Sprott: AI, defense drive rare earth demand; US rebuilds supply

Steve Schoffstall, head of ETFs at Sprott, told a recent webcast that artificial intelligence is the leading near‑term driver of demand for rare earth elements and that the United States is rebuilding supply chains to reduce dependence on China. The event, hosted by Sprott and an industry analyst, reviewed demand drivers, geopolitical shifts and investment options outside China. An audience poll during the webcast showed 42% of respondents view AI as the primary driver of rare earth demand over the next three to five years. Defense accounted for 39% of votes, energy transition 15% and consumer electronics 4%. Schoffstall said the poll matched conversations his team has had with investors and pointed to rapid expansion of AI infrastructure as a source of steady demand for materials used in high‑performance magnets and other components. He described rare earths as increasingly strategic because many industrial uses link to long‑term projects rather than short commodity cycles. “These strategic uses really start to become much more important for the overall demand for rare earths,” Schoffstall said, adding that sustained demand from technologies such as AI could reduce typical commodity volatility. The webcast reviewed U.S. production history and global supply balances. Schoffstall recalled the Mountain Pass mine in California as a former major U.S. source and noted current data showing the United States accounts for about 13% of rare earth production. China was cited as producing roughly 69% of mined rare earths and about 91% of refined rare earth products. Those imbalances were presented as a driver for new mines, processing facilities and recycling capacity in the U.S. and other countries. The session described an exchange‑traded fund that focuses on companies operating outside China. The Sprott Rare Earths Ex‑China ETF (REXC) was identified as a vehicle that invests in firms involved in mining and processing rare earths outside China. Presenters said such funds provide exposure to industrial demand and efforts to diversify supply chains. Speakers also outlined risks tied to these investments. Attendees were reminded to read prospectuses and consider fees, turnover and the potential for complete loss of principal. Funds that emphasize small and mid‑cap miners can show greater price swings and may have limited operating histories. Background material distributed during the webcast summarized that rare earth elements are used in permanent magnets, sensors, electronics and defense systems, and noted applications in electric motors, wind turbines, precision guidance systems and data center hardware. The session offered continuing education credits and included further discussion of investor interest and recent geopolitical developments affecting the U.S. rare earth industry.