Defense Stocks Surge Amid Rare Earths 'Arms Race'
Defense and aerospace stocks are surging as geopolitical tensions highlight a critical vulnerability: rare earth minerals. A podcast report noted that with China controlling ~90% of refining, the U.S. is investing billions to build a North American supply chain ahead of a 2027 legislative deadline. Newly public RE Alloys (ALOY) aims to be first to market with North American heavy rare earths.
The looming 2027 deadline is governed by 10 U.S.C. §4872, a law that will prohibit the use of rare earth magnets and other sensitive materials from China, Russia, Iran, and North Korea in all U.S. defense contracts. This legislation is forcing a complete overhaul of the supply chain, as defense systems like the F-35 fighter jet rely on approximately 418 kg of rare earth elements for advanced targeting, radar, and stealth capabilities. Heavy rare earth elements are particularly vital for high-performance defense applications. Metals like dysprosium and terbium are added to neodymium-iron-boron magnets to allow them to function at the extreme temperatures found inside jet engines, missile guidance systems, and unmanned aerial vehicles. China currently controls over 98% of the global supply of these critical heavy rare earths. In response, the U.S. government has initiated substantial investments to build a domestic supply chain. The "One Big Beautiful Bill Act" allocated $5 billion to support critical minerals supply chains and another $2 billion to expand the National Defense Stockpile. This is in addition to direct investments in private companies, such as a $1.6 billion commitment to USA Rare Earth and a $400 million equity stake in miner MP Materials. The Defense Logistics Agency (DLA) is actively funding domestic production capabilities. A subsidiary of RE Alloys recently received a contract to design a 300-ton-per-year facility for samarium and gadolinium, two heavy rare earths crucial for magnet applications. This contract is a step towards creating a domestic source for materials that currently have almost no commercial production outside of China.
