Last year, America needed roughly 48,000 metric tons of the most common rare earth magnet, and domestic sources supplied just 300 tons.
The rest had to come from somewhere else, and China makes more than 90% of the world's supply. To make matters worse, in January, that supply gets cut from both directions.
On January 1, the Pentagon's ban on Chinese magnets in its supply chain takes effect, and just nine days later, China's toughest rare earth rules could snap right back into place.
That’s exactly the problem REalloys (NASDAQ: ALOY) has been working to help solve. The company is building a heavy rare earth supply chain outside of China, from processing in Saskatchewan to metal-making in Ohio.
To understand why that's such a problem for America's defense contractors, you have to start with what the Pentagon is actually seeking.
The Pentagon’s Changes Start January 1
For years, the Pentagon has had a rule that keeps Chinese magnets out of the weapons it buys, known as DFARS. But that rule only covered the last few steps of making a magnet.
Starting January 1, 2027, it covers the entire supply chain, from mining the ore all the way to the finished magnet.
That means if any step along the way happens in China, Russia, Iran, or North Korea, a defense contractor can’t deliver that magnet to the Pentagon. So if you’re building missile guidance systems, drone motors, or fighter jets, you now have to know where every magnet came from, all the way back to the ore inside the magnets.
And Washington isn’t leaving contractors much room to get around it.
In July, the White House signed an executive order telling the Pentagon to stop handing out routine waivers once the deadline hits. The order also says that failing to qualify a domestic source isn’t enough, by itself, to prove that none is available.
In other words, contractors can’t just point to a slow approval process and keep buying from China. They’re going to need somebody outside of China to actually buy from.
That’s exactly why REalloys started its process back in June, months before the deadline.
“With the DFARS January 1, 2027 deadline […], we want to begin qualifying North American dysprosium, terbium, and other rare earth materials for defense and industrial permanent magnets,” said REalloys CEO Lipi Sternheim.
The company expects its first high-purity material from Saskatchewan as early as the fourth quarter of 2026. But the Pentagon’s deadline is only half of the story.
China's Rare Earth Truce Is Set to Expire Nine Days Later
In October 2025, China announced a new set of rare earth export rules that went much further than anything it had tried before.
Under those rules, companies with ties to foreign militaries, including America’s, would be largely denied export licenses, and any request to use rare earths for military purposes would be automatically rejected.
And the rules don’t stop at China’s border either. Even magnets made in other countries would need Beijing’s approval before they could be exported if they contain trace amounts of Chinese rare earths.
Those rules have been on hold under a trade truce between Washington and Beijing.
But when President Xi visited Washington in late September, the two sides only agreed to extend that truce until January 10. Many had expected an extension of six months or longer, and they only extended it two.
China’s Commerce Ministry says both sides will keep working toward another extension. But if you’re a defense contractor, that type of assurance isn’t enough to build a supply chain on.
On January 1, you need magnets made entirely of supply that never touched China. And nine days later, China could start turning away companies tied to the U.S. military anyway.
Either way, those contractors end up needing the same thing, which is a supplier outside of China whose material has already been tested and approved.
That's the supplier REalloys (NASDAQ: ALOY) has been working to become, and we’ve already seen what happens to the companies that don’t have a supplier like that.
The Last Time China Cut Off Supply
In April 2025, China put export licenses on a group of rare earths that included dysprosium and terbium, the two elements that keep a magnet working under extreme heat.
At the same time, it added 16 American companies to its export control list, and nearly all of them were in defense and aerospace.
Within weeks, auto parts suppliers in Europe were reporting that several production lines have been shut down while they waited on licenses from Beijing.
And those April rules never went away. They’re still in place, even under the truce, and you can see it in this year’s numbers.
China’s exports of dysprosium and terbium were down roughly 83% in January 2026 compared with a year earlier. And by late August, dysprosium oxide was selling in Rotterdam for nearly five times what it cost inside China.
Which means that for any buyer who can’t afford to wait on Beijing’s approval, buyers are now paying a steep premium for anything that comes from outside of China. And that’s exactly why REalloys has been lining up supply starting in Saskatchewan.
Why Money Alone Can’t Fix This
Washington knows all of this, and the administration has been pouring tens of billions of dollars into minerals companies to fix it.
The problem is that you can’t buy your way out of a shortage overnight.
Even with all of that investment, U.S. magnet capacity is only on track to reach about 5,000 tons by the end of 2026, against roughly 48,000 tons of demand.
And the hardest part isn’t even the magnets themselves. It’s separation, the step where each rare earth gets pulled apart from the others and purified, and China handles about 99% of it for heavy rare earths.
That’s what makes REalloys’ most recent hire so important.
In September, Dr. Muhammad Imran took over as Chief Operating Officer. Imran ran the rare earth division at the Saskatchewan Research Council (SRC), where his teams designed and built more than 400 custom separation cells and a complete rare earth ore to metal processing infrastructure.
In other words, REalloys now has an operator who has already built that equipment outside of China, at the same facility its supply is coming from.
What REalloys Has Lined Up
REalloys (NASDAQ: ALOY) supply starts at that facility. SRC’s first rare earth material for qualification is expected as early as the fourth quarter of 2026, with commercial deliveries set to follow in the third quarter of 2027.
SRC is also adding the capacity to turn neodymium and praseodymium (NdPr) into metal, with commissioning targeted for the first quarter of 2027.
Then there’s Ohio, where REalloys’ plant already makes rare earth metals and magnet materials for customers that include the Defense Logistics Agency.
And they have the money to keep building. REalloys had $122.4 million in cash as of June 30, after closing a $100 million private placement that same month.
Even the U.S. Army has taken notice. In June, it picked REalloys to negotiate a lease for a dysprosium and terbium processing site at Utah’s Tooele Army Depot. The award is still conditional on a final lease, but a deal would put the company’s processing on a U.S. military installation.
And the stakes extend well beyond the companies building America's rare earth supply chain. Some of the country's largest aerospace and defense manufacturers depend on the specialized materials that Washington is now racing to secure, and four industry giants stand out.
RTX Corporation (NYSE: RTX) is one of America's most important defense contractors, producing Patriot air defense systems, advanced missiles, radars and critical aircraft technologies. Through its Raytheon and Collins Aerospace divisions, the company manufactures systems that use high-performance magnets in applications such as precision motors, actuators, sensors and electronic components. Rare earth elements including neodymium, dysprosium and terbium are particularly valuable where compact, powerful magnets must operate under demanding conditions. With global demand for missile defense systems rising, securing reliable supplies of these materials is becoming increasingly important. RTX reported second-quarter 2026 sales of $24.7 billion, up 14% year-over-year, while its backlog reached $289 billion, including $119 billion in defense orders. The Pentagon's January 2027 sourcing restrictions add another challenge for a company managing one of America's largest defense supply chains.
Northrop Grumman (NYSE: NOC) develops some of the Pentagon's most sophisticated weapons systems, including the B-21 Raider stealth bomber, the Sentinel intercontinental ballistic missile program and advanced missile defense technologies. These platforms incorporate complex electronics, guidance systems, precision actuators and electric motors, all applications in which specialized magnetic materials can play an important role. For defense contractors building systems expected to remain operational for decades, the ability to source qualified components without relying on Chinese processing is a strategic concern. Northrop reported second-quarter 2026 revenue of $10.9 billion, up 5% year-over-year, while securing approximately $20 billion in new awards. Its backlog climbed to a record $105 billion. As these major defense programs advance, the January 2027 rules will require particular attention to the origins of rare earth magnets used in covered procurement.
Lockheed Martin (NYSE: LMT) sits at the center of America's military aviation and missile defense industries. The company builds the F-35 Lightning II fighter jet, THAAD missile defense systems and a wide range of precision weapons and advanced military technologies. Modern fighter aircraft and missile systems rely on sophisticated electronics, electric motors, sensors and actuators, creating demand for specialized magnetic materials throughout their supply chains. Rare earth magnets are especially useful where high performance, compact size and resistance to extreme operating conditions are essential. With production extending across thousands of suppliers and multiple allied countries, ensuring that covered components meet the Pentagon's sourcing rules is no small task. Lockheed reported second-quarter 2026 sales of $20.1 billion, up 11% year-over-year, with net earnings of $1.8 billion. Its backlog reached a record $230 billion, underscoring the scale of future production that depends on secure and reliable supply chains.
GE Aerospace (NYSE: GE) plays a different but equally important role in America's aerospace and defense industry. The company manufactures propulsion systems for military aircraft, including engines used by the F-15 and F-16 fighter jets, while also supplying commercial aviation with some of the world's most widely used jet engines. Although rare earth permanent magnets are not essential to every jet engine, they are used in certain aerospace electrical systems, sensors, generators and actuators, making the security of specialized magnetic materials relevant to GE's broader supply chain. As military aviation incorporates increasingly sophisticated electronic and electrical technologies, reliable access to qualified components remains important. GE Aerospace reported second-quarter 2026 revenue of $13.3 billion, up 21% year-over-year, while orders rose 17% to $16.5 billion. Its defense and propulsion business generated $3.4 billion in quarterly revenue, an increase of 16%. The Pentagon's sourcing restrictions add to the importance of supply chain traceability across GE's covered military programs.
REalloys Has a Head Start Heading Into 2027
Nobody knows yet what Beijing will decide on January 10. The truce could get extended again, or China’s toughest rules could come right back.
But the Pentagon’s January 1 deadline isn’t moving either way. From that day on, defense contractors will need magnets that have been tested, approved, and kept clear of China at every step.
That kind of supply can’t be built overnight. It takes years of work in separation, metal-making, and qualification, and in a country that covered just 300 tons of a 48,000-ton need last year, there aren’t many companies that have already started.
REalloys is one of them. Its material is expected to head into testing as early as the fourth quarter of 2026, its supply runs through Saskatchewan and Ohio instead of China, and it has the cash to keep building.
When that day comes, those contractors will need their magnets to come from somewhere other than China. REalloys is building that supply chain right now, and it got started well before the deadline forced anyone’s hand.
By. Josh Owens
