PRICED BUT NOT INVESTABLE: WHY RARE EARTH MARKETS FAILED — AND WHY THE SOLUTION IS BEING ENGINEERED
1. WHEN THE CHINESE PRICE WAS THE MARKET PRICE
Markets are immutable in their function: they translate inputs into outcomes. When outcomes fail, it is the inputs—not the market—that must be examined.
In rare earths, prices and demand have been visible for more than a decade, yet investable supply outside China has not emerged. This paper argues that the market has behaved rationally, and that the current phase reflects a deliberate re-engineering of inputs to correct for a structurally failed outcome.
For much of the past two decades, global rare earth pricing operated as if there were a single market price. In practice, that price was set in China.
This outcome did not arise from explicit monopoly behaviour or formal coordination. It reflected China’s position at the centre of the rare earth value chain and, critically, its role as the source of marginal supply. If additional demand could be met by Chinese production and exports, Chinese prices functioned as the global clearing price for rare earth oxides, including neodymium–praseodymium (NdPr).
During this period, Chinese domestic prices were broadly usable as external references. Differences between domestic and export prices were largely mechanical, reflecting value-added tax, logistics, and timing rather than structural scarcity. Where differentials appeared, arbitrage ensured convergence. Buyers outside China could reasonably expect that material quoted at a Chinese price would be available, in volume and on predictable terms.
This pricing structure suited both sides of the market. Chinese producers benefited from scale and steady demand, while buyers elsewhere optimised procurement around availability and cost rather than redundancy. Rare earths were treated as industrial commodities with some political sensitivity, but not as materials requiring parallel supply chains.
Non-Chinese production did little to alter this dynamic. Alternative supply existed, but it lacked scale, continuity, and price-setting power. Pricing for these projects was anchored to Chinese references rather than formed independently. Without long-term offtake or underwriting, they could not establish an alternative clearing price.
Implicit in this system was an assumption that China would continue to supply incremental global demand. Successive increases in Chinese production quotas reinforced that belief. Quota growth was interpreted as export capacity, and export capacity was assumed to translate into market availability. The distinction between production growth and export elasticity was rarely interrogated.
That assumption sat alongside a long-standing and well-understood industrial logic. As Dudley Kingsnorth observed many years ago, the French would rather sell wine than grapes. From the outset, China’s rare earth strategy was not simply about supplying raw materials, but about using upstream control to develop an export-led industrial base. For many years, these objectives were compatible with continued exports of oxides and intermediates. China could move downstream while still supplying the rest of the world with materials.
Over time, however, the conditions that allowed this balance to persist began to change. Chinese domestic demand for rare earths grew steadily as magnets, motors, electronics, and other downstream industries expanded. At the same time, the capacity to supply both domestic demand and the rest of the world with upstream material began to narrow. That constraint is not yet absolute, but it is increasingly binding at the margin.
In this environment, China is no longer resolving the trade-off between domestic use and export supply through market forces alone. Instead, optionality has been embedded into policy and practice. Export availability has become conditional rather than elastic, influenced by licensing, end use, timing, and strategic priority. This preserves flexibility: upstream material can still be exported where it aligns with broader objectives, but domestic downstream industries are insulated from supply risk.
Whether this shift has been formally articulated or merely inferred through regulatory practice is ultimately secondary. What matters is the effect. Market participants now behave on the basis that export availability is discretionary and reversible, while domestic demand is structurally prioritised. That perception alone is sufficient to alter price formation.
In commodity markets, prices depend not only on cost and supply, but on confidence in continuity. Once continuity becomes uncertain, prices cease to clear purely on marginal economics. Risk premia emerge, contract tenors shorten, and procurement strategies adjust.
The practical consequence is that access to Chinese rare earth content is increasingly mediated through Chinese downstream industries. For many applications — particularly magnets — the most reliable, and in some cases the only, way to secure Chinese rare earth supply is to buy it already embodied in finished or semi-finished products.
The Kingsnorth logic has not changed. Value is still captured by selling wine rather than grapes. What has changed is that, as capacity tightens and optionality is preserved, China is no longer prepared to do both in parallel. At that point, the Chinese price ceases to function as a neutral global reference and becomes an internal price serving a domestic value chain.
2. CAPITAL SCARRING AND THE LOSS OF PRICE CREDIBILITY
The breakdown of confidence in rare earth price signals did not occur suddenly. It developed through two distinct episodes, separated by more than a decade, that together reshaped how Western capital evaluates risk in the sector.
The first occurred in 2010–11, when Chinese export quotas triggered a sharp rise in rare earth prices. At the time, the price response appeared to confirm long-standing concerns about supply concentration. Projects advanced rapidly on the assumption that higher prices reflected a durable tightening of supply rather than a temporary policy constraint.
That assumption proved misplaced. When export restrictions were subsequently relaxed following World Trade Organization rulings, prices fell as abruptly as they had risen. Projects that had relied on elevated prices to justify investment were left exposed. Mountain Pass failed; Lynas survived only because it was underwritten as a strategic asset rather than financed on commercial price assumptions.
The lesson absorbed by capital was not that rare earth prices were volatile, but that they were non-bankable. Prices driven by policy constraint could rise quickly, but they could also be reversed before capital could be deployed and recovered. Duration, not level, became the binding variable.
In the years that followed, awareness of rare earth supply risk did not diminish. On the contrary, it became increasingly explicit. Governments and agencies in the United States, Europe, Japan, and elsewhere produced a growing body of strategy papers, critical-minerals lists, and supply-chain assessments. These documents correctly identified concentration risk, downstream dependence, and the strategic importance of rare earths.
What they did not resolve was the central economic problem exposed by the first price rupture. Strategy papers acknowledged risk, but they did not change price formation. They did not address the conditions under which higher prices could be relied upon to persist, nor did they establish mechanisms for underwriting, offtake support, or price duration. Recognition increased, but investability did not.
This distinction became decisive during the post-COVID demand surge of 2022–23. Demand growth was real and broad-based, driven by electric vehicles, wind power, and industrial electrification. Prices rose in response, and for a brief period it appeared that demand-led pricing might finally support new supply outside China.
Once again, that expectation was disappointed. Chinese quota expansions outpaced realised demand, and multiple quotas releases compressed prices just as non-Chinese projects approached financing decisions. At the same time, policy frameworks multiplied, but they did not translate into binding commitments capable of stabilising prices over an investment horizon. No major rare earth project outside China secured or confirmed finance on the basis of higher prices alone.
By this point, the problem was no longer one of price level. It was one of price credibility. Rare earth prices no longer conveyed information that capital could rely on to assess risk, service debt, or recover investment. They reflected conditions shaped by policy discretion and internal demand priorities elsewhere, rather than an equilibrium accessible to new entrants.
The consequence has been a form of capital withdrawal that precedes supply response. Prices may rise in conditions of scarcity, but they do not attract investment. Without investment, supply cannot respond, and scarcity persists. The market enters a self-reinforcing cycle in which price signals exist but are no longer trusted.
This loss of trust is the central economic constraint facing the rare earth market today. It explains why repeated warnings about supply risk have not translated into new capacity, and why demand growth alone has proven insufficient to rebalance the system.
3. PRICE BIFURCATION AND THE RE-ANCHORING OF REFERENCE PRICES
3.1 FROM A SINGLE CHINESE REFERENCE PRICE TO SEGMENTED ACCESS
For most of the period in which Chinese prices functioned as the global reference, Chinese supply served domestic users and export markets simultaneously. Differences between domestic and export pricing were largely administrative, reflecting tax treatment, logistics, and timing rather than scarcity or prioritisation. Export availability was sufficiently elastic that price differentials were arbitraged away.
That condition has changed.
As Chinese domestic demand for rare earths expanded and downstream capacity deepened, Chinese supply became progressively segmented between domestic use and export. Material could still be exported, but access was no longer assured across volume, timing, or end use. Chinese supply shifted from clearing a single, integrated market to serving two distinct demand pools under different constraints.
This transition did not require a single formal policy announcement. It emerged incrementally through quota management, licensing discretion, and regulatory emphasis on downstream value creation. The effect was a change in how Chinese supply was accessed rather than how it was described.
From the perspective of buyers outside China, the critical shift was not price volatility but access uncertainty. Even where Chinese material remained nominally available, continuity could no longer be assumed. Contract tenors shortened, volumes became less predictable, and prioritisation mechanisms became more visible.
Once access becomes uncertain, a single Chinese reference price ceases to be meaningful. Chinese supply no longer clears a unified market; it clears segmented demand pools subject to different constraints. At that point, bifurcation becomes structural rather than episodic, while remaining specific to Chinese-origin material
3.2 DUAL PRICING IN CHINESE SUPPLY: SMM AND THE FORMALISATION OF BIFURCATION
For much of this transition, bifurcation in Chinese supply was inferred from behaviour rather than explicitly reflected in published prices. Market participants continued to reference a single Chinese price even as export conditions tightened and access became conditional.
That changed in December 2025.
At that point, Shanghai Metals Market (SMM), the most consistent and widely referenced source of rare earth pricing data, introduced a distinct FOB China price for NdPr oxide alongside its domestic Chinese delivery price. This marked a formal recognition that Chinese supply now clears two different markets.
The domestic delivery price published by SMM reflects transactions within China. It captures domestic availability, tax treatment, and demand from Chinese downstream industries. Increasingly, it reflects value capture rather than marginal production cost, indicating that pricing power within Chinese supply has shifted upstream in response to domestic demand.
The FOB China price applies only where Chinese export is licensed and permitted. It reflects not only production cost and logistics, but also the conditions attached to export access. Licensing risk, volume uncertainty, contract tenor, and end-use scrutiny are embedded in the price itself.
These two prices are not arbitrageable in practice. Even where nominal spreads appear modest, the constraints attached to export availability prevent convergence. Domestic buyers of Chinese material face continuity and scale; external buyers face discretion and uncertainty
Crucially, this bifurcation applies only to Chinese supply. Material produced outside China continues to clear a single market and does not face the same segmentation between domestic and export access. However, because Chinese supply has historically set the global reference price, bifurcation within Chinese supply has global consequences.
Once Chinese prices fracture in this way, they can no longer function as neutral global benchmarks. They transmit different information depending on whether the buyer is inside or outside China.
3.3 ROW Price Formation: Cost-Plus Anchoring and the Role of the China FOB Price
As Chinese pricing has become segmented, pricing for non-Chinese supply has begun to re-anchor around a different set of references.
For ROW producers, pricing is no longer meaningfully benchmarked against Chinese domestic delivery prices. Instead, it is increasingly triangulated between two constraints: the FOB China export price, where Chinese material remains available, and the cost of production plus an explicit return on capital required to make non-Chinese supply financeable.
This shift is most clearly illustrated by the United States Department of Defence agreement with MP Materials. At the time the agreement was announced, the implied NdPr price appeared elevated relative to prevailing Chinese benchmarks. Viewed against Chinese domestic prices, it was widely characterised as high.
That interpretation is no longer persuasive.
Once Chinese domestic prices are recognised as internal clearing prices, the appropriate Chinese comparator becomes the FOB China export price, which embeds export risk and conditional access. Against that reference, the MP Materials price no longer appears anomalous. Instead, it sits within a realistic range for supply that must be continuous, bankable, and independent of discretionary export policy.
More importantly, the MP Materials agreement makes explicit what the FOB China price only implies. It links price formation to production cost and capital recovery, rather than to short-term supply-demand dynamics that new entrants cannot rely upon. The price is designed to sustain operations across an investment cycle, not to clear a spot market.
Together, these two prices now define the effective bounds of ROW pricing. The FOB China price establishes the opportunity cost of relying on Chinese exports where they remain available. The cost-plus price defines the minimum level required to sustain non-Chinese production with acceptable risk-adjusted returns.
In this context, prices that once appeared artificially high now look increasingly realistic. They reflect not scarcity alone, but the full economic cost of supply continuity, including capital discipline and resilience.
This represents a fundamental shift in pricing logic. ROW supply is no longer waiting for prices to rise high enough, and long enough, to attract capital. Instead, prices are being specified to make supply viable in the first place, with demand risk managed contractually rather than left to volatile spot markets.
4. LANDED-COST MECHANICS AND THE BREAKDOWN OF PRICE COMPARABILITY
Once price formation fractures, comparison becomes non-trivial. The distinction between a quoted price and an economic price begins to matter, particularly for buyers outside China. This is most clearly seen in the mechanics of landed cost.
Historically, Chinese prices could be translated into delivered costs with reasonable confidence. A domestic Chinese price, adjusted for value-added tax, logistics, and timing, provided a workable proxy for what a buyer outside China might ultimately pay. The remaining variables were largely operational rather than structural.
That is no longer the case.
Today, the price at which rare earth material is quoted at a Chinese port does not determine the price at which it is ultimately consumed outside China. Between those two points sit a series of cost layers and risk premia that are no longer uniform or predictable.
The FOB China price published by SMM represents the price at which material may leave China, where export is licensed and permitted. It does not reflect the cost of delivery to the point of use, nor does it reflect the conditions under which that delivery occurs. For buyers outside China, the FOB price is therefore a starting point rather than a usable benchmark.
From FOB, landed cost is shaped by freight, insurance, port handling, customs clearance, tariffs, and local taxes. In addition, buyers increasingly face costs associated with inventory buffering, contract optionality, and contingency planning. These are not marginal adjustments. They are structural responses to uncertainty in continuity.
More importantly, the FOB price itself embeds a risk premium. Licensing discretion, volume uncertainty, contract tenor, and end-use scrutiny all influence whether the quoted price can be relied upon. The buyer is not purchasing material alone; they are purchasing access under conditions that may change.
As a result, two buyers referencing the same FOB China price can face materially different landed economics depending on jurisdiction, end use, and risk tolerance. The concept of a single “delivered Chinese price” has effectively disappeared.
The contrast with non-Chinese supply is instructive. For ROW producers, pricing increasingly reflects cost of production plus a defined return on capital. While absolute price levels may be higher, the structure is simpler. The quoted price more closely approximates the delivered economic cost, because continuity is embedded contractually rather than inferred.
In this context, apparent price differentials between Chinese and non-Chinese supply can be misleading. A lower FOB China price does not necessarily translate into a lower delivered cost once risk, logistics, and compliance are accounted for. Conversely, a higher ROW price may represent a lower total economic cost once continuity and duration are factored in.
This breakdown in price comparability has important implications. Buyers cannot optimise procurement purely on headline price. Investors cannot rely on spot prices to assess project economics. Policymakers cannot infer supply adequacy from published benchmarks alone.
Landed cost, rather than quoted price, becomes the relevant economic variable. And landed cost is increasingly shaped by structure, risk, and duration rather than by marginal supply-demand balance.
This is the point at which traditional market-clearing logic breaks down. Prices still exist, but they no longer perform their coordinating function across the system. They do not signal when investment should occur, nor do they ensure that supply responds when scarcity emerges.
5. PRICE FLOORS, RISK SHARING, AND THE RESTORATION OF INVESTABLE SUPPLY
The emergence of price floors in rare earth markets reflects a failure of conventional price signals rather than an attempt to elevate prices. In a market where spot prices no longer convey information that capital can rely upon, the central problem is not insufficient price, but insufficient duration.
For non-Chinese supply, prices have repeatedly risen in response to scarcity, only to fall before investment could be deployed and recovered. This has occurred both when prices were driven by policy constraint and when they were driven by genuine demand growth. In each case, the window in which prices remained elevated proved too narrow for financing to close. Capital learned that price alone was not enough.
Price floors address this specific failure. Their function is to stabilise downside outcomes over an investment horizon, allowing capital to be committed with confidence that revenues will persist long enough to support debt service and capital recovery. They do not prevent prices from rising when market conditions tighten, nor do they attempt to predict equilibrium. They simply define the minimum conditions under which supply can be sustained.
In this sense, price floors are risk-management instruments rather than market distortions. They replace volatile and inaccessible price references with a qualified benchmark that reflects the economic cost of secure supply. That benchmark is anchored in production cost and an explicit return on invested capital, rather than in short-term supply–demand equilibria that new entrants cannot access or rely upon.
This logic is not new. Following the 2010–11 price shock, Japan supported Lynas through a combination of offtake commitments and financing support, effectively sharing early-stage risk until alternative supply could be established. That intervention was limited in scope and duration, but it proved sufficient to stabilise supply and restore continuity. Once downstream capacity and market confidence improved, support was reduced without entrenching permanent distortion. The significance of the Japanese intervention lies not in its scale, but in its demonstration that temporary risk sharing, combined with credible pricing, can restore supply where price signals alone have failed.
What is different today is not the principle, but the scale and formality with which it is being applied. As the requirement for diversification has shifted from individual projects to system-wide supply chains, similar mechanisms are now being deployed more explicitly and across a broader industrial base.
In the United States, defence-linked procurement mechanisms — operating under successive administrations and evolving institutional structures — together with development finance and export credit institutions, are being used to anchor long-term demand and pricing for strategically critical materials. Long-term offtake agreements, cost-plus pricing arrangements, asset-backed loans, and credit guarantees are being deployed to recalibrate risk to a level acceptable to private capital.
These instruments do not replace market pricing; they stabilise it during the period in which alternative supply chains are being established. Price floors provide revenue durability, while public financing structures reduce capital risk. Together, they convert strategic intent into investable projects without requiring permanent subsidy or insulation from competition.
In the early stages of rebuilding rare earth supply outside China, some degree of risk sharing is unavoidable. This is not because the underlying economics are unsound, but because the market itself is incomplete. Until diversified supply chains, downstream capacity, and alternative price references are established, early projects operate in an environment where price credibility has yet to be restored and demand coordination remains imperfect.
Temporary risk sharing addresses this gap. By absorbing a portion of early-stage market and pricing risk, governments can accelerate the formation of a functioning market rather than permanently substituting for it. The objective is not to shield projects from competition, but to allow them to reach scale and integration.
Within this framework, loans and guarantees secured against physical assets are increasingly being used to recalibrate risk to a level acceptable to private capital. By anchoring support to tangible infrastructure rather than to price outcomes alone, these instruments preserve market discipline while reducing downside exposure during the transition phase.
Asset-backed loans, credit guarantees, and similar structures do not eliminate risk; they redistribute it. Construction, operational, and market risks remain with project sponsors and investors, while specific risks associated with early market formation are partially absorbed by public balance sheets. This enables private capital to participate without requiring open-ended price protection.
As alternative supply becomes established, these mechanisms can be withdrawn. Assets are refinanced, guarantees expire, and pricing increasingly clears without intervention. The objective is not to institutionalise support, but to restore the conditions under which price signals once again coordinate investment and supply.
6. OEM CONSTRAINTS AND THE LIMITS OF PRICE ACCEPTANCE
While price floors and cost-anchored pricing are necessary to restore investable supply, they operate within clear constraints on the demand side. Original equipment manufacturers cannot absorb indefinitely higher input prices, even where those prices reflect the true cost of secure supply.
OEM resistance to higher rare earth prices is not a rejection of supply security. It is a function of competitive reality.
Manufacturers of electric vehicles and other electrified products operate in markets that are already under intense margin pressure. They face competition on multiple fronts: from Chinese electric vehicle producers with deeply integrated domestic supply chains, and from internal combustion engine vehicles produced outside China, which continue to benefit from mature, amortised supply chains and lower component costs.
In the United States, tariffs on Chinese electric vehicles — including measures as high as 100 percent — may limit direct market penetration. However, tariffs do not eliminate competition; they shift it. Chinese producers remain aggressive in third markets, exerting downward pressure on global pricing and margins. At the same time, ICE vehicles produced in the rest of the world remain tariff-free competitors in many jurisdictions and continue to set a cost benchmark for consumers.
A similar dynamic is visible in Europe. Despite strong policy rhetoric from France and the European Union on strategic autonomy and critical raw materials, European OEMs have been reluctant to make long-term commitments that would anchor new supply. This reluctance has practical consequences. Even established industrial players such as Solvay, with existing separation capability and deep technical credibility, have struggled to secure long-term feedstock agreements on terms that would support durable investment.
The reason is not a lack of capability or intent. It is unresolved commercial risk. European OEMs remain exposed to intense competition both from Chinese electric vehicle producers in global markets and from lower-cost internal combustion engine vehicles produced elsewhere. In that context, long-term commitments at prices perceived as structurally higher than historic benchmarks are viewed as a competitive liability, regardless of policy alignment or strategic signalling.
This disconnect illustrates the limits of policy statements in the absence of credible pricing and risk frameworks. Fine words do not substitute for contracts. Until pricing durability, downside protection, and risk-sharing mechanisms are addressed explicitly, European OEMs will continue to defer long-term commitments, and downstream actors such as Solvay will remain unable to translate strategic alignment into bankable supply chains.
This pushback does not invalidate the case for price floors. It defines their boundary conditions.
For price floors to be durable, they must stabilise supply without pushing OEM input costs beyond levels that can be absorbed competitively. This is why effective price floors are anchored to production cost and capital recovery rather than scarcity premiums. They aim to make supply viable, not to maximise producer margins.
It is also why downstream qualification matters. Price support that is linked to integrated value chains — rather than to upstream extraction alone — reduces cost leakage, improves efficiency, and limits the pass-through burden to OEMs. Secure supply delivered through shorter, more transparent chains is economically preferable to insecure supply delivered through volatile spot markets or conditional exports.
In this sense, OEM resistance to high prices and producer demand for price stability are not opposing forces. They are two sides of the same coordination problem. Both require prices that are credible, durable, and economically defensible.
The implication for policy design is clear. Price floors and risk-sharing mechanisms must be calibrated not only to attract capital, but also to preserve downstream competitiveness. When that balance is achieved, OEMs can support supply diversification without undermining their own market position.
7. COORDINATING SUPPLY SECURITY AND OEM COMPETITIVENESS
The tension between supply security and cost competitiveness is often framed as a conflict between producers and OEMs. In practice, it is a coordination problem. Both sides depend on prices that are credible, durable, and economically defensible, yet neither can resolve the problem independently.
OEMs cannot commit to higher input costs unless those costs are predictable and proportionate to long-term value. Producers cannot invest without confidence that demand will persist at prices that support capital recovery. Spot markets, fragmented procurement, and short-term contracts are ill-suited to resolving this mismatch.
The resolution lies not in price escalation, but in coordination of demand and supply over time.
One mechanism is structured offtake. When OEMs participate in long-term offtake agreements—either individually or through aggregated demand platforms—they reduce volume risk for producers while gaining visibility over input costs. This does not require OEMs to underwrite projects unconditionally; it requires only that they commit to purchasing at prices that reflect the true cost of secure supply.
Aggregation is particularly important. Individually, few OEMs are willing to anchor a full rare earth project. Collectively, demand is sufficient to do so. By pooling commitments across sectors or jurisdictions, OEMs can support diversification without bearing disproportionate exposure.
Downstream qualification is the second coordinating mechanism. When OEMs specify sourcing requirements that privilege integrated value chains—covering separation, metallisation, and magnet production—they reinforce the economic logic of price floors without directly subsidising extraction. Secure supply delivered through shorter, more transparent chains is more compatible with cost control than reliance on volatile spot markets or conditional exports.
A third mechanism lies in contract design. Price floors can be embedded in supply agreements as minimum-price provisions rather than fixed prices. This allows OEMs to retain upside participation when market conditions soften, while ensuring that producers are protected against downside shocks that would otherwise halt investment. Risk is shared but not socialised.
Importantly, these arrangements do not insulate OEMs from competition. OEMs must continue to compete against Chinese electric vehicle producers in global markets and against internally combustion engine vehicles produced elsewhere. Tariffs may limit direct import competition in some jurisdictions, but they do not eliminate margin pressure or consumer price sensitivity. Any pricing framework that ignores this reality will fail.
The implication is that successful coordination requires cost realism rather than strategic aspiration alone. Prices that reflect production cost plus a reasonable return on capital are defensible. Prices driven by scarcity premiums are not. OEM participation depends on this distinction.
Over time, as diversified supply chains mature and alternative pricing references become credible, the need for explicit coordination diminishes. Price floors can be relaxed, risk-sharing withdrawn, and procurement normalised. The objective is not to lock in special arrangements, but to transition toward a market in which security of supply and competitiveness are no longer in tension.
In this sense, OEMs are not the obstacle to supply diversification. They are the final piece of the solution. When pricing, financing, and contract structures are aligned with their competitive constraints, OEMs can support the emergence of resilient supply chains without compromising their ability to compete.
8. CONCLUSION — RESTORING PRICE CREDIBILITY IN A COMPETITIVE TRANSITION ECONOMY
The central problem addressed in this paper is not the level of rare earth prices, but their failure to perform their coordinating function. Prices have repeatedly moved in response to scarcity, policy intervention, and demand growth, yet they have not persisted long enough, nor carried sufficient credibility, to mobilise durable non-Chinese supply.
This failure is now structural. Chinese pricing no longer clears a single global market. Domestic prices reflect internal demand and value capture, while export prices embed conditional access and discretion. Neither provides a stable or accessible reference for investment outside China. At the same time, spot prices elsewhere remain too volatile and too short-lived to support financing. The result is a market in which scarcity is visible, but investment does not respond.
The consequence has been repeated capital scarring. Episodes in which prices appeared supportive of new supply were followed by rapid reversals, reinforcing the perception that rare earth markets cannot be underwritten on price signals alone. This experience explains the persistent reluctance of private capital, even as strategic awareness has increased and demand has continued to grow.
Against this backdrop, the emergence of price floors should be understood not as a distortion of markets, but as a corrective to a specific failure. Properly designed price floors do not seek to elevate prices or suppress competition. They seek to restore duration to price signals, anchoring revenues to the economic cost of secure supply and an explicit return on capital. In doing so, they convert abstract scarcity into financeable cash flows.
Crucially, price floors do not operate in isolation. Their effectiveness depends on being embedded within a broader framework that includes conditionality, transitional risk sharing, and credible exit mechanisms. Expressed at the oxide level, price support must be linked to downstream capability to avoid reinforcing stranded or extractive-only capacity. Asset-backed loans and guarantees recalibrate early-stage risk without displacing market discipline. As supply chains mature, these mechanisms can and should be withdrawn.
Equally important are the constraints faced by OEMs. Resistance to higher input prices is not a failure of strategic intent, but a reflection of competitive reality. OEMs must compete not only against vertically integrated Chinese producers, but also against established internal combustion engine supply chains that continue to set cost benchmarks in many markets. Tariffs may alter the geography of competition, but they do not eliminate margin pressure or price sensitivity.
The European experience illustrates this clearly. Despite strong policy rhetoric from France and the European Union on strategic autonomy and critical materials, long-term commercial commitments have been slow to materialise. Even credible downstream players such as Solvay, with established separation capability, have struggled to secure long-term feedstock agreements on terms that support durable investment. The gap between policy ambition and contractual reality underscores the limits of signalling in the absence of credible pricing and risk frameworks.
The resolution lies in coordination rather than confrontation. Through structured offtake, demand aggregation, and contract designs that embed price floors without fixing prices, OEMs can support supply diversification while preserving competitiveness. Producers gain the revenue durability required to invest; OEMs gain predictability and security of supply without assuming open-ended cost exposure.
Taken together, these elements form a coherent framework for restoring price credibility in rare earth markets. Prices regain their ability to coordinate investment, not because they are higher, but because they are credible, durable, and economically defensible. Capital responds, supply diversifies, and dependency is reduced without relying on permanent intervention.
This framework is not an end state. It is a transition mechanism. Its success should be measured not by the longevity of price floors or public support, but by their ability to make themselves redundant. When diversified supply chains are established, downstream capacity is scaled, and alternative price references are trusted, markets can once again clear without intervention.
Until then, the task is not to wait for prices to solve the problem, but to restore the conditions under which a competitive transition economy can function as a solid reality.