## commodityspecialfeature

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**Canonical URL:** [commodityspecialfeature](https://www.imf.org/-/media/files/publications/weo/2026/april/english/commodityspecialfeature.pdf)

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---

### Beverage and food price developments
- Beverage prices plunged by 24.8 percent between August 2025 and March 2026.
  - Cocoa prices dropped by 57.4 percent as favorable weather in West Africa boosted supply and inventories while global demand softened.
  - Coffee prices fell by 9.9 percent following a record Brazilian harvest and improving supply conditions in Vietnam.
- Food prices are expected to increase by 6.0 percent in 2026.
  - Cereal prices rebounded from historical lows in the first quarter of 2026 owing to growing weather concerns in key producing regions.
  - Futures prices suggest higher fuel prices are expected to boost demand for biofuel feedstocks such as soybean oil.
- Risk channel:
  - Should the conflict linger on, higher transport and gas-derived fertilizer prices, together with higher demand for biofuel feedstocks, could drive food prices much higher—particularly those for cereals.

### The Economics of Rare Earths: Global Impact of Shortages and Industrial Policy Motivation
- Since 2020, successive waves of trade restrictions have harmed international cooperation and growth.
- April 4, 2025: China introduced export licensing requirements for seven REEs and REE-based permanent magnets, causing temporary but serious supply disruptions.
- Structural vulnerability:
  - REEs are hard-to-substitute inputs produced through geographically concentrated supply chains; tensions have accelerated reshoring and import-diversification efforts.

### Foundations: rare earths market structure
- REEs: 17 chemically similar metals, categorized as light rare earth elements (LREEs) and heavy rare earth elements (HREEs).
- Key properties: exceptional magnetism and catalytic enhancement; used in automotive (electric vehicles), renewable energy, oil refineries, defense systems, semiconductors, and consumer electronics.
- Permanent magnets (invented in 1983) are arguably the single most important application, combining as many as four REEs with iron and boron.
- Market size (2024, Market Data Forecast 2025):
  - Rare earth oxides (REOs) valued at about $6 billion.
  - Permanent magnets valued at approximately $25 billion.
- Magnet-4 concentration:
  - Neodymium, praseodymium (LREEs) and terbium, dysprosium (HREEs) jointly comprise 96 percent of the total REO market value despite representing only 23 percent of REO production by weight.
- Supply chain stages:
  - mining → concentration → separation (solvent-based extraction) → refining to metals or alloys → downstream manufacturing (permanent magnet producers).
  - Separation stage: technically demanding, pollution-intensive, requires hundreds of sequential processing steps; new capacity requires billions in capital and years of approvals.
- China’s dominance (variation by stage and rare earth type):
  - LREE mining: China’s share of global output fell from 97 percent at its peak in 2010 to 58 percent in 2024.
  - China maintains 88 percent of the world’s oxide separation capacity and 93 percent of its metal refining.
  - HREEs: China retains near monopoly—98 percent of mining (including Myanmar), 97 percent of oxide separation, 95 percent of metal refining, and 90 percent of permanent magnet production.
- Substitutability:
  - HREEs score 78 out of 100 on a substitutability index (100 indicates no adequate substitute), compared with 57 for non-REEs.
  - Substitution possibilities are significantly weaker for HREEs than for average elements.

### Macroeconomic impact of supply disruptions
- Short-run trade shock evidence:
  - After China’s April 4, 2025 licensing requirements, permanent magnet exports slowed sharply between April and June 2025; exports had fallen about 70 percent year over year as of May 2025.
  - Disruption was short-lived: monthly Chinese export volumes quickly returned to positive trend with double-digit year-over-year growth; October 2025 tightening later suspended in November under a China-US agreement; January 2026 restricted HREE exports to Japan, yet strong export growth continued in January and February 2026.
- REE economic footprint:
  - REEs used as inputs in 34 of the 405 sectors of the US economy.
  - These 34 sectors jointly added $233 billion in goods and services value in 2017, equivalent to 0.8 percent of nominal GDP.
  - Estimated value-added shares dependent on rare earths: France 0.4 percent, Germany 2.5 percent, India 1.3 percent, Japan 1.7 percent, United Kingdom 0.6 percent.
  - Permanent magnets consume 83 percent of the value of all REOs.
- Value added at risk (VAAR) is a first-pass estimate of potential GDP losses but omits substitution and cascading input-output (I-O) effects.
- Model approach:
  - A small open economy model with network linkages (Silva and others 2024, extended) incorporating imported REE supply constraints and an REE-augmented I-O table.
  - Scenario: a persistent 80 percent reduction in all rare earth inputs (oxides, metals, compounds, and magnets) consistent with the average single-supplier import concentration of advanced economies.
- Model simulation results:
  - With limited substitution (base case for horizons < 1 year), GDP losses may exceed VAAR due to network amplification.
    - GDP declines by 1.5 percent in the United States (almost twice the VAAR measure).
    - GDP declines by about 1.2 percent in Germany (VAAR 2.5 percent).
  - When substitution elasticity is higher (reflecting horizons > 5 years), estimated GDP losses are negligible, averaging only 0.006 percent.
  - Substitution elasticity values noted:
    - High-elasticity scenario uses elasticity 0.8 (Alfaro and others 2025).
    - Low-elasticity scenario uses elasticity 0.015.
- Mechanism:
  - Stronger forward linkages in US REE-intensive sectors (motor vehicles, electrical equipment, computers and electronics) amplify output losses relative to other countries.

### Coping with risks of supply disruptions
- Adaptation strategies observed:
  - Stockpiling: short-term buffer; constrained and does not address structural dependence.
  - Recycling: longer-term promise but not yet a primary supply source in a rapidly expanding market.
  - Substitution: large-scale substitution unlikely in the near term due to superior performance of permanent magnets.
  - Reshoring and import diversification: main medium-term responses but face long development timelines, coordination challenges, and potential skilled-labor shortages.
- Policy responses following April 2025:
  - Price floors and offtake agreements to provide investment certainty in volatile markets; many REE projects not commercially viable at current neodymium prices (about $55 per kilogram).
    - Example: July 2025 agreement between the US government and MP Materials included a price protection mechanism akin to a floor.
  - Direct financial support through equity stakes, loans, and grants to supply capital and signal long-term commitment.
  - International agreements and coordinated financing:
    - October 2025 agreements between the United States and Australia, Japan, Malaysia, and Thailand; G7 Critical Minerals Action Plan.
    - Mobilized an estimated $6.4 billion in public and private funding to de-risk REE supply chains.
  - These measures improved financial prospects of publicly listed firms in the industry.

### Quantifying the impact of industrial policies to de-risk REE supply chains
- Policy framing: de-risking ≠ decoupling; viewed as insurance where efficiency losses in normal times should balance expected disruption losses in crises.
- Model for policy assessment:
  - Calibrated dynamic trade model of the global rare earths market with producers investing in extraction and processing capacity.
  - Calibration draws on detailed market, industry, and geological data.
- Policy instruments examined:
  - Investment subsidies and price floors applied to oxide separation (the most crucial processing stage).
  - Two implementation scenarios: unilateral (US-based producers) and simultaneous action among all importer countries.
- Policy target benchmark:
  - Instruments calibrated to achieve 25 percent self-sufficiency in rare earth processing by 2035 in the US.
  - This 25 percent target is 15 percentage points higher than the comparable figure in the baseline (with unchanged policies) and aligns with International Energy Agency projections.
- Preliminary conclusion excerpt:
  - Sizable interventions would be needed to attain the 25 percent self-sufficiency target; in the unilateral scenario, the investment subsidy must cover...

### Main findings on REE self-sufficiency and vulnerabilities
- Security benefits may exhibit diminishing returns, with the first 10–20 percent increase in self-sufficiency delivering the largest reduction in vulnerability.
- Modest self-sufficiency rates can substantially reduce vulnerability to supply disruptions at minimal efficiency costs (Clayton, Maggiori, and Schreger 2024).
- Avoiding trade tensions and restrictions remains the first-best outcome to promote steady REE supply.
- Large disruptions to REE supplies could substantially reduce GDP in many economies, particularly in the short term when substitution options are limited.

### Policy interventions evaluated and their relative effectiveness
- Two broad instruments analyzed:
  - Price floors (currently discussed among Group of Seven policymakers).
  - Investment subsidies (proxying for a broad class of capital expenditure support measures, including grants and below-market lending).
- Investment subsidies are typically more fiscally efficient than price floors in present-value terms because:
  - Subsidies are targeted at new capacity.
  - Price floors generate windfall gains for incumbent producers by supporting existing production.
- Investment subsidies are more costly in the short term because they front-load fiscal outlays; costs decline over the long term as investment shifts toward replacing depreciated capital.
- Simultaneous action by multiple importing economies reduces the fiscal cost for any single economy to achieve a given self-sufficiency target.

### Scenarios and quantitative targets
- US self-sufficiency is defined as the share of domestic rare earth consumption supplied either by domestic production or by imports from countries other than China (through friend-shoring).
- Target evaluated: reach 25 percent self-sufficiency by 2035.
- Under unilateral action, achieving 25 percent self-sufficiency requires:
  - Price floor intervention of 2.4 times the period market price (text also reports implementation values of 2.42 times the period market price for US refiners only and 2.2 times the period market price for refiners outside China).
  - Investment subsidy with a 77.2 percent subsidy to US refiners only; 77.8 percent subsidy when directed to refiners outside China only (figure note).
- Fiscal cost example:
  - To achieve the 25 percent target under the unilateral scenario, US fiscal costs associated with the investment subsidy over the first decade amount to 141 percent of the annual US market size—equivalent to about $1.19 billion ($0.81 billion).
  - Global REEs’ market size is about $6 billion. The US share is 14 percent, so roughly $0.81 billion.
- Baseline demand assumptions used in the analysis:
  - 4.7 percent global demand growth in 2025–29.
  - 1.42 percent global demand growth in 2030–34.

### Market structure and data notes
- There are already large capacities in both mining and refining of REEs; boosting production in a well-supplied market depresses prices and profits, which reduces private investment incentives and, all else equal, requires more generous government interventions to induce additional capacity.
- Aggregate stock market sample construction:
  - Initial screen yields 315 firms based on keyword searches.
  - Manual review retains only those with active involvement in rare earth extraction, processing, or project development, resulting in a final sample of 89 companies.
- Timeline of notable events referenced:
  - April 9: China imposes REE export restrictions.
  - June 11: US and China strike trade deal.
  - July 10: US DoD invests in US rare earth producer MP Materials.
  - October 9: China expands REE export restrictions.

### Policy recommendations and complementary measures
- De-risking supply chains through targeted industrial policies is fiscally costly; costs are lower if:
  - De-risking is pursued by various importers simultaneously.
  - Policy instruments directly target the expansion of new production capacity.
- Industrial policies should be used cautiously (Baquie and others 2025).
- Complementary structural reforms governments can promote:
  - Simpler mining permits to lower barriers to entry into REE markets.
  - Investment in specialized skills the sector requires—from separation chemistry to metallurgy.
  - Competitive allocation of subsidies.

*Source: IMF staff calculations and analysis in commodityspecialfeature - 77.2 percent of total investment costs for the US to*

### 4.7 percent between August 2025 and March 2026.

### commodityspecialfeature - 4.7 percent between August 2025 and March 2026

### Beverage and food price developments
- Beverage prices plunged by 24.8 percent between August 2025 and March 2026.
  - Cocoa prices dropped by 57.4 percent as favorable weather in West Africa boosted supply and inventories while global demand softened.
  - Coffee prices fell by 9.9 percent following a record Brazilian harvest and improving supply conditions in Vietnam.
- Food prices are expected to increase by 6.0 percent in 2026.
  - Cereal prices rebounded from historical lows in the first quarter of 2026 owing to growing weather concerns in key producing regions.
  - Futures prices suggest higher fuel prices are expected to boost demand for biofuel feedstocks such as soybean oil.
- Risk channel: Should the conflict linger on, higher transport and gas-derived fertilizer prices, together with higher demand for biofuel feedstocks, could drive food prices much higher—particularly those for cereals.

*The Economics of Rare Earths: Global Impact of Shortages and Industrial Policy Motivation*
- Since 2020, successive waves of trade restrictions have harmed international cooperation and growth.
- April 4, 2025: China introduced export licensing requirements for seven REEs and REE-based permanent magnets, causing temporary but serious supply disruptions.
- Structural vulnerability: REEs are hard-to-substitute inputs produced through geographically concentrated supply chains; tensions have accelerated reshoring and import-diversification efforts.

### Foundations: rare earths market structure
- REEs: 17 chemically similar metals, categorized as light rare earth elements (LREEs) and heavy rare earth elements (HREEs).
- Key properties: exceptional magnetism and catalytic enhancement; used in automotive (electric vehicles), renewable energy, oil refineries, defense systems, semiconductors, and consumer electronics.
- Permanent magnets (invented in 1983) are arguably the single most important application, combining as many as four REEs with iron and boron.
- Market size (2024, Market Data Forecast 2025):
  - Rare earth oxides (REOs) valued at about $6 billion.
  - Permanent magnets valued at approximately $25 billion.
- Magnet-4 concentration:
  - Neodymium, praseodymium (LREEs) and terbium, dysprosium (HREEs) jointly comprise 96 percent of the total REO market value despite representing only 23 percent of REO production by weight.
- Supply chain stages: mining → concentration → separation (solvent-based extraction) → refining to metals or alloys → downstream manufacturing (permanent magnet producers).
  - Separation stage: technically demanding, pollution-intensive, requires hundreds of sequential processing steps; new capacity requires billions in capital and years of approvals.
- China’s dominance (variation by stage and rare earth type):
  - LREE mining: China’s share of global output fell from 97 percent at its peak in 2010 to 58 percent in 2024.
  - China maintains 88 percent of the world’s oxide separation capacity and 93 percent of its metal refining.
  - HREEs: China retains near monopoly—98 percent of mining (including Myanmar), 97 percent of oxide separation, 95 percent of metal refining, and 90 percent of permanent magnet production.
- Substitutability:
  - HREEs score 78 out of 100 on a substitutability index (100 indicates no adequate substitute), compared with 57 for non-REEs.
  - Substitution possibilities are significantly weaker for HREEs than for average elements.

### Macroeconomic impact of supply disruptions
- Short-run trade shock evidence:
  - After China’s April 4, 2025 licensing requirements, permanent magnet exports slowed sharply between April and June 2025; exports had fallen about 70 percent year over year as of May 2025.
  - Disruption was short-lived: monthly Chinese export volumes quickly returned to positive trend with double-digit year-over-year growth; October 2025 tightening later suspended in November under a China-US agreement; January 2026 restricted HREE exports to Japan, yet strong export growth continued in January and February 2026.
- REE economic footprint:
  - REEs used as inputs in 34 of the 405 sectors of the US economy.
  - These 34 sectors jointly added $233 billion in goods and services value in 2017, equivalent to 0.8 percent of nominal GDP.
  - Estimated value-added shares dependent on rare earths: France 0.4 percent, Germany 2.5 percent, India 1.3 percent, Japan 1.7 percent, United Kingdom 0.6 percent.
  - Permanent magnets consume 83 percent of the value of all REOs.
- Value added at risk (VAAR) is a first-pass estimate of potential GDP losses but omits substitution and cascading input-output (I-O) effects.
- Model approach:
  - A small open economy model with network linkages (Silva and others 2024, extended) incorporating imported REE supply constraints and an REE-augmented I-O table.
  - Scenario: a persistent 80 percent reduction in all rare earth inputs (oxides, metals, compounds, and magnets) consistent with the average single-supplier import concentration of advanced economies.
- Model simulation results:
  - With limited substitution (base case for horizons < 1 year), GDP losses may exceed VAAR due to network amplification.
    - GDP declines by 1.5 percent in the United States (almost twice the VAAR measure).
    - GDP declines by about 1.2 percent in Germany (VAAR 2.5 percent).
  - When substitution elasticity is higher (reflecting horizons > 5 years), estimated GDP losses are negligible, averaging only 0.006 percent.
  - Substitution elasticity values noted:
    - High-elasticity scenario uses elasticity 0.8 (Alfaro and others 2025).
    - Low-elasticity scenario uses elasticity 0.015.
- Mechanism: stronger forward linkages in US REE-intensive sectors (motor vehicles, electrical equipment, computers and electronics) amplify output losses relative to other countries.

### Coping with risks of supply disruptions
- Adaptation strategies observed:
  - Stockpiling: short-term buffer; constrained and does not address structural dependence.
  - Recycling: longer-term promise but not yet a primary supply source in a rapidly expanding market.
  - Substitution: large-scale substitution unlikely in the near term due to superior performance of permanent magnets.
  - Reshoring and import diversification: main medium-term responses but face long development timelines, coordination challenges, and potential skilled-labor shortages.
- Policy responses following April 2025:
  - Price floors and offtake agreements to provide investment certainty in volatile markets; many REE projects not commercially viable at current neodymium prices (about $55 per kilogram).
    - Example: July 2025 agreement between the US government and MP Materials included a price protection mechanism akin to a floor.
  - Direct financial support through equity stakes, loans, and grants to supply capital and signal long-term commitment.
  - International agreements and coordinated financing:
    - October 2025 agreements between the United States and Australia, Japan, Malaysia, and Thailand; G7 Critical Minerals Action Plan.
    - Mobilized an estimated $6.4 billion in public and private funding to de-risk REE supply chains.
  - These measures improved financial prospects of publicly listed firms in the industry.

### Quantifying the impact of industrial policies to de-risk REE supply chains
- Policy framing: de-risking ≠ decoupling; viewed as insurance where efficiency losses in normal times should balance expected disruption losses in crises.
- Model for policy assessment:
  - Calibrated dynamic trade model of the global rare earths market with producers investing in extraction and processing capacity.
  - Calibration draws on detailed market, industry, and geological data.
- Policy instruments examined:
  - Investment subsidies and price floors applied to oxide separation (the most crucial processing stage).
  - Two implementation scenarios: unilateral (US-based producers) and simultaneous action among all importer countries.
- Policy target benchmark:
  - Instruments calibrated to achieve 25 percent self-sufficiency in rare earth processing by 2035 in the US.
  - This 25 percent target is 15 percentage points higher than the comparable figure in the baseline (with unchanged policies) and aligns with International Energy Agency projections.
- Preliminary conclusion excerpt (analysis continues beyond provided content):
  - Sizable interventions would be needed to attain the 25 percent self-sufficiency target; in the unilateral scenario, the investment subsidy must cover...

*International Monetary Fund | April 2026 — Commodity Special Feature: Market Developments and the Economics of Rare Earths*

### 77.2 percent of total investment costs for the US to

### commodityspecialfeature - 77.2 percent of total investment costs for the US to

### Main findings on REE self-sufficiency and vulnerabilities
- Security benefits may exhibit diminishing returns, with the first 10–20 percent increase in self-sufficiency delivering the largest reduction in vulnerability.
- Modest self-sufficiency rates can substantially reduce vulnerability to supply disruptions at minimal efficiency costs (Clayton, Maggiori, and Schreger 2024).
- Avoiding trade tensions and restrictions remains the first-best outcome to promote steady REE supply.
- Large disruptions to REE supplies could substantially reduce GDP in many economies, particularly in the short term when substitution options are limited.

### Policy interventions evaluated and their relative effectiveness
- Two broad instruments analyzed:
  - Price floors (currently discussed among Group of Seven policymakers).
  - Investment subsidies (proxying for a broad class of capital expenditure support measures, including grants and below-market lending).
- Investment subsidies are typically more fiscally efficient than price floors in present-value terms because:
  - Subsidies are targeted at new capacity.
  - Price floors generate windfall gains for incumbent producers by supporting existing production.
- Investment subsidies are more costly in the short term because they front-load fiscal outlays; costs decline over the long term as investment shifts toward replacing depreciated capital.
- Simultaneous action by multiple importing economies reduces the fiscal cost for any single economy to achieve a given self-sufficiency target.

### Scenarios and quantitative targets
- US self-sufficiency is defined as the share of domestic rare earth consumption supplied either by domestic production or by imports from countries other than China (through friend-shoring).
- Target evaluated: reach 25 percent self-sufficiency by 2035.
- Under unilateral action, achieving 25 percent self-sufficiency requires:
  - Price floor intervention of 2.4 times the period market price (text also reports implementation values of 2.42 times the period market price for US refiners only and 2.2 times the period market price for refiners outside China).
  - Investment subsidy with a 77.2 percent subsidy to US refiners only; 77.8 percent subsidy when directed to refiners outside China only (figure note).
- Fiscal cost example:
  - To achieve the 25 percent target under the unilateral scenario, US fiscal costs associated with the investment subsidy over the first decade amount to 141 percent of the annual US market size—equivalent to about $1.19 billion ($0.81 billion).
  - Global REEs’ market size is about $6 billion. The US share is 14 percent, so roughly $0.81 billion.
- Baseline demand assumptions used in the analysis:
  - 4.7 percent global demand growth in 2025–29.
  - 1.42 percent global demand growth in 2030–34.

### Market structure and data notes
- There are already large capacities in both mining and refining of REEs; boosting production in a well-supplied market depresses prices and profits, which reduces private investment incentives and, all else equal, requires more generous government interventions to induce additional capacity.
- Aggregate stock market sample construction:
  - Initial screen yields 315 firms based on keyword searches.
  - Manual review retains only those with active involvement in rare earth extraction, processing, or project development, resulting in a final sample of 89 companies.
- Timeline of notable events referenced:
  - April 9: China imposes REE export restrictions.
  - June 11: US and China strike trade deal.
  - July 10: US DoD invests in US rare earth producer MP Materials.
  - October 9: China expands REE export restrictions.

### Policy recommendations and complementary measures
- De-risking supply chains through targeted industrial policies is fiscally costly; costs are lower if:
  - De-risking is pursued by various importers simultaneously.
  - Policy instruments directly target the expansion of new production capacity.
- Industrial policies should be used cautiously (Baquie and others 2025).
- Complementary structural reforms governments can promote:
  - Simpler mining permits to lower barriers to entry into REE markets.
  - Investment in specialized skills the sector requires—from separation chemistry to metallurgy.
  - Competitive allocation of subsidies.

*Source: IMF staff calculations and analysis in commodityspecialfeature - 77.2 percent of total investment costs for the US to*

---


_Source: https://www.imf.org/-/media/files/publications/weo/2026/april/english/commodityspecialfeature.pdf_