What Happened in Rare Earths
A sharp rally in rare earths has pushed the market above the floor price embedded in a U.S. government agreement with MP Materials (MP), the domestic producer central to the U.S. push to rebuild parts of the magnet supply chain.
The key threshold in the deal is $110 per kilogram for neodymium-praseodymium (NdPr). As long as prices remain above that level, the U.S. government does not have to subsidize MP’s output of NdPr.
The arrangement is designed to protect a strategically important producer when prices are weak, while also giving the government a share of the upside when prices strengthen.
- The deal sets a floor price of $110/kg for NdPr.
- It was signed with the Department of Defense in July last year.
- The DoD earns 30% of the price upside under the mechanism.
Why the Pricing Reference Point Matters
The structure works mechanically, but it raises a market issue that matters beyond one company: who sets the reference price.
Right now, the pricing anchor is China. MP’s regulatory filing points to a China ex-works NdPr index as the reference for the agreement. Another China-based price series frequently used by the market is published by a competing Chinese price reporting agency.
This matters because China’s influence on rare earth pricing reflects its supply-chain dominance and the fact that it has the most physically liquid marketplace for the critical metals used in permanent magnets. But a China-based “ex-works” reference inherently reflects China’s domestic dynamics—at a time when Western supply chains are trying to scale up and China has been restricting exports.
- A China ex-works index reflects Chinese domestic market conditions.
- Those dynamics can diverge from Western supply-chain buildout needs.
- When contracts reference China’s price, Western projects inherit China-driven price discovery.
The Legal and Policy Overhang on China-Based Prices
China’s pricing power is not only about physical dominance. It also extends to price discovery—and, by extension, the confidence global counterparties place in the transparency and independence of a benchmark.
A November 2025 report by a U.S. House Select Committee on China highlighted concerns around China’s legal framework for mineral price reporting, pointing to the country’s 1998 Pricing Law and stating it “effectively makes it illegal to publish prices that deviate from the PRC government’s wishes.”
For market participants, that turns “benchmark risk” into something broader than volatility: it becomes a question of how a reference price is formed and whether it can be relied upon during periods of policy stress.
An Escape Clause—and a Path to Ex-China Price Discovery
The U.S. agreement includes an explicit escape hatch. The DoD can elect to switch the reference point away from the China index if “an internationally recognized alternative price index is developed” that expresses an ex-China mid-market price for NdPr oxide.
Several efforts are moving in that direction. Benchmark Mineral Intelligence has begun collecting prices for rare earths traded outside China. Meanwhile, CME Group (CME) and Intercontinental Exchange (ICE) are studying the potential for rare earth futures contracts—tools that can help develop a benchmark and give buyers and sellers a way to hedge.
- The DoD can switch if an internationally recognized ex-China index emerges.
- Benchmark Mineral Intelligence has started collecting ex-China rare earth prices.
- CME and ICE are evaluating rare earth futures contracts.
Lithium Shows How Western Pricing Can Mature
A useful comparison is lithium. China has long influenced lithium pricing, including through domestic exchange signals. Over time, the Western market built more of its own pricing and risk-management toolkit through growing activity in CME lithium futures.
After CME launched its lithium hydroxide contract in 2021, activity was initially limited. It later accelerated as Western buyers and sellers sought alternatives. CME volumes rose 37% year-on-year in 2025, and January turnover hit a monthly record of 19,590 contracts. CME also expanded its suite with options and additional lithium-linked contracts.
The parallel is straightforward: even if China remains the largest physical market, a functioning Western derivatives and index ecosystem can reduce reliance on China as the sole venue for price discovery—and can improve the ability of projects to attract financing by enabling hedging.
What Investors Will Watch Next
The next signposts are whether an ex-China NdPr index gains broad acceptance and whether any rare earth futures proposals advance from study to launch. For U.S. investors, the key is whether new benchmarks meaningfully reduce pricing and financing friction for Western supply-chain projects.
WSA Take
The rally in NdPr has temporarily turned the U.S. floor-price deal with MP Materials (MP) into a win for taxpayers, since prices above $110/kg reduce the need for subsidies. But the bigger issue is structural: the contract’s reference price is still anchored in China, which keeps Western supply chains tied to Chinese price discovery. The embedded escape clause is a clear admission that the West needs an ex-China benchmark to make industrial policy durable. The lithium market shows how quickly pricing power can shift once credible contracts and liquidity build outside China.
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