The United States is expanding domestic rare earth production, but the real challenge lies further downstream. Processing, metalmaking, alloy production and permanent magnet manufacturing remain critical to building a resilient defence supply chain.
The United States is investing in rare earth mining and manufacturing to reduce its dependence on China. Yet a larger supply of mined material will not, by itself, secure the magnets required for defence systems and advanced technologies. The bigger challenge is building the industrial capacity to transform raw materials into finished products that meet demanding performance and quality standards.
The scale of the imbalance is clear. In 2024, China accounted for around 60% of global mined production of rare earths used in magnets. Its position was far stronger further down the supply chain, representing 91% of global refined output and 94% of sintered permanent magnet production, according to the International Energy Agency (IEA). These figures show why increasing mine output alone cannot deliver supply-chain independence.
The supply chain extends far beyond the mine
Rare earth production involves several technically demanding stages. After extraction, ore is crushed, processed and concentrated. Chemical separation then isolates individual rare earth elements. These are converted into oxides, metals and alloys before being manufactured into permanent magnets.
Each stage requires specialised equipment, technical expertise, consistent feedstock and rigorous quality control. A country can possess substantial mineral resources while continuing to depend on overseas facilities for the processing and manufacturing needed to turn them into usable products.
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Permanent magnets are particularly important. Neodymium-iron-boron (NdFeB) magnets deliver high magnetic strength in compact designs and are used in electric motors, precision equipment and defence-related applications. Samarium-cobalt (SmCo) magnets offer performance advantages in demanding, high-temperature environments.
For defence manufacturers, securing the right chemical elements is only part of the challenge. They also need magnets that meet precise specifications, perform consistently and can be traced through the supply chain.
Processing and magnet manufacturing are the critical gaps
The IEA’s Global Critical Minerals Outlook 2025 highlights the concentration of rare earth refining and magnet production in China. Its analysis also points to an uneven pipeline of new projects: mining capacity is expanding faster than capacity for refining, metalmaking, alloy production and finished magnets.
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This imbalance has direct implications for the United States. Even if more rare earth concentrate becomes available from domestic mines, producers still need enough downstream capacity to separate the elements, convert them into usable materials and manufacture magnets at commercial scale.
The pressure is increasing as US defence procurement rules approach a major milestone. From 1 January 2027, the relevant provision of the Defence Federal Acquisition Regulation Supplement (DFARS) is scheduled to extend restrictions on specified materials to earlier stages of their supply chains. For NdFeB and SmCo magnets, the rules address the supply chain from the relevant mining or feedstock stage through to finished magnets.
The provision applies to covered defence contracts and specified materials; it is not a universal ban on every commercial product containing Chinese-origin rare earths. It also contains exceptions, including a process for determining whether compliant materials are unavailable in satisfactory quality and quantity, in the required form and at a reasonable price.
Nevertheless, the deadline puts pressure on suppliers to identify compliant sources and demonstrate that their supply chains meet the applicable requirements.
US producers are moving downstream
US companies are working to connect domestic mineral production with processing and magnet manufacturing. MP Materials, which operates the Mountain Pass rare earth mine and processing facility in California, is one of the most prominent examples.
In its second-quarter 2026 results, MP Materials reported neodymium-praseodymium (NdPr) production of 840 metric tonnes, up 41% year on year. It also reported progress in magnet qualification at its Independence facility and accelerated construction of its planned 10X facility.
The company’s results illustrate both progress and the scale of the remaining work. MP Materials has expanded beyond mining and materials processing into magnet production, but qualification, production ramp-up and the development of additional processing capacity remain important milestones. The latest results do not, on their own, establish that every planned downstream capability is operating at full commercial scale.
Heavy rare earths add another layer of complexity. Dysprosium and terbium can improve the high-temperature performance of certain permanent magnets, making them important in some demanding applications. Building a dependable supply requires specialised separation and processing capabilities, as well as reliable access to suitable feedstock.
New facilities must also demonstrate consistent product quality, achieve reliable operating performance and secure customers. Defence-related applications may require additional qualification and traceability checks, making the transition from initial production to dependable supply a gradual process.
A commercial challenge as well as a strategic one
Developing a non-Chinese supply chain is not simply a matter of constructing more plants. Producers must operate efficiently, secure long-term customers and compete in markets shaped by established suppliers and existing economies of scale.
New facilities outside China may face higher production costs, especially during early operating stages. Without stable demand, financing and predictable market conditions, companies can struggle to justify continued investment. Government support can help bridge the gap, but long-term resilience will depend on whether these operations can deliver consistent products at commercially sustainable costs.
Recycling and more material-efficient magnet designs could also reduce pressure on primary supplies over time. However, neither offers an immediate substitute for industrial-scale processing and magnet manufacturing. Their contribution will depend on technology, collection systems, product design and the availability of suitable recycled material.
The real test is finished magnet capacity
The US effort to rebuild its rare earth supply chain offers a wider lesson for countries seeking critical-mineral security. Mineral deposits and mine output matter, but they are only the beginning of the industrial process.
Without adequate separation, metalmaking, alloy production and magnet manufacturing, a country can expand its domestic mining industry while remaining dependent on external suppliers for the products that matter most. Investment strategies must therefore assess how projects connect across the entire value chain, rather than measuring progress by mine capacity alone.
The January 2027 procurement milestone may accelerate this transition, but it cannot instantly replace decades of industrial concentration. Building alternative supply chains will require sustained investment, technical expertise, customer qualification and commercially viable production.
For the United States, the decisive measure of progress will not be how much rare earth ore it mines. It will be how reliably it can turn those resources into qualified permanent magnets through a diversified, commercially sustainable supply chain.
