Rare earth demand surges; China dominates supply chain

Rare earth elements, a group of 17 minerals used for their magnetic and conductive properties, have seen global demand rise 78% since 2020. The market is currently valued at about $14 billion and industry estimates project it could more than double by the mid-2030s.

These materials are used in a range of technologies, including high-strength permanent magnets, electric vehicle motors, wind-turbine generators, robotics and components for artificial intelligence hardware and data centers. The defense sector is a major consumer: a single F-35 fighter jet requires about 900 pounds of rare earth materials for guidance systems and engines.

Steve Schoffstall, head of ETFs at Sprott Asset Management, described rare earths as the “vitamins of modern industry,” linking rising demand to wider use of permanent magnets in wind turbines, electric vehicles and humanoid robots, as well as upgrades to AI hardware and data-center equipment.

Supply-side concentration has shifted since the 1990s. China now accounts for roughly 69% of global rare earth mining and more than 90% of refining and magnet production. The refining stage, which separates and purifies individual rare earth elements, requires complex chemical processing and large-scale facilities; that technical and capital intensity contributed to geographic concentration of processing capacity.

Policy responses have followed. The U.S. government has taken equity stakes in rare earth mining companies. Officials from Group of Seven countries have discussed price floors aimed at protecting new Western producers from potential downward price pressure. Private firms are pursuing friend-shoring strategies to move parts of the supply chain to allied jurisdictions.

Market participants are offering investment products focused on non-Chinese producers. Sprott launched the Sprott Rare Earths ex-China ETF, ticker REXC, which targets a 95–96% allocation to companies engaged in exploration, mining, separation and refining while excluding Chinese firms.

Industry analysts and fund managers note specific risks for investors and supply chains. Mining and exploration firms are often small or mid-cap companies and can experience high price volatility. Refining and magnet manufacturing require specialized processing, substantial capital investment and long project lead times. A shift in Chinese trade policy or pricing could have rapid global effects because of current concentration.

Western policymakers have cited the concentration of refining and magnet production as a reason to support development of domestic or allied processing capacity. Building additional separation and refining facilities would aim to shorten supply chains by locating more of the processing closer to end markets.