US Rare Earth Shortages Worsen for Aerospace, Chips
Shortages of rare earth elements are reportedly worsening for U.S. aerospace and semiconductor manufacturers, despite recent trade truces with China. The disruption highlights China's continued leverage over critical supply chains, with U.S. firms facing extended delivery times and high prices for inputs like neodymium magnets and specialty alloys.
The current squeeze centers on yttrium and scandium, vital for high-temperature coatings on jet engines and in the production of 5G chips. Since shortages were first reported, yttrium prices have surged, now standing approximately 69 times higher than a year ago. Some North American coatings manufacturers have had to pause production and are rationing supplies, prioritizing larger clients like engine makers. This disruption persists despite a trade truce reached in October, which was premised on China pausing its critical mineral export restrictions. However, Chinese customs data shows that while many rare earth exports have resumed, shipments of yttrium and scandium to the U.S. remain significantly reduced. This demonstrates China's use of its dominance in rare earth processing—controlling over 90% of the market—as a point of strategic leverage. In response, the U.S. government is accelerating efforts to build a domestic supply chain. The Commerce Department, through the CHIPS Act, is investing $1.6 billion in USA Rare Earth to develop a mine in Texas and a magnet manufacturing facility in Oklahoma. This is part of a larger push that has seen the Pentagon award over $439 million between 2020 and 2024 to establish domestic rare earth supply chains. For publicly traded manufacturers, these disruptions are drawing increased scrutiny from the Securities and Exchange Commission (SEC). The SEC has been issuing guidance that pushes companies to move beyond boilerplate warnings about "potential" supply chain risks and to disclose the actual, quantifiable impacts on their business and financials. The aerospace sector's vulnerability is acute due to the lack of viable substitutes for elements like yttrium in high-temperature engine applications without extensive and lengthy recertification processes. An F-35 fighter jet, for example, contains nearly 417 kilograms of rare earths, used in everything from electronics and landing gear motors to the alloys in the fuselage. In the semiconductor industry, scandium is critical for components in nearly every 5G smartphone and base station. With no current domestic production of scandium and limited operational sources outside of China, U.S. stockpiles are estimated to last only for a matter of months, not years, creating significant urgency. The situation has forced some U.S. firms to adopt a "China+1" strategy, maintaining some Chinese suppliers while actively developing parallel operations in other countries to mitigate risk. However, new Chinese export control rules require end-user declarations, extending Beijing's oversight even into third-country supply chains and specifically targeting the semiconductor industry.
