Price Discovery, Not Distortion: Rethinking Strategic Stockpiles

[Mumbles2025]

Just throwing this out there — a fag packet idea, but one worth exploring further:

The Australian government has proposed a rare earth strategic stockpile for national security purposes. But producers have raised valid concerns:
– It could distort market pricing and crowd out industrial buyers
– It might act as a one-way buyer, pushing prices up without a mechanism to release volume
– It risks being politically reactive, not market-aligned

But what if the structure were redesigned to support price discovery, not just national security?

Proposed structure:

• Build a 10,000t NdPr oxide stockpile over two years, buying directly from producers at market prices
• From year two, sell 50% per year to traders and end users, at prevailing market prices
• Replenish later, at the new market price — no simultaneous buying and selling

Sales only to traders and industrial users; purchases only from producers — avoiding speculative loops.

The platform would be initially capitalised, then asset-backed, with operating costs covered by the buy/sell spread. It would run as a non-profit or cost-recovery mechanism, possibly managed by a group like Adamas, who could also use transaction data to build forward-looking demand and pricing models.

This setup addresses core objections:
– It's a two-sided mechanism, not a one-way price distortion
– It introduces structure without subsidies, relying on real trades
– It supports project financing, by creating visible price references
– And it builds market transparency, where little currently exists

If implemented across a handful of jurisdictions — even at modest scale — these mechanisms could introduce an element of competition into the rare earth market. That would reduce the effectiveness of Chinese trade controls while giving producers and buyers alternatives based on real market dynamics.

Western buyers could absorb short-term shocks. Chinese producers, meanwhile, would face longer-term supply chain losses and margin pressure.

Pensana’s experience is a clear example: a strong project delayed not by technical or ESG issues, but by the absence of a credible price mechanism outside China.

A structure like this — or a more developed variant — won’t solve the market overnight. But it could shift the balance. And it deserves more than a fag packet to figure out where it holds up, and where it doesn’t.

 

[John]

Interesting @Mumbles2025

So i think there is going to be lots of discussion about this....but when I ran some quick numbers, I saw that just for national security, the number is like what you say, about 10,000 tonnes (REE oxide). And that means they buy and don't sell the product. It is stored.

Lets just run through that calc....so how much do they want to keep for national security?

So since it is for defense, and this is likely to supply the USA DoD and its supply chains, lets look at USA. So in 2023 USA total rare earths requirement was about 8800 tonnes...and DoD accounts for about 5%...so that is about 440 tonnes a year. Lets say 500. Then lets assume that for a wartime situation, they double the requirement so 1000 tonnes a year. And you would want about 7 years supply...so that is about 7000 tonnes you would want stored. And that is just for defense. (BTW - this is a very low number, because as I have modelled before...the asset base of DoD is changing and the NdPr required will be much much more)

Link here to my DoD RE Analysis

So lets take your 10,000 number as a starter (as more robotics etc start to increase demand, this stockpile may need to grow). No mater how they secure this amount...it will take between 5-7 years. Which should help prices stay steady.

So then how should Aust govt secure this amount. There are many many options. Here is a chat GPT that covers (i think) the lot:

Option	Description	Pros	Cons
1. Spot Purchases from Domestic Producers	Directly purchase available NdPr oxide from existing producers (e.g. Lynas).	- Quick to implement- Transparent market-based pricing- Simple logistics	- May crowd out commercial buyers- Doesn’t help new entrants- Doesn’t diversify supply sources
2. Forward Contracts / Offtake Agreements	Sign long-term contracts (3–7 years) with current or emerging producers at pre-agreed pricing structures.	- Improves bankability of projects- Provides producers with funding certainty- Can be tailored to volume needs	- May lock in above-market prices- Risk if project fails or delays- Political risk if prices fall later
3. Strategic Prepayment or Pre-financing	Provide upfront capital or loans in exchange for future delivery at fixed prices. Often used in development-stage projects.	- Accelerates new supply- Boosts junior miners- Lower upfront prices	- High counterparty/project risk- Complex to structure- May face criticism if projects fail
4. Auction-Based Purchase System	Hold periodic auctions where producers bid to supply specific volumes to the stockpile. Govt accepts lowest viable bids.	- Transparent & competitive- Minimizes pricing distortions- Can create market price floor	- Slower to set up- May exclude smaller or earlier-stage firms
5. Public Tender with Preference Criteria	Govt issues RFPs with scoring for ESG, local content, Indigenous engagement, etc.	- Encourages high-quality producers- Aligns with broader policy goals	- Bureaucratically complex- May delay procurement
6. Joint Purchasing with Allies (US, Japan, Korea)	Pool demand with strategic allies, jointly fund stockpile, allocate according to need.	- Enhances geopolitical alignment- Creates larger, more efficient pool- Reduces per-tonne admin costs	- Harder to coordinate- May limit domestic-first priorities
7. Stockpile via Physical ETF or Gov’t Reserve Trust	Set up a sovereign-backed, non-profit trust that buys and holds NdPr on behalf of the nation — like gold reserves.	- Creates benchmark pricing- Transparent reporting- Can eventually trade in/out	- Requires complex governance- Politically sensitive if market drops- Requires storage & audit logistics
8. Use a State-Owned Entity (e.g. ANSTO or new agency)	Create or empower an entity to act as buyer and manager of strategic materials.	- Centralized, expert-led- Ensures long-term consistency	- Perceived government interference- Bureaucracy may limit agility

I think the Aust Govt will do a mixture of the above.



But i think Govt buying and not selling, actually will support the industry as a whole. Companies like Lynas know that the demand is coming, and they want to maintain their market position as number 1. And sure this will slightly erode this position, but at least people will not be buying China supply.

And in fact, Lynas can't supply all of the ex-China demand in the future....and they also can't create an ex-China market by themselves. (i liked this so much...i asked ChatGPT to come up with some other ways to say this:

• "Lynas alone can’t meet future ex-China demand — and they can’t build an ex-China market on their own either. This has to be a collective effort."
• "Lynas isn’t the solution to ex-China demand — they’re just the starting point. Without more producers and real price signals, there is no market."
• "Expecting Lynas to carry the entire weight of the ex-China rare earth supply chain is like asking one company to rebuild OPEC — it’s not realistic."
• "Lynas can’t be the sole supplier and the price maker. If we want a real ex-China market, we need scale, competition, and transparent pricing."
• "The ex-China rare earth market can’t be built on the back of a single producer. Lynas is essential — but they’re not sufficient."
• "Relying on Lynas to both anchor supply and define prices outside China is a strategic dead end. A functioning market needs more than one pillar."

BUT - this stockpile must only be one part of the solution to diversify away from China.

Govt's around the world should all do the following for all the RE Mines, Processors and Magnet Makers:
- Provide cash grants (around 25% of capex for each project with another 10% for cost overruns as a loan.)
- Install and maintain Tariffs on China supplied RE products (Do this at the component level - or at the total product level).
- Have govt stockpiles of RE (collect this over the next 5-7 years).
- Provide tax credits for production
- Stop shorting of Critical Mineral companies (or at least stop the manipulation on these companies).

So @Mumbles2025 sorry this reply has kinda rambled....do you think that re-selling the Aust stockpile is necessary?

 

[Mumbles2025]

Interesting @Mumbles2025

So i think there is going to be lots of discussion about this....but when I ran some quick numbers, I saw that just for national security, the number is like what you say, about 10,000 tonnes (REE oxide). And that means they buy and don't sell the product. It is stored.

Lets just run through that calc....so how much do they want to keep for national security?

So since it is for defense, and this is likely to supply the USA DoD and its supply chains, lets look at USA. So in 2023 USA total rare earths requirement was about 8800 tonnes...and DoD accounts for about 5%...so that is about 440 tonnes a year. Lets say 500. Then lets assume that for a wartime situation, they double the requirement so 1000 tonnes a year. And you would want about 7 years supply...so that is about 7000 tonnes you would want stored. And that is just for defense. (BTW - this is a very low number, because as I have modelled before...the asset base of DoD is changing and the NdPr required will be much much more)

Link here to my DoD RE Analysis

So lets take your 10,000 number as a starter (as more robotics etc start to increase demand, this stockpile may need to grow). No mater how they secure this amount...it will take between 5-7 years. Which should help prices stay steady.

So then how should Aust govt secure this amount. There are many many options. Here is a chat GPT that covers (i think) the lot:

Option	Description	Pros	Cons
1. Spot Purchases from Domestic Producers	Directly purchase available NdPr oxide from existing producers (e.g. Lynas).	- Quick to implement- Transparent market-based pricing- Simple logistics	- May crowd out commercial buyers- Doesn’t help new entrants- Doesn’t diversify supply sources
2. Forward Contracts / Offtake Agreements	Sign long-term contracts (3–7 years) with current or emerging producers at pre-agreed pricing structures.	- Improves bankability of projects- Provides producers with funding certainty- Can be tailored to volume needs	- May lock in above-market prices- Risk if project fails or delays- Political risk if prices fall later
3. Strategic Prepayment or Pre-financing	Provide upfront capital or loans in exchange for future delivery at fixed prices. Often used in development-stage projects.	- Accelerates new supply- Boosts junior miners- Lower upfront prices	- High counterparty/project risk- Complex to structure- May face criticism if projects fail
4. Auction-Based Purchase System	Hold periodic auctions where producers bid to supply specific volumes to the stockpile. Govt accepts lowest viable bids.	- Transparent & competitive- Minimizes pricing distortions- Can create market price floor	- Slower to set up- May exclude smaller or earlier-stage firms
5. Public Tender with Preference Criteria	Govt issues RFPs with scoring for ESG, local content, Indigenous engagement, etc.	- Encourages high-quality producers- Aligns with broader policy goals	- Bureaucratically complex- May delay procurement
6. Joint Purchasing with Allies (US, Japan, Korea)	Pool demand with strategic allies, jointly fund stockpile, allocate according to need.	- Enhances geopolitical alignment- Creates larger, more efficient pool- Reduces per-tonne admin costs	- Harder to coordinate- May limit domestic-first priorities
7. Stockpile via Physical ETF or Gov’t Reserve Trust	Set up a sovereign-backed, non-profit trust that buys and holds NdPr on behalf of the nation — like gold reserves.	- Creates benchmark pricing- Transparent reporting- Can eventually trade in/out	- Requires complex governance- Politically sensitive if market drops- Requires storage & audit logistics
8. Use a State-Owned Entity (e.g. ANSTO or new agency)	Create or empower an entity to act as buyer and manager of strategic materials.	- Centralized, expert-led- Ensures long-term consistency	- Perceived government interference- Bureaucracy may limit agility

I think the Aust Govt will do a mixture of the above.



But i think Govt buying and not selling, actually will support the industry as a whole. Companies like Lynas know that the demand is coming, and they want to maintain their market position as number 1. And sure this will slightly erode this position, but at least people will not be buying China supply.

And in fact, Lynas can't supply all of the ex-China demand in the future....and they also can't create an ex-China market by themselves. (i liked this so much...i asked ChatGPT to come up with some other ways to say this:

• "Lynas alone can’t meet future ex-China demand — and they can’t build an ex-China market on their own either. This has to be a collective effort."
• "Lynas isn’t the solution to ex-China demand — they’re just the starting point. Without more producers and real price signals, there is no market."
• "Expecting Lynas to carry the entire weight of the ex-China rare earth supply chain is like asking one company to rebuild OPEC — it’s not realistic."
• "Lynas can’t be the sole supplier and the price maker. If we want a real ex-China market, we need scale, competition, and transparent pricing."
• "The ex-China rare earth market can’t be built on the back of a single producer. Lynas is essential — but they’re not sufficient."
• "Relying on Lynas to both anchor supply and define prices outside China is a strategic dead end. A functioning market needs more than one pillar."

BUT - this stockpile must only be one part of the solution to diversify away from China.

Govt's around the world should all do the following for all the RE Mines, Processors and Magnet Makers:
- Provide cash grants (around 25% of capex for each project with another 10% for cost overruns as a loan.)
- Install and maintain Tariffs on China supplied RE products (Do this at the component level - or at the total product level).
- Have govt stockpiles of RE (collect this over the next 5-7 years).
- Provide tax credits for production
- Stop shorting of Critical Mineral companies (or at least stop the manipulation on these companies).

So @Mumbles2025 sorry this reply has kinda rambled....do you think that re-selling the Aust stockpile is necessary?

Thanks John — great to see you’ve run this through ChatGPT as well. Feels like we’re having a structured debate with ourselves, but in the best possible way — focused on the mechanics, not the noise.

I think we’re broadly aligned on the idea of a 10,000t NdPr oxide reserve for national security. That volume makes sense. But where I think there’s a real opportunity is to give the stockpile a dual purpose.

Yes, it would still be a full strategic reserve — but one that also supports market development. From year two, a fixed volume (maybe 30–50%) could be sold to qualified industrial buyers at prevailing prices, with replenishment later. No concurrent buying/selling, no speculation — just rotation.

That modest rotation:

• Establishes a place of delivery
• Introduces controlled liquidity
• Starts building an index based on actual trades, not opaque quotes

Think of it like a simplified version of the Platts Market-On-Close window — not daily, but perhaps monthly. Enough to show where the price is going and give market participants a reference point. You’d get:

• Quality-anchored trades at known delivery points
• A transparent price window
• And eventually, a real ROW benchmark

This isn’t about distortion — it’s about structure.

Which brings me to the core point:
Price transparency isn’t a luxury — it’s a prerequisite for a functioning market.

Without it:

• Producers can’t raise capital
• Financiers can’t assess or underwrite risk
• Buyers can’t negotiate confidently
• And governments can't target support effectively

Right now, rare earth pricing is dominated by opaque China-linked indices. That suits Beijing just fine — but it weakens everyone else. Without a transparent, tradable price outside China, projects like Pensana, Arafura, and Hastings remain perpetually dependent on one system.

So yes — a strategic reserve is needed. But if it can also anchor market structure, provide reference pricing, and support investment models — without costing more — then why wouldn’t we do it that way?

Not a silver bullet, but it might be the missing piece that lets everything else function.

---

 

[John]

"Yes, it would still be a full strategic reserve — but one that also supports market development. From year two, a fixed volume (maybe 30–50%) could be sold to qualified industrial buyers at prevailing prices, with replenishment later. No concurrent buying/selling, no speculation — just rotation.

That modest rotation:

• Establishes a place of delivery
• Introduces controlled liquidity
• Starts building an index based on actual trades, not opaque quote"

I think your idea of building up the strategic reserve and then putting a portion of it on the market each year makes sense. But how does Govt build its stockpile if it is selling in year 2 (and it is not concurrently buying)? Would it not be better, that they buy a modest amount each year? That provides certainity to sellers (so they can get their mines off the ground), but does not soak up all the product.

Now that I think about that...perhaps an option approach is best here. So the Aust Govt will only buy 500 tpa at US$80 /kg, and if the price goes above that, they only buy 250 tap at that price over US$80 /kg. So that means they are in effect providing a price floor.


Do we need a Rare Earths "OPEC"?
But also what happens if other Countires do the same (Say USA, and Europe to start). There would need to be some type of cooperation. Like mabye an OPEC style system, where they agree how much of their reserve they put into the market. Or they agree who they will sell to (to stop strange market dynamics).


There will be no ex-China Market without price transparnecy
Your point about price transparency hits the nail on the head. China has been selling at or below cost for years. Which has made the customers in the west happy (ie in the scheme of their price strctures it means nothing). But that true cost has not been evident. The true cost should add back in the loss China makes, plus the environmental and social costs that come from how China produces its RE. And then there is a cost the west must pay for building its own independant RE supply chains. Now does that private sector pay for these things that are currently not factored into RE prices? Or should the Govt pay? I think Govt...becasue the Private sector has shown that it will alwas take the cheapest deal.


@Mumbles2025 do you think Lynas could take the lead in the above, and start to publish its ex-China pricing? Some of its customers might not be too happy....but it would do alot for shining a light on the dark depths of RE pricing!

 

[ashentegra]

A good reciting of the reasoning and variables around Australia's Critical Minerals Reserve Fund from you both and AI.

The Fund will need legislation, which could be up to a year away. I would like to be wrong on this as projects will remain stalled.

Even if China now freely trades REEs, the recent crisis has given them profound market insights - Who squeaked? How threatened did they feel? How sensitive and informed are the politicians? The bureaucracy? The military?

Meanwhile, to stand up alternate REE chains will require governments to fund the mines, concentrator kit, refiners and metal makers with very big cheques.

Expect argy-bargy as countries pursue national interests at the cost of the collective.

Sigh.

Ash

 

[John]

A good reciting of the reasoning and variables around Australia's Critical Minerals Reserve Fund from you both and AI.

The Fund will need legislation, which could be up to a year away. I would like to be wrong on this as projects will remain stalled.

Even if China now freely trades REEs, the recent crisis has given them profound market insights - Who squeaked? How threatened did they feel? How sensitive and informed are the politicians? The bureaucracy? The military?

Meanwhile, to stand up alternate REE chains will require governments to fund the mines, concentrator kit, refiners and metal makers with very big cheques.

Expect argy-bargy as countries pursue national interests at the cost of the collective.

Sigh.

Ash

@ashentegra

Have a look at what China had to do to establish their RE supply chains...and then look at what we need to do...and the parallels. It is crazy. I did a post here:

https://forum.rareearthexchanges.co...re-earth-restrictions-and-strategic-moves.16/

What China did in the '80s–2000s — the West is now trying to replicate, just in reverse.

• China started by incentivizing exports to scale production → then restricted access to consolidate power.
• The West is now incentivizing domestic production to reduce import dependence → and imposing barriers to Chinese imports.

AND - “What took China 30 years to build, the West is trying to compress into five.”

You are right....the BIG CHEQUE BOOKS need to be opened (moths go flying out)...and those cheques need to be cashed ASAP.

I know you are across NTU. Do you think that this Aust Stockpile will help NTU? I would have expected that most of the off take would be snapped up by the market (through ILU)?

 

[patarnoster]

Pack it up boys its over... Our pollies need to move fast, China will not drop its strangle hold.

 

[ashentegra]

@ashentegra

Have a look at what China had to do to establish their RE supply chains...and then look at what we need to do...and the parallels. It is crazy. I did a post here:

https://forum.rareearthexchanges.co...re-earth-restrictions-and-strategic-moves.16/



You are right....the BIG CHEQUE BOOKS need to be opened (moths go flying out)...and those cheques need to be cashed ASAP.

I know you are across NTU. Do you think that this Aust Stockpile will help NTU? I would have expected that most of the off take would be snapped up by the market (through ILU)?

The great uncertainty for ILU is the market price of its REE outputs. China would simply and opportunistically undercut them - that is how monopolies maintain their position.

Australia's Critical Minerals Fund is not to create stockpiles of copper or nickel, it is to provide a price floor and buyer of last resort in REEs and related elements like Ge and Ga. Prices would need to be set with great care, low enough to be realistic, high enough to make these infant industries viable.

Car and military manufactures can confidently accept Australia would not capriciously restrict supply for strategic political advantage and to destroy their businesses.

This is an important yet modest aspect of standing up an entire ex-China REE production chain.

$100 billion and eight years sounds about right. Many would benefit from this. All must contribute.

Ash

 

[Mumbles2025]

The great uncertainty for ILU is the market price of its REE outputs. China would simply and opportunistically undercut them - that is how monopolies maintain their position.

Australia's Critical Minerals Fund is not to create stockpiles of copper or nickel, it is to provide a price floor and buyer of last resort in REEs and related elements like Ge and Ga. Prices would need to be set with great care, low enough to be realistic, high enough to make these infant industries viable.

Car and military manufactures can confidently accept Australia would not capriciously restrict supply for strategic political advantage and to destroy their businesses.

This is an important yet modest aspect of standing up an entire ex-China REE production chain.

$100 billion and eight years sounds about right. Many would benefit from this. All must contribute.

Ash

i think we are on the same page

 

[Mumbles2025]

Pack it up boys its over... Our pollies need to move fast, China will not drop its strangle hold.

View attachment 35

trumps statement is optics, there is nothing of any substance in the statement. Distilled down the agreement (if that is what it is, its not even a heads of agreement or an MOU)
The outcome of the latest U.S.–China talks signals a temporary de-escalation, but no formal structural changes have been implemented at this stage.

• Rare earth and magnet shipments from China are expected to resume, but the legal framework for export controls remains in place and may be enforced again if policy conditions change.
• U.S. tariffs on Chinese goods have not been reduced. Existing rates of 10%, 20%, and 25% continue to apply, with the current arrangement pausing any further tariff increases.
• No official agreement or joint communiqué has been published by either government. As such, the announcement appears to reflect a provisional political understanding rather than a binding trade accord.
• According to CNN’s analysis, the outcome represents a return to prior conditions rather than a comprehensive resolution.

In summary, key structural elements of the trade relationship—such as tariff schedules and export controls—remain unchanged. The current measures may provide short-term relief but do not reflect a long-term settlement.