The U.S.-China trade talks in London failed to unlock exports of rare earth magnets for specialized national security needs, Reuters reported on Sunday. That could become an issue for Lockheed Martin's F-35 fighter jet as its inventories run down. Meanwhile, MP Materials stock continues to surge amid expectations that the Trump administration will make a major push to expand and improve the economics of producing rare earth magnets in the U.S.
The report from Reuters suggests the deal may not live up to President Donald Trump's Truth Social announcement last Wednesday: "FULL MAGNETS, AND ANY NECESSARY RARE EARTHS, WILL BE SUPPLIED, UP FRONT, BY CHINA."
China's Rare Earths Leverage
The U.S.-China deal last week wasn't a deal so much as a framework to keep negotiations going without blowing up their economies. A shortage of rare earths threatened to hit the brakes on U.S. manufacturing of autos, robotics and other high-tech gear.
Yet it has since become clear that Beijing hasn't given up any of its leverage. The Wall Street Journal reported that Beijing is only granting six-month export licenses for rare earths, so the clock is ticking to the next U.S.-China showdown, unless Trump gives President Xi Jinping reason to relent.
Investors remained calm heading into last week's U.S.-China talks out of a conviction that Trump would yield to Xi's demands, because going without rare earth magnets isn't an option. Now that it's clear there is no resolution, the question remains: Will Beijing's tight grip on rare earth magnets force a major relaxation of — U.S. export controls on chipmaking equipment and advanced semiconductors produced by Nvidia and others?
Getting rare earths without putting advanced chips on the table is "unrealistic," Christopher Wood, global head of equity strategy at Jefferies, wrote ahead of the recent U.S.-China talks. Beijing, he says, sees the U.S. export controls "as the equivalent of a declaration of economic war against China, since it amounts to a deliberate effort to prevent the upgrading of the mainland economy."
Military Use Of Rare Earths
Lockheed Martin is the main American user of samarium, The New York Times has reported, with about 50 pounds of samarium cobalt magnets in an F-35. The magnets retain their magnetic properties under temperatures high enough to liquefy lead.
This isn't the first time Lockheed Martin has had trouble with the sourcing of samarium cobalt magnets from China, In 2022, the Pentagon suspended deliveries of F-35 fighters over whether they were in compliance with requirements for non-Chinese sourcing, before eventually granting a waiver.
The Times reported that the Biden administration attempted to kick-start processing of samarium in 2022, awarding financing to MP Materials and Australia's Lynas Rare Earths. However, MP Materials told the Times that the market was too small to support producers in the U.S. Moving forward now would require better financial terms, Jim Litinsky, MP Materials CEO, told the newspaper.
Bloomberg News reported last week the MP Materials stands to be the "prime beneficiary" of Trump administration plans to boost rare earths projects, potentially using the Defense Production Act to unlock funding.
What U.S.-China Standoff Means For MP
"For years, we have warned that the global rare earth supply chain was built on a single point of failure," MP CEO Jim Litinsky said on the May 8 Q1 earnings call. "The vulnerabilities in global supply chains are no longer theoretical."
MP has methodically ramped up its capacity to produce rare earth concentrate from its Mountain Pass, Calif., mine. It turns it to NdPr metal commercial-grade magnets at its manufacturing facility in Austin, Texas. But while its execution risk faded, MP stock has been held back by the pricing backdrop.
In Q1, the realized price for separated NdPr products fell 16% from a year ago to $52 per kilogram. The incentive price for rare earth metals needed to stimulate investment outside China "is many multiples of today's market price," MP CFO Ryan Corbett told a May 20 forum hosted by BofA Securities.
Ryan Castilloux, founder of Adamas Intelligence, elaborated. "The prices we see in China are not market prices. They're strategically designed prices to fend off competition and to feed their downstream champions (such as EV and wind turbine makers) with cheap inputs."
That suggests some combination of market-driven price increases, tariffs and subsidies is needed to fuel the continued expansion of MP and the industry in the U.S.
On the earnings call, Litinksy said that MP "should grow to many multiples of its current scale."
What's changed, he says, is that MP is "now in active discussions with major commercial and government stakeholders who recognize the urgency of this moment and are eager to accelerate our mission."
MP Stock
In Monday stock market action, MP is charging up 13.4% to 34.65, a two-year high. MP cleared a 29.72 cup-base buy point on Friday and has raced through the top of the buy zone, which runs through 31.20.
The VanEck Rare Earth ETF is climbing 1.8% to 40.37 on Monday, but it remains below its 200-day line. Beyond rare earths, the portfolio includes a number of lithium plays.
Meanwhile, Lockheed Martin stock was down 4% to 466.92. Defense stocks generally retreated Monday after jumping Friday on the initial Israel-Iran attacks.
