The very minerals powering our clean power revolution are about to hit a supply wall that makes the semiconductor shortage look like a gentle hiccup. However, ex-China actors may just be starting to pull their socks up and get things moving.
Here's the rub: demand for these obscure but critical elements is set to triple by 2035, driven by the EV boom and renewable power targets that governments have been trumpeting for years.
Meanwhile, a looming 30% supply shortfall is exposing just how dangerously dependent the world has become on China's stranglehold over these markets.
For investors watching the metals and mining sector, this spells both big trouble and bigger opportunities.
Demand drivers are hitting fifth gear
Rare earth elements might sound like something out of a sci-fi movie, but they're the unsung heroes of the power transition - especially magnetic REEs.
The global rare earths market clocked in at US$3.95 billion in 2024 and is on track to be worth US$4.15 billion in 2025.
Global demand for magnetic rare earths is expected to triple from 59 kilotons (kt) in 2022 to 176 kt in 2035.
Electric vehicles are the main culprit here, devouring neodymium and praseodymium oxides at an alarming rate, outpacing the substite copper coil magnets, as well as the high rate of renewable capacity expansion in wind.
The currently announced project pipeline could fall short of demand requirements by 60 kt, or roughly 30% of total estimated demand by 2035.
Not quite the ideal scenario, as the world chases net-zero targets with the fervour of a gold rush prospector.
Supply hurdles keep mounting higher
China controls a staggering 91% of global refining capacity, a dominance that's expected to drop only to 73% by 2040, even as other countries scramble to catch up.
Beijing's export curbs on seven critical elements, rolled out in April 2025 as a direct response to United States tariffs, were like a shot across the bow compared to what it could do with rare earths.
The Instant shortages that followed sent a clear message: when China sneezes, the rare earth market catches pneumonia.
And with China and America vying to dominate the new world order that artificial intelligence heralds, this is a big problem for the West.
Governments need to bulk up strategic stockpiles and financial incentives, following frameworks like the G7's 2025 Critical Minerals Plan.
And businesses must dive headfirst into R&D for automated dismantling and alternative materials to bridge the gaps.
There's good news though, changes are being made.
Recycling isn't pulling its weight …yet
Post-consumer scrap is forecast to reach 81 kilotonnes by 2035, but technological barriers mean much of this potential windfall goes untapped.
However, here's where things get interesting for forward-thinking investors.
Recycling could actually generate a significant additional supply - a massive opportunity that's currently being wasted because most magnets end up as slag in iron smelters rather than being properly recovered.
“The REE value chain is expected to generate about 40 kt of pre-consumer scrap, originating from magnet design and manufacturing steps, as well as 41 kt of post-consumer scrap from various end uses reaching end of life,” McKinsey says.
“In light of environmental issues during mining and processing as well as operational challenges to get primary capacities online, secondary REEs could be an option to increase sustainable sources of supply.”
The scrap landscape will be shifting dramatically too.
Today, over 80% of rare earth waste comes from small magnets in smartphones and appliances, but by 2050 the real treasure trove will be larger magnets from electric vehicles and wind turbines - these contain higher shares of valuable heavy rare earths and could revolutionise the economics of recycling.
Governments finally step up their game
The U.S. Department of Defence has poured over US$439 million into domestic supply chains since 2020, treating rare earths with the urgency typically reserved for wartime logistics.
The July 2025 deal that funnelled US$400 million into MP Materials was a watershed moment, with the company eyeing full defence coverage by 2027.
Meanwhile, the European Union is working overtime to diversify its critical minerals supply chains through partnerships with resource-rich countries whilst simultaneously reducing dependency on any single supplier under its Critical Raw Materials Act - a delicate balancing act that requires diplomatic finesse.
Australia has taken legal swings at Chinese-linked investors to protect its rare earth ventures under new economic security rules, whilst India is tapping into its own reserves with ambitious plans to produce 13,000 tonnes annually by 2032.
Market dynamics are reshaping the landscape
Smart companies aren't waiting for governments to solve this puzzle.
Australian REE heavyweight Lynas Rare Earths expects price increases following the U.S. endorsement of MP Materials (NYSE : MP), and the company exceeded Q4 FY25 revenue forecasts by 10% - a performance that has investors taking notice.
Circular economy approaches are catching momentum, with outfits like Cyclic Materials securing US$2 million in funding for recycling initiatives back in February 2025.
These aren't just feel-good sustainability plays - they're strategic moves to create alternative supply sources that could fundamentally reshape the market dynamics.
The recycling opportunity is enormous but technically challenging and these moves hint at growing investor confidence in Western alternatives, though volatility will likely persist in this increasingly fractured market.
While pre-consumer scrap from magnet manufacturing gets recovered efficiently in China, the real prize lies in developing cost-effective ways to extract rare earths from the growing mountain of discarded electronics and, eventually, end-of-life electric vehicles.
MP Materials has cemented its position as America's rare earth frontrunner after the recent deal, with shares surging over 270% year-to-date as of late July 2025.
And Lynas is trading at $10.77, earning "buy" upgrades with $10 price targets from analysts who see the tug-of-war against China's dominance as a long-term opportunity.
The rare earth supply crunch isn't just another commodity cycle and the companies and countries that get this right will own the next decade. Those that don't will be left buying from whoever does - at whatever price they choose to charge.
