China limits supply of critical minerals to US defense sector: WSJ

[Ben Graham]

China is limiting its flow of critical minerals to Western defense manufacturers, leading to significant production delays and sharp price spikes, the Wall Street Journal reported on Sunday.

Beijing controls over 90% of the world’s supply of rare earth elements used a myriad of military technologies, including jet-fighter magnets, infrared sensors, drone motors and precision munitions.

According to the WSJ, citing sources, the Chinese government is now refusing or delaying exports of minerals designated for such applications, and has introduced measures to enforce its control by requiring exporters to submit documentation — such as product or production-line photos — as proof of their civilian end‑use.

The new restrictions, which came despite trade concessions made with the US in recent weeks, have pushed some defense manufacturers into crisis, the WSJ said.

Infographic: Rare earth magnets demand for clean energy tech

In one case, a US drone component firm faced production delays of up to two months while seeking rare earth magnets from non-Chinese sources. Meanwhile, samarium—a rare earth used in high‑temperature magnets for jet‑fighter engines—is being offered at as much as 60 times its typical price.

Defense businesses warn that stockpiles of non-rare earths such as germanium, gallium and antimony are also running dangerously low. One executive noted that his firm is now down to “safety stock.” Some suppliers now hold only a few months’ inventory, exposing even larger firms to disruption, the WSJ noted.

US response

The Chinese restrictions highlight the significant chokehold Beijing has on the global supply of critical minerals, which it used to its advantage in trade negotiations with the US.

An assessment this year by the International Energy Agency showed that China leads the refining for 19 of 20 critical minerals, with an average market share of around 70%.

To counter China’s dominance, the US Department of Defense has mandated that firms cease purchasing China‑sourced rare earth magnets by 2027.

As part of its efforts to diversify the supply chain, the Pentagon recently made a sizeable investment in MP Materials, the only rare earths producer in the country, with the aim of scaling up domestic production of magnets to meet long-term demand.

Analysts say the deal, which guarantees MP a minimum price for its rare earth production at nearly twice the market rate, should have positive implications for producers, but may hurt customers in the short term.

“This benchmark is now a new centre of gravity in the industry that will pull prices up,” Ryan Castilloux, managing director of consultancy Adamas Intelligence, told Reuters earlier this month.

US mulls REE price floor to lift output: Reuters

David Merriman, research director at consultancy Project Blue, said it remains “unclear how commercial industrial consumers would respond to higher prices” and “whether it would make them invest in rare earths as they have more diverse supply sources.”

Others have also cautioned that scaling up the production of rare earths may take years.