Rare Earths Rivals MP and Lynas Clash Over Military Contracts

MP Materials and Lynas Rare Earths, the two primary non-Chinese producers of high-strength magnets, are engaged in a legal dispute over defense manufacturing contracts. A report on May 30, 2026, details that the legal fight centers on $85 million in Pentagon awards critical for establishing a secure US supply chain for permanent magnets. The conflict between these designated champions undermines a core objective of US industrial policy to reduce dependence on Chinese-sourced materials for military and clean energy technologies.

Context — why this matters now

The strategic rivalry escalated after the Pentagon's Defense Production Act Investment Office awarded multiple contracts in late 2025 and early 2026 to fund domestic rare earth magnet production. The last major US industrial policy push in this sector was the 2022 Inflation Reduction Act, which allocated over $6 billion for battery material processing but lacked similar direct funding for magnet manufacturing. The current macro backdrop features sustained tension over Taiwan and continued Chinese export controls on gallium and germanium, highlighting the fragility of specialized material supply chains. The immediate catalyst was a series of contract announcements in Q1 2026, where both companies were selected for parallel but overlapping development projects, leading to allegations of unfair competitive practices and intellectual property concerns.

Chinese firms currently control over 90% of the global permanent magnet market, a dominance that has persisted for two decades. The US Department of Defense has identified neodymium-iron-boron magnets as critical for everything from F-35 fighter jets to Virginia-class submarines and next-generation wind turbines. The current legal battle represents a significant operational risk, stalling the physical build-out of production capacity that lawmakers and defense officials have prioritized since 2020. The dispute occurs as benchmark prices for neodymium oxide have declined 15% year-to-date, increasing cost pressure on new Western projects.

Data — what the numbers show

The contested Pentagon contracts total approximately $85 million, split across several awards. MP Materials holds a contract valued at $35 million to establish a magnet factory at its Ft. Worth, Texas, site. Lynas Rare Earths secured a $30.5 million award for its proposed facility in San Antonio, Texas. An additional $19.5 million in smaller, overlapping R&D grants is under dispute. MP Materials' stock (MP) is down 22% year-to-date, underperforming the SPX's YTD gain of 8%. Lynas shares (LYC.AX) traded on the ASX are down 18% over the same period.

Metric	MP Materials	Lynas Rare Earths
Pentagon Contract Value	$35.0M	$30.5M
YTD Stock Performance	-22%	-18% (ASX)
2025 Rare Earth Oxide Production	45,000 tons	20,000 tons

MP Materials processed roughly 45,000 tons of rare earth oxides at its Mountain Pass, California, facility in 2025. Lynas produced approximately 20,000 tons from its Mt. Weld mine in Australia and Malaysian processing plant. The combined output of both companies represents less than 20% of China's annual production capacity for separated rare earths. The litigation has delayed groundbreaking on both US magnet plants by at least six months from original Q2 2026 targets.

Analysis — what it means for markets / sectors / tickers

The immediate losers are defense prime contractors like Lockheed Martin (LMT) and General Dynamics (GD), which face continued supply chain uncertainty for key components. Secondary beneficiaries could be smaller, non-litigant firms like USA Rare Earth LLC or even European players seeking US funding, as the Pentagon may seek to diversify its vendor base. A prolonged legal fight risks ceding market share back to Chinese magnet producers like China Northern Rare Earth Group, which trades on the Shanghai exchange (600111.SS).

A key counter-argument is that competition, even litigious competition, is a sign of a healthy, emerging market and may force faster innovation. The risk is that the delays allow Chinese producers to further entrench their cost and scale advantages. Positioning data shows hedge funds have increased short interest in MP Materials by 5% over the last month, while long-only institutional holders have reduced positions in both MP and Lynas. Capital flow is moving toward downstream recycling startups like Urban Mining Co. as a potentially less geopolitically fraught segment of the magnet supply chain.

Outlook — what to watch next

The next catalyst is a preliminary hearing in the US Court of Federal Claims scheduled for July 15, 2026, which may indicate the scope and timeline of the litigation. The Pentagon's Office of the Under Secretary for Acquisition and Sustainment is expected to issue a revised industrial base strategy memo by August 30, 2026, which could clarify contracting rules. Key levels to watch include the $28 per share price for MP, which represents its 2025 low, and the 4,200-ton quarterly sales volume for Lynas, a threshold for operational cash flow positivity. If the lawsuit extends into Q4 2026, the Department of Energy may intervene with alternative financing under the IRA's Title XVII loan program.

Frequently Asked Questions

What does the rare earths lawsuit mean for electric vehicle makers?

The legal dispute delays US-sourced magnet supply, forcing EV manufacturers like Tesla and Rivian to remain reliant on Chinese-dominated supply chains for longer. High-performance motors in EVs require neodymium-based magnets. While some automakers are developing alternative magnet-free motor designs, widespread adoption is years away. This sustained dependency creates pricing and ESG risks for automakers who have pledged to audit and clean up their mineral supply chains.

How does this compare to previous US industrial policy failures?

The situation echoes the 2011 bankruptcy of Molycorp, the previous owner of the Mountain Pass mine, which failed after a price crash despite US government support. A key difference is today's direct defense procurement contracts, not just loan guarantees. The risk remains that subsidized competition between two chosen champions fragments limited capital and expertise, a dynamic seen in the US solar industry in the 2010s where Solyndra's failure overshadowed other successes.

What is the historical success rate for Defense Production Act funding in creating new capacity?

The Defense Production Act Title III program, used for these awards, has a mixed record. An analysis of 50 projects from 2018-2023 showed a 65% success rate in delivering a finished product or facility, but only a 40% rate in achieving sustained commercial production without further subsidies. Successful examples include expansions in lithium-ion battery and microelectronics packaging. Failed projects often cited intellectual property disputes and inability to match Asian manufacturing costs as primary reasons for collapse.