The Magnet Bottleneck Nobody's Talking About (And China Controls 99% of It)

Why mining rare earths is easy. Making magnets is hard. And China knows it.

Most investors think the rare earth problem is just about mining.

It’s not.

The United States has rare earth deposits. We know where they are. We know how to dig them up. In fact, there’s a mine in California that’s been producing rare earth concentrates for years.

The problem is what happens next.

The issue is that rare earths aren’t useful just sitting in a barrel as a concentrate. They need to be separated into individual elements, purified to extreme specifications, and then manufactured into permanent magnets that can be used in electric vehicle motors, wind turbines, and F-35 fighter jets.

And that’s where the entire Western supply chain falls apart.

Mining Is the Easy Part

Take the only U.S. rare earth mine as an example.

MP Materials (NYSE: MP) operates the Mountain Pass mine in California. It’s the only significant rare earth mining operation in the United States. The company produces thousands of tons of rare earth concentrate every year.

For years, it shipped most of that concentrate to China. Now it sends material to other facilities in Asia, such as South Korea, Japan, Vietnam, where it’s processed into separated rare earth oxides, then turned into metals and alloys, and finally manufactured into permanent magnets. American companies buy those magnets back and use them in products assembled here.

The reason this happens isn’t due to laziness or lack of ambition. It’s because the U.S. doesn’t have the processing infrastructure to turn rare earth concentrates into finished magnets at a commercial scale. We lost that capability decades ago when Chinese production became so cheap that domestic operations shut down.

Since then, China didn’t systematically undercut Western producers just on price. It systematically built expertise in the separation, refining, and manufacturing processes that turn raw rare earths into the high-performance magnets the modern economy requires.

Making permanent magnets might sound simple in theory. Melt some metals together. Form a magnet. Done.

But in practice, it’s extraordinarily difficult.

The rare earth elements are chemically similar to each other, though they fall into two categories: light and heavy rare earths. Separating them into light rare earths like neodymium and praseodymium, which form the base of the magnet, and the rarer, more valuable heavy rare earths like dysprosium and terbium, which keep those magnets working at high temperatures, requires sophisticated chemical processes that China took decades to perfect.

Source: gp-magnets.com

In other words, you’re not just pulling one element out of rock. You’re separating 15+ different elements that behave almost identically in chemical reactions.

Once separated, the elements need to be purified to 99.99% or higher. Impurities of even a fraction of a percent can ruin the magnetic properties of the finished product.

Then comes the actual magnet manufacturing: sintering the materials at precise temperatures, controlling the grain structure and applying surface treatments to prevent corrosion. The tolerances are tight. The specifications are exacting. And if you get any of them wrong, you don’t have a magnet. You have an expensive paperweight.

China spent thirty years building this expertise. It trained thousands of engineers and chemists. It built purpose-designed facilities. It made mistakes, learned from them, and refined the processes until they worked at scale.

Today, China controls roughly 94% of global permanent magnet production.

The 99% Monopoly

Now, permanent magnets aren’t a nice-to-have component. They’re essential to the electrification of movement and national security.

Electric vehicle motors require high-performance magnets that can maintain strength at elevated temperatures. Without them, the motors overheat and fail. Wind turbine generators need magnets that can operate efficiently for decades in harsh conditions.

The common thread is heat. Every one of these applications pushes magnets to their thermal limits.

And here’s the critical part, what makes these magnets actually work in those high-heat environments are called heavy rare earths, specifically dysprosium and terbium. These are what prevent neodymium magnets from losing their magnetic strength when they get hot. And unlike the light rare earths that form the base of the magnet, heavy rare earths are both rarer and far more strategically important.

Remember that 94% figure for China’s control of global permanent magnet production? For heavy rare earths specifically, China’s grip is even tighter, roughly 99% of global heavy rare earth processing capacity.

Not 60%. Not 80%. Ninety-nine percent.

To give you a sense of what that discrepancy means in practice, consider this. When China imposed export restrictions on heavy rare earths in April 2025, European dysprosium prices surged to six times Chinese domestic levels within a few days. Automakers and defense contractors scrambled to lock in supply. Some production lines slowed down as a result. Others just stopped completely, while waiting for alternative sources that didn’t exist.

That’s because you can’t substitute your way out of a 99% monopoly.

It was at that point that the U.S. government realized it had a problem that mining and pinpointing raw supply alone wouldn’t solve.

The Government’s New Playbook

Washington’s response has been direct. The U.S. government is taking equity stakes in companies that can actually solve the problem.

In July 2025, the Defense Department took an equity stake in MP Materials and provided a $110 per kilogram price floor on neodymium-praseodymium, the rare earth blend used in permanent magnets. But the MP Materials deal was primarily focused on securing domestic mining and separation capacity. The company’s strategy is to produce rare earth concentrates and separated oxides in the United States, then eventually build magnet manufacturing capacity domestically. That’s the plan. But the magnet facility isn’t operational yet.

That approach of backing a miner with plans to add magnets later, was a start. But it didn’t solve the immediate problem.

We have identified a company taking a different route. Instead of building a mine and hoping to add magnets later, this company is proving it can manufacture magnets at a commercial scale first, then bring domestic rare earth feedstock online to supply those magnets.

The logic makes sense. Magnets are where the value is. Magnets are what the market needs. Demonstrate you can produce high-quality magnets that meet defense and commercial specifications, and you’ve solved the hard part. The mine comes later to feed that capability.

And guess what? The government is now on board. They recently made a major investment, of over a billion dollars, in backing this exact approach.

For investors who understand the difference between mining rare earths and making magnets, there’s a significant opportunity emerging. The window is while the infrastructure is being built, and not after the magnets are already shipping and the market has fully priced in the value.

Our next Prinsights Pulse Premium monthly issue breaks down this company in detail. It’s the only one in the United States bringing a complete mine-to-magnet supply chain online with government backing.

Issue publishes tomorrow for Premium subscribers. If you are not a member yet and want the full analysis when it drops, join here now.