From vulnerability to viability: can a US-led push diversify the rare earth supply chain?

For decades, global mineral supply chains were built on the "no borders" assumption, with limited regard to trade, regulatory or other geopolitical barriers. That assumption no longer holds true; and nowhere is its shattering starker than in rare earths.

Rare earth elements (REEs), once treated as a niche input, have become a defining test case of mineral supply chain resilience. While demand has grown steadily over time, investment across mining, processing and downstream capacity has remained highly concentrated around China. The result is not just exposure to disruption, but a structural dependence by the rest of the world on China, rooted in how, where and at what cost these materials are produced and made available for export by China.

In response, policy ambition outside of China has accelerated. Nowhere is this clearer than in the United States, where REEs sit at the center of a concerted push to build alternative critical mineral supply chains, backed by an array of US agencies. This shift is now moving from programme-level support toward legislative entrenchment, with the passage of the DOMINANCE Act in the House in June 2026 signalling an effort to formalise overseas mineral investment and allied supply chain development. The question remains as to whether they can be built at scale outside of China, on credible timelines, and at prices the market is prepared to sustain.

Abundance upstream, scarcity downstream

Upstream supply is only one part of the rare earth supply chain challenge. But unlike many other critical minerals, where supply constraints are primarily driven by geological scarcity or concentration of reserves, rare earth deposits are relatively widely distributed geographically. The bottleneck instead lies in the industrial stages that convert ore into usable materials, which remain highly concentrated.

China's share of global rare earth mining is substantial, but its leverage increases materially further downstream. China accounts for approximately 90 percent of global separation and refining capacity, and approximately 94 percent of sintered permanent magnet production, the form required for EVs, wind turbines and most defense applications. Control over these stages confers disproportionate influence over pricing, availability and downstream manufacturing decisions, regardless of where the primary material is mined.

This concentration explains why expanding REE mining capacity outside China, while necessary, has limited effect on supply chain resilience. Projects that lack access to separation and processing capacity remain commercially and operationally exposed. This imbalance is reinforced by economics, with non-Chinese REE processing and refining typically operating at materially higher capital and operating costs, often several times those in China. As a result, many alternative projects remain commercially marginal without direct policy intervention or price support.

However, China's influence over the rare earths market is not exercised solely through structural cost advantage. It also retains the ability to shape market conditions through coordinated production, export controls and periodic supply tightening, introducing a layer of strategic volatility that has historically deterred investment in competing supply chains. This dynamic is critical, as new western projects will not operate in a purely market-driven environment.

The result is a supply chain that is structurally fragile absent policy support. Unsurprisingly, policy interventions to build alternative supply chains have increasingly focused on midstream and downstream capacity, and supply chain diversification is being measured not in individual mines commissioned, but in the slow accumulation of processing, manufacturing and pricing capability outside the existing system.

In practice, this is increasingly translating into a strategic focus beyond individual stages of the value chain toward vertically integrated "mine‑to‑magnet" platforms. This reflects the recognition that security of supply is not achieved at the level of raw material alone, but through the alignment of mining, separation, refining and final product manufacturing within a single commercial structure or coordinated ecosystem. Projects that can demonstrate credible pathways across multiple stages are better positioned to secure financing, policy support and long-term offtake, reducing exposure to midstream bottlenecks and pricing opacity. As a result, integration is becoming not just an operational consideration, but a key factor in attracting investment in non‑Chinese rare earth supply chains.

Dominance in name, diversification in practice

The emerging picture in the rare earth supply chains is materially different from where the market sat even 18 months ago. The shift is not yet defined by new capacity coming online, but by where capital, risk and time are now being spent.

US federal involvement has moved beyond pilot support into balance sheet deployment, with billions of dollars in combined lending, equity participation and long-dated offtake commitments now directed at rare earth supply chains, both domestically and through allied production.

For example, the Serra Verde project in Brazil is backed by more than US$500 million in financing from the DFC, alongside long-term offtake. It has entered production and is ramping toward full capacity, demonstrating that non-Asian magnet REE supply can be commercialized when revenue risk is addressed over long horizons. Mountain Pass, by contrast, reflects the domestic leg of the strategy: federal support focused downstream, including heavy REE separation and magnet manufacturing, underpinned by a US$150 million defense loan facility alongside equity and price support arrangements, with commissioning targeted for later this decade.

This direction of travel is now being reinforced at the policy level. While the U.S. has already been deploying capital and coordinating allied supply chains through executive actions and existing programs, the passage of the DOMINANCE Act in the House in June 2026 signals an attempt to formalize and institutionalize this outward-facing strategy in legislation, particularly around overseas mineral investment and allied supply chain development, although it remains subject to Senate approval before coming into force.

Similar dynamics are emerging elsewhere, albeit at different speeds and scales. Australia remains as the player that is most advanced outside China, anchored by established production at Lynas' Mt Weld and a pipeline of projects including Arafura's Nolans development and Iluka's Eneabba refinery, which aim to extend capacity into processing. Japan, by contrast, continues to prioritize diversification through long-term offtake, overseas investment and stockpiling rather than domestic build‑out, supported by institutions, such as JOGMEC, and a long‑standing national stockpiling program designed to buffer supply disruptions. In Europe, policy momentum has translated into a growing but still nascent project pipeline under the Critical Raw Materials Act, including projects such as the LKAB Per Geijer deposit in Sweden and Norra Kärr, alongside processing and recycling capacity, such as the Silmet separation plant in Estonia. The proposed development of the Tanbreez project in Greenland further illustrates Europe's attempt to secure access to large-scale rare earth resources within aligned jurisdictions, particularly given its potential to supply heavy rare earths. Their contribution, however, is likely to be gradual rather than immediate.

What lies ahead

In the next six to 18 months, the rare earths supply chain will look largely similar in terms of volume, but materially different in structure. China will continue to dominate global processing and magnet production, and there is no credible near-term path to displacement. What will change is the institutional architecture around alternative supply: projects reaching financial close; construction moving ahead; and a growing share of non-Chinese production being sold into long-dated offtake arrangements with explicit price support. This marks the point at which diversification shifts from aspiration to execution.

This shift is also likely to drive consolidation across the sector. Many "mine‑to‑magnet" platforms are unlikely to emerge within single projects, but instead through strategic partnerships, joint ventures and targeted combinations linking upstream resource positions with midstream and downstream capacity. This reflects the capital intensity and technical fragmentation of the value chain, which few operators can address independently. Governments and strategic end‑users are also likely to play a more active role in shaping these structures, whether through cornerstone investments, offtake-backed financing or direct equity participation. The result is a more structurally driven form of M&A, focused on assembling coherent supply chains capable of operating at scale outside of China.

If the US and other major economies were genuinely successful in building a non-Chinese rare earth supply chain, the impact would be structural rather than absolute. Success would not mean replicating China's scale, but establishing sufficient capacity across separation, processing and downstream capacity to prevent disruption when market conditions change. Based on current project pipelines and construction timelines, that outcome is realistically at least a five to seven-year proposition, even with sustained federal backing. This reflects the time required not to fully replicate China's supply chain, but to bring a critical mass of separation, processing and downstream capacity to stable commercial operation. The result would be a market that remains concentrated but is no longer singular, with alternative pricing reference points and meaningful optionality under stress.

The scale of the challenge should not be underestimated. Closing current and projected demand gaps does not require dozens of new entrants, but it does require more than a handful of isolated successes. A small number of projects built at genuine industrial scale would be sufficient to move the market, but not to establish a system that is resilient, balanced across different rare earths and able to support future demand growth.

Still, execution risk remains material, particularly in midstream processing, where technical complexity and operational stability have historically limited non‑Chinese operators. Not all projects will reach sustained nameplate production, but the strategy does not depend on universal success: a limited number of fully stabilized platforms would be sufficient to establish credible alternative capacity.

Ultimately, much of today's constraints reflect prolonged underinvestment in mineral processing outside of China. Current diversification efforts are therefore corrective, focused on putting the missing pieces in place. And while that does not equate to independence from China, it also does not need to. What appears to be forming is a narrower, more realistic objective: a rare earth supply system that remains concentrated, but no longer singular; expensive, but bankable; slow to build, but durable once in place. For the first time in decades, that outcome looks achievable—not quickly, but credibly.

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