China remains the controlling force in the rare earth magnet supply chain - essential to a wide range of industries. Industry discussions suggest the market still underestimates how difficult it will be to scale meaningful production outside of China.
Key takeaways
- Efforts to build rare earth magnet supply chains outside China face deeper structural barriers than many investors recognise.
- Prices have surged, and the hope is that supply will rise to meet strong demand and put downward pressure on prices.
- That’s easier said than done. The fundamentals suggest elevated pricing for the foreseeable future.
Download the Analyst Survey 2026 PDF
Rare earth magnets play a critical role in renewables, aerospace and defence manufacturing yet the supply chain is tightly controlled by China. It has become increasingly clear to me that the wider market still underestimates this dependency and the inherent challenges of scaling rare earth magnet production outside China.
How did I come to this conclusion?
There's a natural assumption in commodity markets that high prices cure high prices because elevated prices incentivise new supply. However, the concentration of the rare earth supply chain and the geostrategic nature of global demand complicates this dynamic.
Rare earth prices have doubled in the last year following Chinese export restrictions in retaliation to US tariffs. In response, the US government has taken a direct equity stake in a rare earth magnet producer and underwritten investment through a price floor. The market therefore assumes that, over the long-term, high prices, supported by a price floor, will incentivise new Western supply. At the same time, there’s the possibility that in the short-term China eases restrictions on its rare earth exports, as it has in the past, flooding the market with excess supply. Both scenarios would bring prices down.
Conversations I've had with a range of companies across the supply chain make me question these assumptions.
First, regulation has moved on. From January next year, the United States will not allow Chinese rare earth components in the defence supply chain, supporting demand and pricing for production outside of China.
Second, a range of downstream customers we speak to have told us that even if restrictions were to be eased tomorrow, they will still seek greater supply diversifications outside China. Recent disruptions have highlighted the vulnerabilities in their supply chains, and many are no longer comfortable with such a high concentration of supply.
Third, the challenge is less about rare earth mining and more about rare earth refining, for which the barriers to entry are high. Successful refining at scale requires a supportive industrial complex. China has invested heavily in its rare earth processing and refining complex since the 1980s. Any new Western supply won’t be able to draw on the components, reagents, and expertise that China has consolidated over the years.
As a result, this may slow the pace of expansion of the rare earth supply chain beyond China. Despite the commercial and geopolitical imperative, this could potentially keep prices higher for longer than consensus is currently expecting or pricing into rare earth share prices.
