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The United States is on track to establish a domestic rare earths supply chain to meet its defence needs by 2027, a senior defence official said on Wednesday.

The U.S has been driving the build out of a global supply chain for rare earths, metals used in magnets for green energy industries and defence, beyond dominant producer China since COVID upended global supply chains early this decade.

"We are on track to meet our goal of a sustainable mine to magnet supply chain capable of supporting U.S. defence requirements by 2027," Assistant Secretary of Defense for Industrial Base Policy Laura Taylor-Kale said at a mining conference in Perth.

Australia is classified as a domestic source of supply, alongside Canada and the UK, for critical minerals for the U.S. under the Defense Production Act and the U.S. has been offering funding opportunities to Australian mine developers.

The U.S. this year extended its support for the first time to back two Australian-listed rare earths projects with up to $850 million to help build out the supply chain.

It has already funded Australian producer Lynas Rare Earths (LYC) , the world's biggest producer outside of China, to build a new rare earths processing facility in Texas.

Government support for the sector is also coming domestically. In Australia, the federal government has pledged a A$1 billion ($667 million) loan to mineral sands producer Iluka Resources (ILU) to build a new minerals processing plant on the country's west coast.

But these expansion projects have come as prices for rare earths have slumped, hurt by rising supply as China exports more to global markets.

As China-based prices of rare earths have plunged, so have the cashflows and accounting profits of rare earths producers in the West, but also China's top three rare earths producers, said Iluka's Tom O'Leary.

"So today they are still losing money.. and yet they are still producing. This is not a normal market," he said, arguing for prices of Western rare earths to delink from Chinese prices.

Amanda Lacaze, chief executive of Lynas, agreed there was a "market imbalance" that could be mitigated by more growth in supply outside of China.

"The important thing is growing the non-Chinese industry," said Lacaze. "Things like the partnership that we have with the U.S. government, Iluka's relationship with the Australian government, these are all about growing critical mass outside of China. And once we do that, we start to address the imbalance."

($1 = 1.4986 Australian dollars)