US Rare Earth Magnet Shortage Deepens as China Supply Threatens

The United States faces a critical shortage of rare earth magnets, with domestic production accounting for only 300 tons out of the 48,000 tons needed annually. China, which supplies over 90% of the global market, is set to tighten its export rules, compounding the challenge. The Pentagon's new DFARS regulations, effective January 1, 2027, will ban any supply chain involving China, Russia, Iran, or North Korea, forcing defense contractors to source materials entirely within the US or its allies. This shift is prompting urgent efforts to develop alternative supply chains, with companies like REalloys leading the charge by establishing processing facilities in Saskatchewan and Ohio. The new rules require full transparency in the supply chain, making it difficult for contractors to rely on Chinese imports without proper certification. The White House has also issued an executive order to limit waivers, emphasizing the need for verified domestic sources. REalloys CEO Lipi Sternheim stated the company aims to qualify North American rare earth materials for defense use by the fourth quarter of 2026. However, the situation is further complicated by China's impending export restrictions, which are set to expire just nine days after the Pentagon's deadline. These rules, which deny export licenses to companies linked to foreign militaries, could disrupt global supply chains if not resolved. The recent truce between the US and China, extended only until January 10, offers limited reassurance to defense contractors seeking to build a reliable alternative. The last time China restricted rare earth exports, it led to significant production halts and soaring prices, with dysprosium and terbium prices in Rotterdam reaching five times their Chinese counterparts. This highlights the urgency of developing a domestic supply chain, as the US remains heavily reliant on Chinese processing capabilities. Despite substantial investments in minerals companies, US magnet production is projected to reach only 5,000 tons by 2026, far short of demand. The separation process, which isolates rare earth elements, is particularly challenging, as China controls nearly all heavy rare earth purification. REalloys' recent hiring of Dr. Muhammad Imran, a former leader at the Saskatchewan Research Council, underscores the importance of developing domestic separation technology.