Hedge funds have been increasing their bets against US critical minerals companies, in the belief that backing from the Trump administration that has turbocharged the sector will be insufficient to break China’s stranglehold on global supply.
Short positions — bets that a stock will fall in value — have risen this year against groups including US Antimony Corporation, American Resources Corporation and MP Materials, according to stock lending data from S&P Global Market Intelligence.
The share prices of companies supplying critical minerals and rare earths — essential to the tech and defence sectors — rocketed last year in response to the US government injecting billions of dollars into the sector in the form of equity stakes, loans and contracts, in an effort to break China’s grip on the industry and develop a national supply chain.
But investors have become increasingly concerned that the blistering rally may have run too far, given the years it is expected to take to alter global supply chains meaningfully, and given China’s ability to undermine overseas producers by flooding the market with supply.
Some stocks appeared to have been bid up by “rhetoric” and some did not “have enough economic substance to sustain these stock prices, to put it very politely”, said Siegfried Eggert, chief executive of Grizzly Research, a short seller that has previously published a critical report on MP. He declined to comment on the firm’s positions.
The Trump administration’s backing of the minerals sector has boosted the share prices of many of the companies that produce or hope to manufacture rare earth elements — used in permanent magnets for electric vehicles, wind turbines and consumer electronics — and metals that go into the defence supply chain including tungsten, germanium and antimony.
Shares in MP, which received an investment from so-called “Spac king” Chamath Palihapitiya as part of a deal in 2020, more than tripled last year, boosted by the US government taking an equity stake in the company and giving it a minimum guaranteed price for certain products.
Shares in USAC almost tripled in 2025. The company won a contract to supply up to $245mn of antimony to the Pentagon last year, and a $27mn investment this March out of emergency funding earmarked for Ukraine. Among the company’s board members is Jack Keane, a retired general — previously referred to by President Donald Trump as his “No. 1 guy” — who received the Presidential Medal of Freedom in 2020.
ARC’s former subsidiary, ReElement Technologies — which it still owns a 17 per cent stake in and shares a chief executive with — in July said it had secured $25mn in funding from the defence department. USA Rare Earth, another stock that soared last year, gained $1.6bn in conditional funding from the commerce department in exchange for a roughly 10 per cent equity stake.
Such stocks became a hot trade for retail investors, with almost $200mn of retail money flowing into USAC and USA Rare Earth in total last year, for example, compared with negligible amounts in previous years, according to data from Vanda Research.
However, despite Washington’s efforts, China still controls much of the world’s supply of critical minerals, thanks to decades of investment in the sector.
A recent report from the non-governmental organisation Safe’s Center for Critical Minerals Strategy found the west’s ability to improve its minerals supply chains hinges less on access to geological resources and instead on addressing “a persistent financing gap” from public entities.
Developing new mines and processing facilities is capital intensive and can take a decade or more, and some investors warn that even the sizeable US government investment will be insufficient to end China’s dominance.
The percentage of shares on loan — a proxy for short selling — for the processor USAC has surged from 23 per cent to 42 per cent of its market capitalisation this year, according to S&P Global Market Intelligence. Positions on ARC — a critical mineral extraction and recycling company that had no revenue last year — are 23 per cent, up from 9 per cent at the end of last year.
Shares on loan for MP — by far the largest rare earths miner in the US — have also risen this year, while bets against USA Rare Earth — a lossmaking company that is yet to mine anything from its deposit in Texas — have also edged higher.
Christian Putz, founder and chief executive of investment firm ARR Investment Partners, said China in effect had a monopoly on rare earth processing and that “if history is any guide, those rare earths have massive [price] increases for a short period of time but then . . . China basically crushes the market”.
Last month, MP and USA Rare Earth were added to China’s export control list because of their links to the US military, in response to Washington hitting Chinese companies including Alibaba with similar designations.
Eggert said: “In the real world, China is the dominant player that has the most levers to pull [on rare earths] . . . All the processing facilities of size are in China.”
Mark Jensen, chief executive of both American Resources and ReElement, told an FT reporter seeking comment: “We have zero desire to speak to you as you are a slanted negative person that doesn’t care about people trying to do real things for the world.”
MP Materials declined to comment. A person close to the company said “a very substantial portion” of the increased short interest against MP was because of arbitraging of its $862mn worth of convertible bonds rather than bets against the company.
USA Rare Earth declined to comment on its shares. “The strategic need for a secure rare earth value chain outside China is only growing. USA Rare Earth is focused on execution to meet that demand,” it added.
Gary Evans, chief executive of USAC, said the company had “done a lot of homework trying to figure out” who was shorting its stock.
