The Crucial Role of Rare Earth Metals in AI Development
The artificial intelligence boom is driving a surge in demand for rare earth minerals, essential components in AI technology and hardware. However, the global market for these materials is highly concentrated and vulnerable to disruption. “These scarce, highly concentrated inputs are extremely vulnerable to disruption, making them the new battlegrounds for AI supremacy,” Barclays analysts warned in a recent report.
China’s Dominance in the Rare Earth Market
China stands out as the leading global supplier of refined minerals, providing close to 80% of processed cobalt, 65% of refined lithium, 44% of refined copper, and 27% of refined nickel. This gives China a “near monopoly” over the global refined minerals market, commanding close to 50% of the total market share.
The United States is particularly vulnerable to a rare earth squeeze, as there is currently no heavy rare earth separation occurring in the US. Losing access to these materials could have significant implications for chip production, defense manufacturing, and other critical industries.
Emerging Players in the Rare Earth Market
While China dominates the refined metals and magnetic minerals market, other countries are developing a foothold in the trade of unprocessed minerals. Chile, the Democratic Republic of Congo, and Guinea are among the leading producers, each specializing in specific ores. These countries have been improving their mining capabilities, with Guinea’s aluminum exports growing twelvefold since 2010.
By developing reliable supply chains for critical minerals, emerging and developing countries could gain geopolitical leverage and secure strategic advantages by forming trade relationships with tech-heavy economies like the US, EU, and Japan. The US has already shown its willingness to engage, reaching a deal with Ukraine that grants Washington privileged access to the country’s resources, including metals and minerals vital for AI.
Potential Price Surge for Rare Earth Metals
Raw earth metals are crucial components for various technologies, including electric vehicles, renewable energy systems, AI data centers, and military equipment. Despite their importance, investors haven’t fully recognized their value, according to Barclays. The bank projects that demand for these minerals could rise by 500% by 2050, potentially making copper, lithium, and nickel more valuable than oil and gas.
Over the next decade, rising demand for these minerals could drive prices up, a trend that the market has yet to fully acknowledge. Although prices have been declining over the past two years due to a correction from COVID-era highs and abundant inventories, this isn’t necessarily positive. Slumping prices have discouraged the investment needed to meet future demand, potentially setting the stage for a future price surge.
