The $3,250 Kilogram: How China’s Export Controls Created Two Rare Earth Markets

In September 2026, a North American buyer paid $3,250 for a single kilogram of dysprosium oxide. In China, the reference price for the same material was roughly $212 to $218 per kilogram. Same element. Same purity. Fifteen times the price.

This isn’t a market inefficiency. It’s the market working exactly as geopolitics designed it. On April 4, 2025, China’s Ministry of Commerce placed seven heavy rare earth elements — samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium — under case-by-case export licensing. Shipments of yttrium, dysprosium, and terbium are still down roughly 50 percent compared to the twelve months before the controls, according to Chinese customs data. What gets out costs exponentially more than what stays in.

Welcome to the two-tier rare earth market. Understanding it is now a prerequisite for anyone investing in the sector.

How we got here

China’s dominance didn’t happen by accident. In the 1990s and 2000s, while Western countries imposed environmental regulations that made rare earth processing expensive, China accepted the environmental cost and built refining capacity at scale. Today, China is responsible for roughly 70 percent of global rare earth production and nearly 90 percent of processing — the chemical separation work that turns mined ore into usable oxides and metals. It also controls about 90 percent of rare earth permanent magnet production.

This wasn’t secret. The U.S. Geological Survey, the International Energy Agency, and countless think tanks documented the concentration for years. What changed was China’s willingness to weaponize it. The April 2025 export controls were widely interpreted as retaliation for U.S. trade restrictions on Chinese semiconductors and EVs. Then, in October 2025, Beijing specifically prohibited rare earth exports for use by foreign militaries — the first defense-targeted measure. A broader package announced that month was suspended for one year following trade talks, but that suspension expires on November 10, 2026, unless extended.

The impact was immediate and concrete. Ford Motor Company temporarily halted production at multiple factories, including its Chicago plant, due to magnet shortages. CEO Jim Farley described the company as operating “hand-to-mouth,” seeking individual export approvals from China’s Ministry of Commerce. Dysprosium oxide surged from approximately $90 per kilogram in early 2025 to over $189 by early 2026. Terbium hit $840. Yttrium oxide outside China rose 140-fold, from single digits to nearly $1,100 per kilogram by May 2026, according to Argus data cited by Reuters.

The F-35 fighter jet contains roughly 920 pounds of rare earth materials. So do Tomahawk missiles, Predator drones, and Virginia-class submarines. When Beijing restricted defense-related exports, it wasn’t making an economic point. It was demonstrating leverage.

The fund thesis

For investors, the rare earth story has three acts. Act one is price appreciation: constrained supply meets growing demand from EVs, wind turbines, defense, and semiconductors. Neodymium-praseodymium (NdPr) oxide — the workhorse material for permanent magnets — averaged $92 per kilogram in 2021, peaked at $124 in 2022, fell to $55 in 2024, and recovered to an estimated $69 in 2025, according to USGS data. BMI forecasts $90,000 per tonne ($90/kg) for 2026. The Business Research Company projects the global rare earth market growing from $6.86 billion in 2026 to $10.44 billion by 2030, an 11.1 percent compound annual growth rate.

Act two is supply diversification. MP Materials, operating the Mountain Pass mine in California, has become the Western flagship — backed by a Department of Defense agreement that sets a $110-per-kilogram price floor for NdPr, insulating it from Chinese price manipulation. Lynas Rare Earths, the Australian producer, has a similar DOD arrangement. New entrants — USA Rare Earth, Energy Fuels, NioCorp, Tactical Resources — are developing mines and processing facilities across North America, Australia, and allied nations. On February 4, 2026, Secretary of State Marco Rubio and Vice President JD Vance hosted representatives from 54 countries at the inaugural Critical Minerals Ministerial, signaling the diplomatic architecture being built around supply chain resilience.

Act three is the hardest to time: technological substitution. Automakers are investing in magnet technologies that reduce or eliminate heavy rare earth content. Tesla has discussed rare-earth-free motor designs. If substitution succeeds at scale, it could cap long-term demand growth for the most constrained elements. But commercial-scale alternatives remain years away, and defense applications — where performance can’t be compromised — will need rare earths regardless.

The counterargument to rare earth bullishness is that high prices cure high prices. Every price spike accelerates investment in new supply and substitution research. The 2011 rare earth crisis — when China restricted exports and prices went parabolic — was followed by a decade-long bear market as new supply came online and demand adjusted. Today’s investors should ask whether 2026 rhymes with 2011.

There are reasons to think this time is different. The 2011 spike was primarily about Chinese export quotas. The current situation involves explicit geopolitical weaponization, defense-specific restrictions, and a Western policy response — DOD price floors, the Critical Minerals Ministerial, the EU Critical Raw Materials Act — that didn’t exist fifteen years ago. Governments are now buyers and price-setters, not just regulators. That changes the investment calculus fundamentally.

But the core risk remains: timing. Mining projects take a decade from discovery to production. Processing facilities take five years to build. If Chinese restrictions ease — through negotiation, regime change, or economic necessity — prices could collapse before Western supply comes online. The DOD price floors mitigate this for MP Materials and Lynas specifically, but not for the broader sector.

The $3,250 kilogram of dysprosium tells you everything about the current moment: a market defined not by geology or industrial demand, but by who controls the chokepoint. Funds that understand this aren’t betting on rocks. They’re betting on geopolitics.

The category-defining name in rare earth investing — rareearthfund.com — is currently available for acquisition by the firm positioned to own this space.