Rare Earths: From Scarcity to Strategic
Scarcity and strategic importance drive value. Rare earth elements (REEs) are a group of 17 metallic elements with unique magnetic, battery, and electronic efficiency and thermal properties. REEs hav...
Chief Investment Office - Hong Kong8 Jan 2026
  • REEs have emerged as one of the most strategically important materials of the decade, positioned at the nexus of industrial transformation, technological competition and geopolitical realignment
  • The demand for REEs is projected to accelerate across advanced technology sectors – energy transition, defence, and AI infrastructure
  • China’s overwhelming control of REE supply chain is creating increasingly glaring structural imbalances
  • The rest of the world is likely to invest heavily moving forward, though challenges are expected due to the relative lack of scale and cost efficiencies compared to China
  • REE’s indispensable role in technologies shaping the future of global order and supply constraint concerns should reinforce their compelling investment narrative
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Scarcity and strategic importance drive value. Rare earth elements (REEs) are a group of 17 metallic elements with unique magnetic, battery, and electronic efficiency and thermal properties. REEs have emerged as one of the most strategically important materials of the decade, positioned at the nexus of industrial transformation, technological competition, and geopolitical realignment. As the global economy accelerates electrification, digitalisation, automation, and defense modernisation, demand for REEs is set to grow significantly across advanced technology sectors.

Indispensable role of permanent magnets in modern technology. One of the primary applications of REEs are production of high-performance rare earth magnets – made up of neodymium, praseodymium, and a small amount of dysprosium and terbium. These magnets are crucial to modern technology, including EV motors, wind turbines, defence systems, medical equipment, data centre, and consumer electronics.

Strategic position of REEs in the defence industry amid rising geopolitical risks. While defence and AI infrastructure may not currently represent the largest segment of REE demand, their strategic importance to these sectors is poised to drive significant growth in the foreseeable future. China’s export restriction, albeit at a one-year pause, has spurred notable actions from other countries such as the investment by the US Department of Defence (DoD) in a fully integrated domestic rare earth company for national security purposes. The move has underscored the indispensable role of REEs in the defence industry.

Specifically, REE elements, not limited to those used in magnets, possess unique properties vital for advanced defense technologies. This encompasses a wide range of applications, such as precision-guided missiles, highly sensitive radar and resilient communication systems, advanced drones, and next-generation military aircraft and aerospace platforms.

Critical enabler in AI infrastructure. Every part of the AI supply chain – from data centres to semiconductor and chip-making equipment – use rare earths. Data centres use magnet REEs in hardware, cooling, and power, and erbium and ytterbium in fibre optics networks for optical amplification. Semiconductors rely on REEs for polishing, chip performance, and critical manufacturing equipment like lithography machines, vacuum systems, and robotic controls. Hence, as the world races for AI superiority, rare earth elements will remain a critical enabler at the heart of AI cycle.

Constrained supply - entrenched bottlenecks and structural fragility. The global rare earth supply chain remains heavily concentrated, with China maintaining its dominance across every major stage for magnet REEs – mining (59%), refining (91%) and magnet manufacturing (94%). This dominance is not merely a function of resource endowment, it reflects decades of vertically integrated development, technological expertise, state-directed industrial policy, and willingness to absorb environment externalities. China's established dominance in the rare earth market and its recent use of this position as a diplomatic tool, exemplified by export controls, have compelled other nations to recognise the critical nature of REEs and urgently pursue strategies to reduce their reliance on China.


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