Magnet Industry Draws New Focus for U.S.

The American war machine depends on tiny bits of metal, some as small as dimes. Rare-earth magnets are needed for F-35 jet fighters, missile-guidance systems, Predator drones and nuclear submarines.

The problem: China makes most of the world's rare-earth magnets, with 92% of the global market share.

Now, Washington is doling out hundreds of millions of dollars in grants and tax credits to revive magnet-making in America. Defense manufacturers are on a clock.

A U.S. law in 2018 restricted the use of made-in-China magnets in American military equipment, shriveling the list of potential suppliers to a small number in Japan and the West. By 2027, the curbs will extend to magnets made anywhere that contain materials mined or processed in China, covering nearly all of the current global supply.

After three decades of post-Cold War deindustrialization, rebuilding the industry -- against China's market heft -- is an uphill battle, even with government help. Only one company in the U.S. is in production of the dominant type of rare-earth magnet.

"We're not going to be able to simply flip a switch and get to where we want to be," said Anthony Di Stasio, a senior U.S. defense official.

The office Di Stasio runs in the Defense Department is diving into supply chains to invest in the pieces and parts that make the military work. Much of what they invest in is processing minerals and making metals.

In the past few years, the Defense Department has committed more than $450 million toward rare earths and the magnets they power. The Energy Department is offering its own incentives because the magnets also are critical for electric vehicles.

The funding is helping a German magnet maker set up its first North American factory, which broke ground in March, two decades after its last U.S. factory shut down. The facility, in Sumter, S.C., will buy rare earths locally. Those supplies could come from other projects that are receiving government funding -- such as processing plants coming up in California and Texas, owned by American and Australian miners, respectively.

Their highest hurdle is low Chinese prices. A U.S. Commerce Department probe in 2022 found that China's dominant position enabled it to set prices low enough to make production unsustainable for competitors.

In the West, mines and processing facilities face more regulations. There are only a small number of experts left in the field, requiring pricey workarounds such as importing foreign talent or sending Americans abroad for training and automating.

"If you want it to be commercially viable, how are you going to accomplish it, because there's a reason we don't do it domestically anymore," said Moshe Schwartz, a senior fellow for acquisition policy at the National Defense Industrial Association, a trade group representing the defense industry.

Pushing defense suppliers to buy more-expensive magnets that are made in the U.S. would raise costs and have a knock-on effect, potentially affecting how many defense systems such as submarines and jet fighters the Defense Department is able to buy, Schwartz said.

The other question is who else will buy the magnets. Defense demand, while considerable, isn't enough. Other industries that use magnets, such as makers of EVs, wind turbines and MRI machines, would need to be willing to pay more today in exchange for a reliable supply chain.

At least one major player, General Motors, has agreed to buy American-made magnets when production starts. Some others say they are interested.

"If you think about how many bloody noses and black eyes and coronaries people had over the past two years over supply-chain disruptions, and how many millions were lost, having a regionally or near-shored product. . .is very valuable," said Kirk Anderson, director of government affairs for Nidec Motor, a Japanese company that manufactures motors in the U.S.

Nidec is in talks to buy magnets from a U.S. company that has received government funding.

During the pandemic, the breakdown in supply chains rang alarm bells. Pandemic-era funding enabled the government to back Texas-based Noveon Magnetics, a startup that had begun small-scale magnet production in 2018. The company received around $29 million to boost production at its San Marcos, Texas, facility. Magnets made there are used in cruise missiles, missile-defense systems and helicopters.

As tensions with China rose, the Defense Department between 2020 and 2022 announced $45 million in funding for MP Materials -- America's dominant rare-earth miner -- to set up facilities to process minerals in the U.S. The first such facility came online last year. The company plans to start making magnets in Texas by next year.

Around $250 million also went to Australia's Lynas Rare Earths to build a rare-earth processing complex in Seadrift, Texas. Last year, the government announced nearly $100 million for the German company, VAC, for its South Carolina magnet-making facility.

VAC had hung on for decades as one of the West's few rare-earth magnet makers and now plans to mass-produce magnets at its U.S. facility. It has sent U.S. workers to Germany for training, and will automate to save on costs. 

Its magnets will be around 50% more expensive than Chinese ones depending on the specifications, executives said.

More recently, a drop in prices of rare earths, caused in part by expanding Chinese production, has raised concerns over new projects. On an earnings call held earlier this year, an analyst asked executives at MP Materials if they would reconsider their plans given current low prices.

"What I would tell you on that is that we're talking about a Western-world supply chain that basically doesn't exist," said Chief Executive James Litinsky. "Even though the environment is tough, from what we're hearing from customers, there's still a desire for this supply chain to exist."" [1]

Since Chinese magnets are so cheap, the world is buying the magnets only from China. Chinese have money to do the research and to improve the quality. So any attempts to compete with Chinese are doomed. The horse left the barn already. The same problem with electric cars, sun and wind energy, and batteries. All these subsidies are huge waste. I hope we can afford to survive this mistake.

1. Magnet Industry Draws New Focus for U.S. Emont, Jon.  Wall Street Journal, Eastern edition; New York, N.Y.. 07 May 2024: B.1.