US EXCLUSIVE bill would prevent defense contractors from using Chinese rare earths

Jan 14 (Reuters) – A bipartisan bill introduced in the U.S. Senate on Friday would force defense contractors to stop buying rare earths from China by 2026 and use the Pentagon to create a permanent stockpile of strategic minerals .

The bill, sponsored by Senators Tom Cotton, a Republican from Arkansas, and Mark Kelly, a Democrat from Arizona, is the latest in a series of US laws aimed at thwarting China’s quasi-control on the sector.

It essentially uses the Pentagon’s purchase of billions of dollars worth of fighter jets, missiles and other weapons as leverage to force contractors to stop relying on China and, by extension, support the revival of China. American production of rare earths.

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Rare earths are a group of 17 metals which, after processing, are used to make magnets found in electric vehicles, weapons and electronics. While the United States established the industry during World War II and American military scientists developed the most widely used type of rare earth magnet, China slowly grew to control the entire industry. over the past 30 years.

The United States has only one rare earth mine and does not have the capacity to process rare earth minerals.

“Ending America’s reliance on China for rare earth mining and processing is critical to strengthening America’s defense and technology sectors,” Cotton told Reuters.

The senator, who sits on the Senate Armed Services and Intelligence Committees, described China’s evolution to become the world leader in rare earths as “simply a political choice made by the United States”, adding that he hoped that new policies were loosening Beijing’s grip.

Known as the Restoring Essential Energy and Security Holdings Onshore for Rare Earths Act of 2022, the bill would codify and make permanent the Pentagon’s continued storage of materials. China temporarily blocked rare earth exports to Japan in 2010 and issued vague threats that it might do the same to the United States.

To build up this reserve, however, the Pentagon sources some of its supplies from China, a paradox that Senate staffers hope to alleviate over time.

The rare earth production process can be very polluting, which is part of why it has become unpopular in the United States. Ongoing research is trying to make the process cleaner.

Cotton said he spoke to various US executive agencies about the bill, but declined to say whether he spoke with President Joe Biden or the White House.

“This is an area where Congress will lead, because many members have been concerned about this very topic, regardless of party,” he said.

ENCOURAGE NATIONAL PRODUCTION

Most members of the nascent U.S. rare earth industry welcomed the bill, though some worried defense contractors may continue to seek waivers to buy Chinese rare earths even after 2026.

The Aerospace Industries Association, a trade group for Northrop Grumman Corp (NOC.N), Lockheed Martin Corp (LMT.N) and other U.S. aerospace and defense companies, declined to comment on the bill. .

“Well-placed policies like this bring us closer to the goal of offshoring this critical supply chain, said Marty Weems, North American president of Australian company American Rare Earths Ltd (ARR.AX), which develops three American rare earths. projects.

MP Materials Corp (MP.N), which operates the only rare earth mine in the United States and relies on Chinese processors, said it appreciated “the continued efforts of the Department of Defense and the U.S. government to broad sense to secure the national rare earth supply chain and promote free and fair competition.”

The bill, which sponsors expect will become part of Pentagon funding legislation later this year, offers no direct support for U.S. rare earth miners or processors.

Instead, it requires Pentagon contractors to stop using Chinese rare earths within four years, allowing waivers only in rare situations. Defense contractors would be required to state immediately where they source their minerals.

These requirements “should encourage more domestic (rare earth) development in our country,” Cotton said.

Over the past two years, the Pentagon has awarded grants to companies trying to resume rare earth processing and magnet production in the United States, including MP Materials, Australia’s Lynas Rare Earth Ltd (LYC. AX), TDA Magnetics Inc and Urban Mining Co.

Kelly, a former astronaut and a member of the Senate Armed Services and Energy Committees, said the bill would “strengthen America’s position as a global technology leader by reducing our nation’s dependence on opponents like China for rare earth elements”.

The bill only applies to weapons, not other equipment purchased by the US military.

Additionally, the U.S. Trade Representative would be required to investigate whether China is distorting the rare earth market and recommending whether trade sanctions are necessary.

When asked if such a move could be seen as antagonistic by Beijing, Cotton said, “I don’t think the response to Chinese aggression or Chinese threats is to continue to subject ourselves to Chinese threats.”

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Reporting by Ernest Scheyder; additional reporting by Mike Stone; edited by Amran Abocar, Richard Pullin and Marguerita Choy

Our standards: The Thomson Reuters Trust Principles.

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