Rare earth: The engine behind modern technologies is in high demand

• China’s tighter rare earth controls have reignited US-China trade tensions, highlighting the strategic importance of these materials.

• Rare earth elements are essential for high-value technologies, from green energy, AI hardware, and healthcare to national defence, with restrictions adding pressure on other economies.
• Global efforts are underway to build a China-free supply chain, led by the G7 and Quad. While the US has invested billions, China’s dominance remains unchallenged in the near term.

• NdPr oxide prices indicate the sector has entered an upward cycle, supported by geopolitical shifts, policy tailwinds, and structural demand.

• Investors can gain exposure via the VanEck Rare Earth and Strategic Metals ETF (REMX). Our FY 2027 target price for the ETF is USD 96, implying a 38% upside.

A new front has opened in US-China tensions — the battle over rare earth elements (REEs).

REEs, a group of 17 critical minerals essential to high-tech manufacturing and green energy technologies (Figure 1), have come under the spotlight after China imposed export restrictions in April on seven of them: Samarium, Gadolinium, Terbium, Dysprosium, Lutetium, Yttrium and Scandium. The move, seen as a calculated response to Washington’s sweeping tariff measures, pushed the US to return to the negotiating table in Geneva. The talks helped China secure a temporary trade truce extension until November 2025.

However, on 9 October, Beijing took another step by tightening export controls on five additional REEs – Holmium, Europium, Ytterbium, Thulium and Erbium – and introducing a new “0.1% rule.” The rule requires foreign companies to obtain a Chinese export licence for any product manufactured abroad if it contains Chinese-origin rare earth metals or oxides that make up 0.1% or more of the item’s total value.

The new measure represents an unprecedented tightening of Chinese oversight across global manufacturing supply chains. The move also prompted US President Trump to threaten an additional 100% tariff on Chinese imports, escalating concerns of a renewed trade confrontation between the world’s two largest economies.

Figure 1: The 17 rare earth elements in the periodic table

REEs are the backbone of modern economies

The applications of REEs are so extensive that China’s export restrictions could have far-reaching effects. Categorised by atomic weight, REEs are broadly divided into light and heavy elements.

Among the restricted light REEs, Samarium is used in high-performance electronic components, while Gadolinium plays a crucial role as a contrast agent in MRI scans.

On the heavier end, rare earths are essential to a wide range of high-value applications, from clean energy technologies such as wind turbines and electric vehicles to advanced defence systems, that demand materials capable of performing under extreme conditions (Table 1).

Table 1: REEs restricted by China and some of their strategic applications

Sectors	Applications on restricted REEs
Clean Energy	Wind turbines: Dysprosium improves the performance and durability of generators. EV motors: Dysprosium and Terbium enhance high-temperature performance. Nuclear: Gadolinium is used in control rods to regulate chain reactions, while Erbium oxide absorbs excess neutrons to stabilise fission.
Defence & Aerospace	Missiles: Samarium and Dysprosium are used for their high-temperature stability and magnetic properties. Aircraft & spacecraft: Scandium makes aluminium alloys light, stronger and durable, increasing performance. Night vision devices: Terbium amplifies light.
AI hardware	GPU: Gadolinium is used to control heat. Semiconductor: Terbium is used for doping semiconductors. Data centres: Yttrium-based superconductors can boost energy savings.
Healthcare	MRI: Gadolinium is used as a contrast agent to enhance imaging clarity. X-ray:  Terbium contributes to sharper images in X-ray and imagining devices. Lasers and treatment: Yttrium and Thulium produce laser for different diagnostic and therapeutic applications.

The temporary suspension of rare earth exports in May sent ripples through the electric vehicle (EV) industry. US automakers such as Ford were forced to halt production of their Explorer SUV at the Chicago plant for a week due to a shortage of critical materials. Rivian Automotive reported a 22% year-on-year decline in vehicle deliveries and larger-than-expected losses in 2Q25, citing higher costs linked to the disruption in rare earth supplies essential for EV components.

Beijing’s latest rules have introduced stricter export curbs on materials linked to foreign military applications. Under the new framework, export licences for substances that could be used in weaponry, radar systems, or other defence technologies will be denied outright. The move has raised concerns that major US defence contractors, including Lockheed Martin and Raytheon Technologies, may face production disruptions, potentially forcing costly product redesigns or the development of alternative materials to replace restricted rare earth inputs.

The impact also extends beyond defence into emerging technologies. The global semiconductor supply chain is bracing for disruptions, as rare earths are essential for memory chips and advanced lithography equipment, including ASML’s EUV machines. Meanwhile, next-generation innovations such as humanoid robots will require substantial amounts of Neodymium–Praseodymium (NdPr) magnets. According to the International Energy Agency, global demand for rare earths is projected to rise by around 65% by 2040 from 2024 levels, highlighting the growing strategic importance of these materials.

Figure 2: Global demand for rare earth elements is projected to increase by 65% by 2040

In essence, rare earth elements (REEs) determine who controls the technologies and weaponry that underpin modern power. While the US can restrict China’s access to advanced semiconductor chips, Beijing holds leverage upstream, dominating the supply of critical materials needed to produce them. The contest between the two superpowers now spans the entire technological value chain, from raw materials to finished innovation.

China’s dominance in rare earths drives global supply chain diversification

China’s leverage on REEs stems from being the largest player in mining, processing, and refining. In 2024, China produced 270,000 metric tons of rare earth oxide, representing 69% of global output. While the US came in second place at 45,000 metric tons, it is still six times less than China (Figure 3).

China also holds the world’s largest REE reserves, estimated at 44 million metric tonnes of rare earth oxide, nearly half of the world’s total, compared with just 2% for the US (Figure 4). But China’s advantage goes far beyond mining. It possesses unrivalled technical expertise in solvent extraction, a complex and critical stage of rare earth separation where Western firms continue to lag due to limited skilled labour and technologies. Lynas Rare Earths of Australia remains the only major non-Chinese separator, focusing mainly on light REEs at its Malaysian facility.

As a result, China stands as the only nation with a fully integrated “mine-to-magnet” supply chain, capable of producing all 17 rare earth elements, a position that reinforces its strategic control over this essential industry.

Figure 3: China accounted for 69% of global REEs production in 2024

Figure 4: China also holds an estimated 48% of the world’s rare earth reserves

In response, other countries are accelerating efforts to build a China-free supply chain. The G7 and other international bodies have prioritised standardisation of critical minerals markets. The Quad nations comprising Australia, India, Japan and the US, also launched the Quad Critical Minerals Initiative in July, aiming to reduce reliance on China through coordinated action. Australia and India play a central role due to their rich mineral reserves and, in Australia’s case, substantial refining capacity. Japan has expanded its lithium cooperation with Australia, while India has expedited domestic approvals and signed new bilateral supply agreements across Africa and Central Asia.

The US government is also pursuing a resilient domestic supply chain. Recent initiatives include USD 400 million in MP Materials, acquiring 5% stakes in Lithium Americas and its Thacker Pass JV with General Motors, set to become the largest lithium source in the Western Hemisphere, and supporting emerging players like USA Rare Earth. There is also consideration to reallocate at least USD 2 billion from the Chips Act to fund critical minerals projects.

Establishing a fully independent rare earth supply chain is far from straightforward. Globally, opening a new mine takes 18 years on average, and as long as 29 years in the US, as stringent ESG requirements and lengthy permitting processes slow progress. Even projects fast-tracked under the FAST-41 program can still take up to a decade to become operational. Even scaling existing operations faces bottlenecks in separation, refining, and magnet production. For instance, MP Materials’ Texas NdPr oxide production scaled up 119% to 597 metric tons in 2Q25, yet this still represents less than 1% of China’s output. Even with pilot facilities, commercialisation requires substantial time, capital, and R&D, while magnet manufacturing remains China-dominated.

Meanwhile, Chinese researchers are improving efficiency, with pilot methods reportedly cutting mining time by 70%, electricity use by 60%, and boosting recovery rates above 90%, highlighting Beijing’s ongoing structural advantage.

In the short term, China’s dominance is unlikely to be challenged, while medium- to long-term diversification will depend on sustained Western government support and R&D capabilities. Yet, stricter Chinese export rules may accelerate innovation, pushing the development of a more resilient, China-independent supply chain.

Earnings set for rapid recovery in the rare earth sector

NdPr oxide, a core revenue driver for mining and processing companies, has surged 41% year-to-date to CNY 562,000 per ton by the end of September. The rise reflects China’s tightened export controls and sustained demand from wide industrial applications. Adding to the upside, the US Department of Defence has committed to a floor price of USD 110 per kilogram for NdPr oxide to incentivise domestic producers, roughly 40% above the end-September market price. Similar measures are expected from other G7 countries, including Australia.

The resulting supply-demand imbalance and price support is likely to further lift oxide prices, translating into higher earnings and margins for companies along the rare earth supply chain. To put this in perspective, when NdPr oxide prices jumped 203% from CNY 279,000 in January 2020 to CNY 711,000 at the end of 2021, the earnings of the MVIS Global Rare Earth/Strategic Metals Index surged 221% (Figure 5).

As a leading earnings indicator, the current recovery in NdPr oxide prices suggests that the sector has entered an upward cycle, supported by geopolitical shifts, policy tailwinds, and long-term structural demand.

Figure 5: NdPr oxide prices have risen sharply YTD

VanEck Rare Earth and Strategic Metals ETF: A gateway to the growing REE market

One way for investors to capture this trend is through the VanEck Rare Earth and Strategic Metals ETF (NYSE: REMX). The ETF seeks to replicate the MVIS Global Rare Earth/Strategic Metals Index, which tracks companies that are integral to the global production, refining, and recycling of rare earth and strategic metals.

As of 30 September 2025, China accounts for the largest country allocation at 27.6%, but the ETF also provides exposure to countries building diversified supply chains, including Australia (23.6%) and the US (20.1%) (Figure 6).

Figure 6: The REMX ETF has sizeable allocations to China, Australia and US

REMX offers holistic exposure across the entire REE and critical materials value chain. Leading players include China Northern Rare Earth Group, a fully integrated “mine-to-magnet” producer, US-based MP Materials, and Australia’s Lynas Rare Earths, both expanding their midstream and downstream capabilities. The next six companies in the ETF’s top holdings focus on lithium and battery-grade chemicals, central to green energy applications, while Iluka Resources in Australia provides mineral sands feedstock.

As such, investing in REMX gives exposure to not only to rare earths, but also a broad range of critical materials essential for advanced technologies, clean energy, and defence applications. This offers a diversified way to participate in a structurally growing sector.

Table 2: Top 10 constituents of the REMX ETF

Company	Geographic Allocation	Weight
MP Materials Corp	US	7.48%
Lynas Rare Earths Ltd	Australia	7.16%
China Northern Rare Earth Group High-Te	China	6.76%
Pilbara Minerals Ltd	Australia	6.62%
Lithium Americas Corp	US	6.49%
Albemarle Corp	US	6.24%
Ganfeng Lithium Group Co Ltd	China	4.98%
Liontown Resources Ltd	Australia	4.96%
Sociedad Quimica Y Minera De Chile Sa	US	4.91%
Iluka Resources Ltd	Australia	4.46%
Source: VanEck, iFAST compilations. Data as of 30 September 2025.

Beyond capturing policy-backed growth and structural demand for advanced technologies, the rare earth sector can also serve as a portfolio diversifier. Its correlation with the S&P 500 Index is relatively low at 0.37, with a beta of 0.34, indicating lower volatility relative to the US market.

Despite rallying more than 80% year-to-date, the sector remains roughly 40% below its historical peak, suggesting room for further upside. As the sector enters a new upcycle, supported by structural tailwinds from high-tech demand and policy initiatives accelerating development, a one-standard-deviation premium above the historical average P/E of 22X from 2017 to present appears reasonable for valuation purposes.

Based on a fair PE of 33X, we estimate the MVIS Global Rare Earth/Strategic Metals Index could reach USD 770, representing a 38% upside, which translates to a target price of around USD 96 for the REMX ETF. We recommend REMX as a tactical play for investors seeking exposure to this growing and policy-supported sector.

Table 3: MVIS Global Rare Earth/Strategic Metals Index’s earnings projections

	2024	2025E	2026E	2027E
PE Ratio	72.0	60.7	49.9	23.9
Earnings Growth	-78.2%	18.7%	21.6%	108.6%
EPS	7.8	9.2	11.2	23.3
Projected Fair Price (Based on fair PE ratio of 33X)				770
Upside				38%
Source: Bloomberg Finance L.P., iFAST Compilations. Data as of 21 Oct 2025.

Figure 7: Index price vs. EPS

Declaration:

For specific disclosure, at the time of publication of this report, the analyst who produced this report held a position in VanEck Rare Earth and Strategic Metals ETF (NYSE: REMX). IFPL (via its connected and associated entities) holds a NIL position in the abovementioned securities.