Rare earth elements: The scarce inputs powering the next global arms race
- Ben Tan
- Jan 10
- 4 min read
Scarcity creates value. And few materials today sit at the intersection of scarcity, technology, and geopolitics like rare earth elements (REEs).
REEs are a group of 17 metallic elements with unique magnetic, thermal, and electronic properties. They don’t grab headlines like AI or EVs, but they quietly sit underneath almost every major technological shift happening today. As the world accelerates electrification, automation, digitalisation, and defence modernisation, rare earths have become some of the most strategically important materials of this decade.
This isn’t just a commodity story. It’s a supply chain, national security, and technological dominance story.
Why are rare earth magnets non-negotiable?
One of the most critical applications of rare earths is high-performance permanent magnets. These magnets are typically made using neodymium and praseodymium, with small but crucial amounts of dysprosium and terbium to improve heat resistance and durability.
These magnets are everywhere:
Electric vehicle motors
Wind turbines
Defence and aerospace systems
Medical imaging equipment
Data centres
Consumer electronics
There is no easy substitute that delivers the same performance, efficiency, and size. That’s what makes rare earth magnets irreplaceable. As energy systems electrify and machines become more precise, demand for these magnets doesn’t just grow — it compounds.
Defence and geopolitics: Strategic importance is rising fast
Defence may not be the largest consumer of rare earths today, but it is arguably the most strategically sensitive.
Rare earths are embedded across advanced military technologies, including:
Precision-guided missile systems
Radar and surveillance equipment
Secure communications infrastructure
Advanced drones
Next-generation aircraft and aerospace platforms
Recent export controls by China — even with temporary pauses — have been enough to trigger urgent responses elsewhere. The US Department of Defence has already stepped in to invest directly in domestic rare earth supply chains, underscoring just how critical these materials are to national security.
When governments start underwriting supply chains, you know something has shifted.
Rare earths are a hidden enabler of the AI boom.
AI doesn’t run on code alone. It runs on physical infrastructure—and rare earths are deeply embedded throughout the entire AI supply chain.
Data centres rely on rare earth magnets for:
Cooling systems
Power management
Server hardware
Fibre-optic networks use elements like erbium and ytterbium to amplify optical signals over long distances.
Even semiconductor manufacturing depends on rare earths for:
Precision polishing
Performance enhancement
Critical equipment such as lithography machines, vacuum systems, and robotic controls
As the global race for AI leadership intensifies, rare earth elements sit quietly at the centre of the cycle, enabling scale, speed, and reliability.
A fragile and concentrated supply chain
Here’s where the real tension lies.
China dominates the rare earth supply chain at every major stage:
Mining: ~59%
Refining: ~91%
Magnet manufacturing: ~94%
This dominance wasn’t accidental. It reflects decades of vertically integrated development, technological expertise, state-directed policy, and a willingness to absorb environmental costs others avoided.
More importantly, China has shown it is willing to use this dominance strategically. That alone has forced other nations to confront how exposed they really are.
Ex-China supply is growing — but slowly.
Countries such as Australia, the US, Canada, Vietnam, and India are accelerating rare-earth projects. But most of these focus on light rare earths, while heavy rare earth supply remains overwhelmingly tied to China.
Building, refining, and magnet manufacturing capacity outside China is technologically complex, capital-intensive, and time-consuming. Even with strong political backing, it is unlikely to reshape global supply dynamics within the next decade meaningfully.
Scale, cost efficiency, and technical know-how remain major hurdles.
Greenland: A strategic wildcard
One of the most interesting developments is the re-emergence of Greenland as a potential non-China supply anchor.
Greenland hosts some of the world’s largest undeveloped rare earth deposits, including magnet and heavy rare earths. Unsurprisingly, it has attracted growing interest from Western governments and industrial players looking to diversify supply chains and reduce strategic dependence.
This adds another geopolitical layer to what is already a tightly contested space.
Structural deficit, rising prices
When demand accelerates, and supply remains constrained, prices tend to follow.
The rare earth market is expected to move into a structural deficit over the medium term. Forecasts suggest that prices for key materials like neodymium-praseodymium oxide could rise materially over the coming years.
This isn’t about short-term cycles. It’s about a long-duration imbalance driven by energy transition, AI infrastructure, and national security priorities.
Gaining exposure to the rare earth theme
With governments and manufacturers locking in multi-year supply agreements outside China, rare earths are increasingly recognised as strategic assets rather than just industrial inputs.
For investors, this creates a compelling secular theme with asymmetric upside. One practical way to gain exposure is through a rare-earth ETF, which provides diversified access to miners, processors, and the broader supply chain.
As rare earths become critical to economic competitiveness and geopolitical stability, the market is slowly re-rating their importance.
The question isn’t whether rare earths matter.
The question is whether the world can secure enough of them in time.
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