The United States needed about 48,000 tonnes of the most widely used rare-earth permanent magnets last year, while domestic sources supplied only about 300 tonnes. The shortfall was largely covered by imports, with China producing more than 90% of the world's rare-earth magnets. Two deadlines in January 2027 could add pressure on defense contractors: new Pentagon procurement rules will trace magnets back to their mineral sources from Jan. 1, while the current US-China trade truce is due to expire nine days later. The overlapping dates are forcing contractors to identify and qualify suppliers outside China more quickly.
Pentagon Rules Will Trace Magnets Back to the Mine
The US Department of Defense has long restricted the purchase of Chinese magnets under the Defense Federal Acquisition Regulation Supplement, or DFARS. Earlier rules focused mainly on later stages of magnet manufacturing. From Jan. 1, 2027, the restrictions will cover the full supply chain, from ore extraction through final magnet production.
If any stage takes place in China, Russia, Iran or North Korea, the defense contractor will not be allowed to deliver the magnet to the Pentagon. Companies producing missile guidance systems, drone motors or fighter aircraft will therefore need to document the origin of materials from raw inputs through finished products and demonstrate that the supply chain meets the requirements.
An executive order signed by the White House in July 2026 further narrows the room for exemptions. Once the new deadline takes effect, the Defense Department will stop issuing routine waivers. The inability to complete certification of a US supplier will also not, by itself, establish that domestic supply is unavailable. Slow approval processes will not automatically justify continued purchases of Chinese magnets, increasing the importance of alternatives that are both available and certified.
REalloys (Nasdaq: ALOY) said it began the certification process in June 2026 for North American sources of heavy rare earths, including dysprosium and terbium, for defense and industrial permanent magnets. The first high-purity materials from Saskatchewan, Canada, are expected to be available for certification as early as the fourth quarter of 2026, with commercial deliveries targeted for the third quarter of 2027. Whether those materials are certified on schedule could affect the company's ability to meet demand after the procurement rules take effect.
US-China Truce Set to Expire on Jan. 10, 2027
China announced stricter rare-earth export rules in October 2025. The rules tighten licensing requirements for companies linked to foreign militaries and state that applications involving military use of rare earths will be rejected automatically. The controls could also affect magnets made outside China: products containing even small amounts of Chinese rare earths may require approval from Beijing before export.
Implementation of the rules is currently suspended under the US-China trade truce. In late September 2026, the two sides agreed to extend the truce through Jan. 10, 2027, a two-month extension that was shorter than the six months or longer that markets had previously anticipated. China's Ministry of Commerce said the two countries would continue working toward an extension, but the arrangements beyond the current deadline remain unsettled for defense contractors planning long-term supply chains.
Contractors therefore face two closely spaced deadlines. Beginning Jan. 1, the Pentagon will require regulated magnets to avoid specified countries throughout their supply chains. After Jan. 10, China could resume enforcement of its stricter export rules. Regardless of whether the truce is extended, procurement teams are likely to focus on suppliers that are already certified and do not rely on China for material processing.
2025 Controls Already Hit Exports and Production
In April 2025, China placed a group of rare earths, including dysprosium and terbium, under export licensing controls and added 16 US companies to its export-control list. Most of those companies were in the defense and aerospace sectors. In the weeks that followed, European automotive suppliers said some production lines had halted while they waited for Beijing to issue licenses. The April controls remain in effect during the trade truce.
Export data also points to the effect of restricted supply. China's exports of dysprosium and terbium were about 83% lower in January 2026 than a year earlier. By late August, dysprosium oxide in Rotterdam was priced at nearly five times the price in China. Buyers unable to wait for export approvals may face higher costs for non-Chinese materials. The price gap reflects the scarcity of supply outside China, but it does not mean every company can immediately replace its existing sources.
US Capacity Still Trails Demand
The US government has committed hundreds of billions of dollars to critical-minerals companies, but new capacity cannot close the supply gap quickly. US magnet production is expected to reach about 5,000 tonnes by the end of 2026, compared with demand of roughly 48,000 tonnes. Rare-earth separation is another bottleneck. Processing heavy rare earths requires individual elements to be separated and purified, and China accounts for about 99% of global processing capacity in that area.
REalloys appointed Dr. Muhammad Imran as chief operating officer in September 2026. Imran previously led the rare-earth division at the Saskatchewan Research Council, or SRC. His team designed and built more than 400 custom separation units, as well as an integrated infrastructure system covering rare-earth ore processing through metal production. That experience is relevant to REalloys' plan to source materials from SRC, although the schedule for new equipment and the ability of products to pass customer certification remain key commercialization issues.
SRC expects to provide the first rare-earth materials for certification as early as the fourth quarter of 2026, with commercial deliveries targeted for the third quarter of 2027. The organization is also expanding its capacity to convert neodymium-praseodymium, or NdPr, into metal, with commissioning targeted for the first quarter of 2027. REalloys' Ohio facility has already produced rare-earth metals and magnet materials, with the US Defense Logistics Agency among its customers.
The company reported cash of $122.4 million as of June 30, 2026, and completed a $100 million private placement in June. In the same month, the US Army selected REalloys to negotiate a lease for a dysprosium and terbium processing site at Tooele Army Depot in Utah. The award remains conditional on execution of a final lease. If completed, the processing facility would be located on a US military base.
Defense Contractors Must Track Magnet Origins
Rare-earth magnets are used in a wide range of motors, sensors, actuators and electronic components. For defense contractors, the new traceability requirements will cover more than magnets purchased directly. They will also increase scrutiny of suppliers and records showing the origin of components used in larger systems. RTX, Northrop Grumman, Lockheed Martin and GE Aerospace all operate major defense or aerospace programs, but available disclosures do not identify the specific effect of the new rules on each company's procurement.
RTX produces Patriot air-defense systems, missiles, radar equipment and aviation technologies. Its second-quarter 2026 sales were $24.7 billion, up 14% from a year earlier, while total backlog stood at $289 billion, including $119 billion in defense orders.
Northrop Grumman participates in the B-21 Raider stealth bomber, Sentinel intercontinental ballistic missile and missile-defense programs. Second-quarter revenue was $10.9 billion, up 5% year on year. The company added about $20 billion in contracts during the quarter, taking backlog to a record $105 billion.
Lockheed Martin produces F-35 fighter aircraft, the Terminal High Altitude Area Defense system and precision-guided weapons. Second-quarter 2026 sales were $20.1 billion, up 11%, while net income was $1.8 billion. Backlog reached a record $230 billion.
GE Aerospace supplies engines for military aircraft including the F-15 and F-16 and also operates a commercial aviation business. Second-quarter revenue rose 21% to $13.3 billion. Orders increased 17% to $16.5 billion, while revenue from defense and propulsion rose 16% to $3.4 billion. The size of these businesses shows the scale of the programs involved, but the figures do not establish that the new procurement rules have already affected their reported results.
It remains unclear how Beijing will handle the trade truce before Jan. 10, 2027, and an extension is still possible. China's previously announced rare-earth rules could also return. The Pentagon's new procurement requirements, however, have a fixed start date of Jan. 1, 2027. For buyers, the immediate question is whether they can secure a non-Chinese supply chain that can deliver on time, document material origins and complete certification.