It is the opening weeks of 2026 and the critical minerals landscape is starting to shift once again. Could the lithium-induced fever dreams of 2022 be a distant memory, replaced by something far more pragmatic, more expensive, and infinitely more strategic?
A recent Allens insight says the conversation has moved beyond simply digging it up and shipping it out. The industry is grappling with sovereign reserves, downstream refining dominance and a rare earths market finally stepping out of lithium’s long, volatile shadow.
As Allens rightly points out in their recent 2026 outlook, the rare earths sector has returned with a vengeance, but the rules of engagement have changed.
Lithium's post-mortem
To gain some perspective look at Lithium Boom 1.0 - a wild ride that ended in a heap of oversupply, shuttered projects and empty investor wallets.
Yet, as the clock ticks over into 2026, the lithium hangover appears to have cleared.
According to recent analysis from management consultant McKinsey, the sector has undergone a structural shift. Can the market maintain this newfound floor in pricing, or will the hard-learned lesson of capital discipline eventually fade?
"The lithium market in 2026 represents a structural inflection point," notes a recent McKinsey report.
"We are seeing demand diversification beyond just EVs (electric vehicles), with Energy Storage Systems (ESS) now taking up a massive 359 GWh of projected global installations this year."
The fantasy spot prices of yesteryear have been replaced by long-term contracts - and that often leads to a stable price structure where price fluctuations hinge more on production and demand metrics rather than speculation.
Analysts at J.P. Morgan Chase have recently revised their spodumene concentrate forecasts, eyeing a return from a bottom of $800/t toward $2,000/t by the end of the year - not due to a speculative bubble, but because the supply-demand gap for high-quality material is widening again.
A new magnet for capital?
While lithium has stabilised, rare earth elements (REEs) have emerged as the new front line. Allens highlights a surge in rare earths investments.
In just the first week of January this year, American producer MP Materials secured an additional $400 million investment from the Department of Defence to accelerate its $1.2 billion magnet campus in Texas.
Meanwhile, Canadian specialty materials producer Neo Performance Materials has just announced the first commercial output from its Estonia facility - Europe’s first mass-production magnet plant.
If lithium is the fuel of the green transition, could rare earths - specifically the magnet metals neodymium and praseodymium (NdPr) - be the actual engine?
The numbers coming out of the big banks are eye-watering.
Macquarie Group recently lifted its long-term NdPr price forecast to $110/kg, with a predicted peak of $120/kg by late 2026. Their thesis rests on a sustained supply deficit through 2027.
China's weapon
Analysts at Goldman Sachs Research have been sounding the alarm on supply concentration for years, and in 2026 the alarm is deafening. Despite billions of dollars in U.S. subsidies, China controls 92% of global rare earth refining and a staggering 98% of magnet production.
The Middle Kingdom frequently turns the rare earths supply chain taps on and off in retaliation to the U.S. in a protracted trade war that is part of an overarching battle between the two superpowers for supremacy.
And sometimes allied countries bear the brunt of the backlash.
The latest volley was directed at Japan, when earlier this month Beijing began restricting exports of strategic rare earths and permanent magnets specifically targeting Japanese enterprises.
Find out more: China hits Japan with export controls
In a recent outlook, Goldman Sachs warned that building an independent refinery takes five years, and a mine takes 10. They have identified samarium and terbium as particularly vulnerable to export restrictions - metals that are critical for heat-resistant magnets in aerospace and defence.
The market is pricing in sovereign risk like never before. Is this why we are seeing a divergence in valuations between projects in safe jurisdictions versus those in more complex regions?
Australia: Still a sandbox for superpowers?
While the narrative of execution is compelling for budding Australian rare earths miners, any seasoned resources writer knows that where there is a consensus, there is a risk of group-think.
Could the very tailwinds we celebrate - sovereign subsidies and high-price forecasts - be masks for deeper structural vulnerabilities?
For instance, the assumption that rare earths magnets are an irreplaceable pillar of the future is being challenged in science.
Researchers at Kearney’s PERLab highlighted a rapid acceleration in magnetless motor designs. Major automotive original equipment manufacturer (OEMs) are developing ferrite magnet-assisted and induction motors as a strategic hedge.
If the green premium for Western-sourced rare earths becomes too high, will manufacturers simply engineer the minerals out of the product altogether?
A provocative report from the Australian Institute of International Affairs suggests the push for critical minerals could be a trap for Australia, akin to its bulk export of raw materials such as iron ore and other industrial metals for China's mills instead of taking advantage further across the supply chain.
The report argues that by focusing so heavily on mineral extraction, Australia may be reinforcing its status as a quarry rather than building a high-tech, complex economy.
Sovereign risk and M&A
It seems though (following Trump's lead) that the Australian Government has finally stopped playing nice. In a move that reinforces the Allens lessons learned narrative, the Albanese Government’s 2025-26 Federal Budget allocated $1.2 billion to establish a Critical Minerals Strategic Reserve.
The slush fund for explorers is also a mechanism to decouple Australian producers from the volatility of Chinese-controlled spot markets.
Australian Mining Minister Madeleine King was blunt in stating that the reserve will provide vital support for Australian processing projects to ensure we remain at the centre of stable supply chains.
Is state-backed de-risking the most significant tailwind for the sector since the original Critical Minerals Strategy was penned?
Meanwhile, recent reports that Rio Tinto and Glencore are in discussions to merge their copper and critical mineral portfolios will no doubt domino into a flurry of other mergers and acquisition (M&A) deals. How will that change the mining landscape?
