Rare Earths: The Hidden Backbone of Modern Technology

When investors think about commodities, the usual suspects come to mind. Oil, gold, copper, maybe lithium. Yet, there is an entire group of elements that are even more critical to modern life and global technology, though far less understood by the general public: rare earth elements. These metals are not just another commodity. They are the very backbone of the digital age, clean energy, and defense systems. Without them, the smartphones in our pockets, the electric vehicles on our streets, and even advanced military technology would not exist.

This Insight explores what rare earths are, why they matter, who controls them, and what the implications are for investors in the years ahead.

What Are Rare Earth Elements?

Rare earth elements (REEs) refer to a group of 17 elements found on the periodic table, specifically the 15 lanthanides plus scandium and yttrium. Despite the name, rare earths are not actually "rare" in terms of abundance. Many are found in the earth’s crust in reasonable quantities. What makes them “rare” is the fact that they are rarely found in concentrations high enough to make mining economically feasible. Extracting and refining them is also highly complex, environmentally damaging, and expensive.

The 17 rare earth elements include well-known names like neodymium, dysprosium, and cerium. Each of these elements has very specific, almost irreplaceable industrial uses. They are not interchangeable, and substitutes often perform much worse. This is what makes rare earths so strategically important.

Where Are Rare Earths Used?

Rare earths have found their way into nearly every corner of modern technology. Their applications are broad, but several key industries stand out.

1. Electronics and Consumer Technology

Every smartphone, tablet, and laptop relies on rare earths. For example:

• Neodymium and praseodymium are critical for the magnets used in speakers and microphones.

• Europium and terbium are essential for creating bright, energy-efficient displays.

• Yttrium is used in LEDs and camera lenses.

Without these elements, modern consumer electronics as we know them would be impossible.

2. Clean Energy and Electric Vehicles

One of the fastest-growing areas of demand comes from clean energy and transportation.

• Permanent magnets made from neodymium, dysprosium, and terbium are essential for the motors in electric vehicles.

• Wind turbines also rely heavily on rare earth magnets to generate power efficiently.

• As countries accelerate their transition away from fossil fuels, demand for these metals has soared.

3. Defense and Military Applications

Rare earths are also considered a matter of national security. They are critical for:

• Guidance systems in missiles.

• Jet engines.

• Night-vision goggles.

• Advanced radar and sonar systems.

Because of their military importance, the United States, Europe, and Japan all view rare earth security as a strategic priority.

4. Industrial Applications

Rare earths are used in petroleum refining, catalysts, glass polishing, and even agriculture. They may not always be visible in the final product, but they enable efficiency and performance across industries.

Why Are Rare Earths So Important?

The importance of rare earths lies in three factors: indispensability, scarcity of economically viable supply, and concentration of production.

• Indispensability: In many cases, rare earths are not just the best option, they are the only option. For example, the magnets in an electric vehicle cannot be produced without neodymium and dysprosium.

• Scarcity of supply: Mining rare earths is difficult, expensive, and environmentally destructive. Few countries are willing or able to produce them at scale.

• Concentration of production: Unlike oil or copper, rare earth production is highly concentrated in one country: China. This gives China enormous leverage in global supply chains.
  
  

Who Controls Rare Earths?

Here lies one of the most critical geopolitical issues of our time.

1. China’s Dominance

China is by far the dominant player in rare earth mining and refining. At its peak, China controlled more than 90 percent of global rare earth production. Even today, it accounts for around 60–70 percent of global supply and almost 90 percent of refining capacity.

China’s dominance is not an accident. In the 1980s and 1990s, Western countries reduced their rare earth mining due to environmental concerns and cost. China stepped in, investing heavily in both mining and refining, often at lower environmental and labor standards. This allowed China to undercut competitors and establish near-total dominance.

2. United States

The U.S. was once a leading producer of rare earths, particularly at the Mountain Pass mine in California. However, environmental issues and competition from China led to the industry’s decline. Mountain Pass has since restarted production, but it still relies on China for refining.

3. Other Players

• Australia: Lynas Rare Earths, based in Australia, is one of the few major producers outside of China. It supplies Japan and other countries seeking to diversify their supply.

• Africa: Countries like Burundi, Malawi, and Madagascar have significant deposits, though development is still in early stages.

• Greenland: Holds large deposits, though political and environmental concerns make development uncertain.

4. Supply Chain Vulnerability

Even if rare earth ores are mined outside of China, most refining and processing capacity remains within China. This creates a choke point in the global supply chain.

The Geopolitical Dimension

Rare earths are not just an economic issue. They are a weapon of geopolitical leverage.

• China’s Leverage: On several occasions, China has threatened to cut off rare earth exports as a way to pressure the United States or Japan during trade disputes. The implicit threat is clear: countries dependent on rare earths cannot afford to anger Beijing.

• Strategic Vulnerability: The U.S. military relies heavily on rare earths for advanced weapons systems. This has raised alarms in Washington, where policymakers are pushing to diversify supply.

• Resource Nationalism: Other countries with rare earth deposits may use them as strategic bargaining chips, much like oil producers in the past.
  
  

Causes of Current Supply Challenges

There are three primary reasons why rare earth supply is such a challenge:

1. Environmental Concerns
   The process of mining and refining rare earths is highly polluting. It often involves toxic chemicals, radioactive waste, and water contamination. Western countries with strict environmental standards struggle to compete with China, which historically allowed dirtier, cheaper production.

2. Economic Barriers
   Developing new rare earth mines and refining facilities is capital-intensive and slow. It can take a decade or more to bring new capacity online. Investors are hesitant because of price volatility and China’s ability to undercut the market.

3. Technological Lock-In
   Most of the world’s refining technology and expertise are concentrated in China. Building alternative facilities is not just about money; it also requires know-how.
   
   

Future Demand Outlook

Demand for rare earths is expected to grow significantly over the next decades, driven by three main forces:

• Electrification of transport: As electric vehicle adoption accelerates, so will demand for neodymium and dysprosium magnets.

• Renewable energy: Wind turbines and solar technologies are heavy users of rare earths.

• Defense spending: With rising geopolitical tensions, military demand for rare earths will remain high.

Some estimates suggest that demand for certain rare earths could double or triple by 2035. This creates a structural imbalance unless new supply sources are developed.

Investment Implications

From an investor’s perspective, rare earths present both opportunity and risk.

1. Mining Companies

Direct exposure can be gained through companies like Lynas Rare Earths (Australia) or MP Materials (U.S.). However, these stocks are highly volatile and sensitive to geopolitical news.

2. Diversification of Supply Chains

Countries like the U.S., Japan, and members of the European Union are investing heavily in developing alternative supply chains. Investors should watch government-backed projects, which could offer long-term stability.

3. Technology Substitutes

Some companies are researching alternatives to rare earths, such as new magnet technologies. If successful, these could disrupt demand. For now, however, substitutes remain limited.

4. Geopolitical Risk Premium

Because of the concentration of supply in China, rare earths will always carry a geopolitical risk premium. Any escalation in U.S.-China tensions could lead to sharp price spikes.

5. Long-Term Growth Story

Despite the risks, the long-term growth story is compelling. Electrification, clean energy, and digital technology are all megatrends that rely on rare earths.

Can Humanity Sustain the Current Path?

Just like oil shaped the twentieth century, rare earths will shape the twenty-first. But the concentration of supply raises key questions: Can we sustain a global economy so dependent on one country for such critical resources? What happens if supply is disrupted?

The answer is that unless new mines are developed and refining capacity is diversified, the global economy remains highly vulnerable.

Conclusion

Rare earths may not capture the headlines like oil or gold, but they are the invisible foundation of our modern economy. They are critical to smartphones, electric vehicles, renewable energy, and advanced defense systems. They are also heavily concentrated in the hands of one country: China.

For investors, rare earths represent both a major opportunity and a source of risk. The long-term growth in demand is undeniable, but so are the challenges of supply concentration, environmental impact, and geopolitical tension.

As we look ahead, one thing is certain: the world will continue to run on rare earths, and their importance will only grow. Just as oil once dictated geopolitics and shaped investment strategies, rare earths are emerging as the defining commodity of the twenty-first century.

Do not consider this article as financial advice. We only showcase our own opinion. Always do your own due diligence before investing in any alternative investment opportunities.