German Minister Suggests Minimum Price Option for Rare Earths

German Finance Minister Lars Klingbeil has indicated that establishing price floors a form of minimum price for rare earth elements is under consideration as part of efforts to reduce global dependence on China, which dominates the supply chain.

This came up during a meeting of finance ministers from the G7— US, Germany, Japan, Britain, France, Italy, Canada plus partners like Australia, Mexico, South Korea, and India, held in Washington on January 12, 2026. The discussions, convened by US Treasury Secretary Scott Bessent, focused on securing and diversifying supplies of critical minerals, including rare earths essential for technologies like EVs, renewables, semiconductors, batteries, and defense systems.

Klingbeil described the price floor as a mechanism to ensure producers outside China receive at least a certain price level, even if market prices drop due to China’s ability to flood the market with low-cost supply.

He highlighted its advantage in providing market predictability and reducing the influence of dominant players trying to manipulate prices. However, he stressed that discussions are preliminary, with many issues unresolved, and emphasized cooperation over confrontation—Germany’s approach to China remains “de-risking, not decoupling.”

A follow-up meeting of foreign ministers on rare earths strategy is planned soon, and critical minerals are expected to be a key focus under France’s G7 presidency in 2026. This reflects broader Western concerns over China’s control refining ~90% of global rare earths and recent export restrictions, such as those affecting Japan.

The idea aims to support non-Chinese production through policy tools like subsidies, incentives, or guarantees, though specifics exact price levels or implementation remain open. No immediate decisions were announced, and Klingbeil noted the need to carefully weigh potential consequences.

A price floor is a government-imposed minimum price below which a good, service, or commodity like labor, agricultural products, or in this case, rare earth elements cannot legally be sold. It acts as a “floor” to prevent prices from falling too low, typically to protect producers from market forces that might drive prices down to unprofitable levels.

How Price Floors Work in Standard Economics

In a free market, prices are determined by the interaction of supply and demand: The equilibrium price is where the quantity supplied equals the quantity demanded.

If the government sets a price floor above this equilibrium price, it becomes binding, and the market cannot clear naturally. Effects include: Higher price for sellers— producers benefit from guaranteed minimum revenue. Lower quantity demanded— buyers purchase less because the price is artificially high.

Higher quantity supplied, more producers are willing to sell at the higher price. Quantity supplied exceeds quantity demanded, leading to unsold goods, potential stockpiles, or wasted resources. Employers must pay at least a set hourly rate, which can lead to higher wages for employed workers but reduced hiring if set above the market equilibrium for low-skilled jobs.

Agricultural supports e.g., historical EU or US farm price floors: Governments set minimum prices for crops to ensure farmers’ income stability. If market prices drop, the government may buy excess supply, provide subsidies to cover the gap, or destroy surplus to maintain the floor.

If the price floor is set below the equilibrium price, it is non-binding and has no real effect—the market price stays higher naturally. The recent G7 discussions including Germany’s Lars Klingbeil on January 12, 2026 proposed price floors for rare earth elements as a tool to counter China’s dominance ~90% of global refining and its ability to flood markets with low-cost supply, which can crash prices and make non-Chinese production unviable.

Here, the mechanism would likely work differently from traditional floors: It sets a guaranteed minimum price that non-Chinese producers can expect to receive. If market prices fall below this floor due to Chinese oversupply), governments or alliances could intervene by: Directly purchasing excess material adding to strategic stockpiles.

Providing subsidy payments or contracts for difference (CfDs) to bridge the gap between the market price and the floor price. Offering offtake guarantees or forward-buying commitments to give producers revenue certainty. This provides predictability and reduces investment risk for Western/Australian/allied producers, encouraging new mines, processing facilities, and diversification away from China.

Klingbeil emphasized that it minimizes the influence of dominant players trying to manipulate prices, while stressing careful evaluation of consequences e.g., potential higher costs for buyers, trade tensions, or inefficiencies.

This approach is more about strategic de-risking than pure market intervention—similar to recent US Defense Department deals e.g., price floors for specific rare earth products via contracts with producers like MP Materials.

It’s still preliminary, with no fixed levels or full implementation details yet, and focuses on cooperation among G7+ partners rather than confrontation. Price floors can stabilize markets and support key industries but often create surpluses or deadweight losses if not managed carefully via government buying or targeted subsidies.

In volatile commodity markets like rare earths, they aim to level the playing field against non-market behaviors.