth's magnet facility in Oklahoma is progressing, yet it still depends on qualified feedstock and commercial-scale upstream supply. Serra Verde in Brazil is one of the world's most promising ionic clay deposits containing valuable heavy rare earths, but ramping from initial production to the company's longer-term targets—including roughly 6,000 tonnes or more of TREO annually by the end of 2027—requires successful mining, processing, qualification, and commercial scale-up. While Serra Verde is arguably the West's best near-term heavy rare earth mining opportunity, achieving full planned production on schedule remains far from certain. Energy Fuels offers another important pathway through monazite processing at White Mesa, but monazite is predominantly a light rare earth feedstock. Although it contains some dysprosium and terbium, those heavy rare earths occur in relatively small concentrations and require sophisticated downstream separation.

Consequently, even with White Mesa operating, Energy Fuels alone cannot generate the heavy rare earth volumes needed to satisfy rapidly growing demand.

The central challenge remains unchanged: the West has multiple promising projects, but no single producer appears capable of delivering sufficient commercial quantities of separated heavy rare earths quickly enough to eliminate dependence on China over the next 12 to 24 months, if not even further out.

China Controls the Pressure Valve

This is why Beijing retains real leverage over the Trump administration as the broader U.S.-China truce heads toward its November deadline. Heavy rare earths are not niche inputs, despite companies in the West suggesting magnets can be produced with few if any heavies. No, heavies harden magnets for fighter jets, missile guidance, naval systems, EV traction motors, offshore wind, robotics, lasers, sensors, and advanced materials. China can squeeze the West not only by controlling ore, but by controlling licensing, refining, magnet conversion, and now enforcement: this month it targeted MP Materials and USA Rare Earth with export restrictions and launched a whistleblower hotline to crack down on smuggling. So President Trump can raise tariffs, and Xi Jinping can decide who gets dysprosium, terbium, and yttrium.

So Now What?

The uncomfortable reality is that the United States cannot mine, separate, refine, and qualify enough heavy rare earths within the next 12 to 24 months to replace Chinese supply. Policymakers should therefore adopt a wartime-style bridge strategy rather than pretending near-term self-sufficiency is achievable. That means rapidly expanding strategic stockpiles of dysprosium, terbium, and other heavy rare earths; accelerating qualification of every credible allied supply source in Australia, Canada, Brazil, Malaysia (think SAM), USA (think Pea Ridge) and elsewhere; aggressively funding recycling of magnets and defense scrap; providing emergency working capital to downstream metallization and magnet producers; and prioritizing heavy rare earth allocation to national security systems where substitutes do not exist.

At the same time, Washington should pursue pragmatic diplomacy with Beijing to preserve limited commercial flows while Western capacity is built. The alternative—assuming China will continue supplying critical materials after the current reprieve expires in November 2026—would amount to betting America's defense industrial base, EV sector, advanced manufacturing, and clean energy ambitions on a supply chain it neither controls nor can replace in the time available.

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