MP Materials: Can U.S. Rare Earth Leader Turn Trade Deal Volatility into Strategic Dominance?

The recent U.S.-China rare earth trade deal, finalized in June 2025, has reignited debates about the viability of domestic supply chains for critical minerals. At the center of this geopolitical and economic crossroads is MP Materials, the sole U.S. producer of rare earth elements. The company's ability to capitalize on Washington's push for self-sufficiency—and navigate China's entrenched dominance—will determine its growth trajectory in the years ahead.

The Trade Deal: A Mixed Blessing for MP

The agreement requires China to expedite exports of seven critical rare earth elements (including neodymium and praseodymium for EV motors) to the U.S., easing immediate supply shortages. However, the deal explicitly excludes military-grade materials like samarium-cobalt magnets, which are vital for defense systems. This carve-out leaves MP's $439 million in U.S. government grants—funded via the Defense Production Act—to focus on filling gaps China refuses to address.

The short-term impact on MP's shares was volatile: its stock dipped 7% post-deal announcement as investors feared reduced urgency for domestic production. Yet, MP's shares have doubled year-to-date, reflecting optimism about its long-term role in U.S. supply chain resilience.

MP's Strategic Play: Building a Mine-to-Magnet Pipeline

MP's growth hinges on its $1 billion investment in domestic infrastructure, including:
- A Texas magnet plant producing 1,000 tons annually of neodymium-iron-boron magnets (a fraction of China's 300,000-ton output).
- The Phoenix Tailings Project, which aims to extract 1,500 tons of rare earth oxides annually from Mountain Pass mine waste by 2027.
- A partnership with Saudi Arabia's Ma'aden to create a complete rare earth supply chain, from mining to refining.

However, MP's Achilles' heel remains its inability to refine heavy rare earths (HREEs) like samarium, dysprosium, or terbium—materials China controls. Without HREE separation capacity, MP cannot meet U.S. defense needs, a gap only Australia's Lynas Corporation andioneer (which is building a Texas HREE plant) are addressing.

Geopolitical Risks: July 9 Deadline and China's Leverage

The deal's success depends on China's compliance with monthly shipment reporting by August 2025. Analysts warn that volumes below 2,000 tons/month would signal non-compliance, risking a resurgence of tariffs and price spikes (e.g., neodymium oxide could jump 20–30% to $160/kg).

Meanwhile, the U.S. must resolve its 50% tariffs on EU imports by July 9—a deadline that could destabilize global supply chains. As Sun Yun of the Stimson Center notes, “China's permitting process remains politically flexible; any U.S. move on Taiwan or arms sales could trigger a rare earth squeeze.”

Investment Thesis: Near-Term Caution, Long-Term Potential

Bull Case:
- MP's government-backed projects position it as the U.S.'s only domestic rare earth supplier, benefiting from EV and defense demand.
- The Saudi partnership and Phoenix Tailings could reduce costs and diversify supply.

Bear Case:
- China's refining dominance keeps U.S. production costs 30% higher due to environmental regulations and lack of scale.
- Short-term volatility persists: REMX ETFs (tracking rare earth stocks) fell 15% in June as investors bet on Chinese supply stability.

Where to Bet Now?

For short-term investors, monitor compliance metrics (shipment data, U.S. verification reports) and pair MP with Lynas Rare Earths (LYSDF) or the Global X Lithium & Rare Earths ETF (RELR) for EV exposure.

Long-term investors should focus on MP's progress in HREE partnerships and Saudi supply chain development. However, avoid overpaying: MP's current valuation assumes full success of its Texas and Saudi projects—risks include delays, cost overruns, and geopolitical headwinds.

Conclusion

MP Materials embodies the U.S.'s ambition to wean itself off Chinese rare earths—but its success depends on navigating a minefield of compliance deadlines, cost gaps, and geopolitical brinkmanship. While the July 9 deadline and China's refining dominance pose clear risks, MP's strategic position as Washington's rare earth “poster child” makes it a hold for now. Investors should wait for clearer signs of HREE progress and sustained Chinese compliance before committing to aggressive growth bets.

Final Note: The rare earth race isn't just about minerals—it's about who controls the refining levers. Until the U.S. builds that capability, MP's dominance will remain incomplete.

Data sources: U.S. Commerce Department, company filings, Stimson Center analysis.