Rare earth shortages worsen in US aerospace, chips despite trade truce, sources say

According to industry insiders, the supply crunch has become severe enough that at least two companies have started turning away customers.

The shortages primarily involve scandium and yttrium.

These niche materials belong to a group of 17 rare earth elements that are overwhelmingly produced in China and serve critical, albeit small, functions in semiconductors, aerospace, and defence technologies.

Chinese customs data reveals that despite an October diplomatic detente between Washington and Beijing, shipments of these specific materials to the United States remain rare.

This persists even though China has allowed numerous rare earth exports to resume following restrictions implemented last April.

The easing of trade friction, which heavily depends on China suspending its export limits on critical minerals, is set to be a central topic when Trump and Xi meet.

Yttrium is particularly problematic.

It is vital for high-temperature coatings that prevent turbines and engines from melting; without consistent application of these coatings, the engines cannot operate.

Following initial reports of a yttrium shortage in November, prices have surged by 60%, climbing to roughly 69 times their value from a year ago.

Traders and company executives note that some coating manufacturers are now beginning to ration their materials.

Executives from two North American companies that purchase yttrium for coatings reported that supply deficits have forced them to temporarily halt production.

To preserve inventory for major clients, including specific engine manufacturers, one of these firms is actively rejecting smaller and international buyers.

Another company within the coating supply chain recently exhausted its reserves and has ceased selling products that contain yttrium oxide, according to a source with direct knowledge of the situation.

While jet engine and chip production have not yet been directly disrupted by the yttrium and scandium squeeze, a US government official confirmed that certain American manufacturers are currently experiencing "shortages" of specific Chinese rare earths.

In the eight months following the rollout of export controls last April, China shipped only 17 tons of yttrium products to the US, a sharp decline from the 333 tons exported in the eight months prior.

A White House official stated that the Trump administration remains dedicated to securing critical mineral access for American enterprises.

"This includes negotiating with China and monitoring compliance with President Trump’s agreement with President Xi, as well as developing alternative supply chains as warranted," the official said.

This information stems from conversations with 14 corporate staff and executives, traders, analysts, and two US government officials spanning the semiconductor and aerospace fields.

Except for named analysts, all sources spoke on the condition of anonymity.

The North American executives requested that their identities be withheld while discussing internal production challenges.

China's Ministry of Commerce did not reply to questions.

Production Pressures and Scarce Scandium

Kevin Michaels, managing director at the US consulting firm AeroDynamic Advisory, noted that while engine output hasn't suffered yet, manufacturers are anxious.

"This is a watch item and a tangible example of how China is flexing its rare earth muscle," Michaels stated.

These pressures arrive as engine manufacturers are already challenged by airline spare part demands and increased production from planemakers Airbus and Boeing.

American aircraft engine makers Honeywell, GE Aerospace, and RTX's Pratt & Whitney declined to comment.

Beyond yttrium, dwindling scandium supplies threaten the manufacturing of next-generation 5G chips in the US, according to Dylan Patel, CEO and founder of the research firm SemiAnalysis.

With global yields of merely a few tens of tons annually, scandium is vital for advanced chip packaging and processing, speciality aerospace aluminium alloys, and fuel cells.

Patel explained that leading American semiconductor producers depend on scandium for components integrated into "essentially every 5G smartphone and base station."

Two industry sources revealed that US chip manufacturers have faced recent delays in acquiring new Chinese scandium export licenses, prompting them to seek assistance from Washington.

Another US official mentioned that many companies had previously sourced scandium through third-party nations, but China now mandates that license applicants declare their end-users.

"Our thesis is that it is precisely the semi industry being targeted," the US official remarked.

The US Semiconductor Industry Association declined to provide a statement.

Highlighting the vulnerability of the supply chain, Patel observed, "The US currently has zero domestic scandium production and no operational alternative sources outside China," warning that existing reserves will likely last for months, rather than years.

REUTERS