As artificial intelligence continues its meteoric rise across industries, a less visible but equally crucial competition is unfolding beneath the surface. While headlines focus on breakthrough algorithms and computing achievements, the physical resources powering these technologies—specifically rare earth metals and critical minerals—are increasingly becoming the silent kingmakers in the global AI race.
A recent Barclays report published last Friday unveils the complex and potentially volatile landscape of these essential resources, highlighting how the market’s extreme concentration could significantly impact the future of technological innovation. The findings reveal that the AI boom isn’t merely a battle of intellectual property and computational prowess but also a strategic competition for control of tangible, finite resources.
The Fundamental Role of Rare Earth Metals in AI Development
Rare earth metals have earned their designation as the “lifeblood” of AI technology development for good reason. These elements, prized for their unique magnetic and conductive properties, are essential components in the hardware that powers advanced computing systems. From the semiconductors enabling complex calculations to the massive data centers processing unprecedented volumes of information, these materials form the physical foundation upon which the digital AI revolution stands.
The significance of these resources extends far beyond their technical applications. As the Barclays analysts aptly noted, “These scarce, highly concentrated inputs are extremely vulnerable to disruption, making them the new battlegrounds for AI supremacy.” This observation underscores how the race for AI dominance has transcended software development to encompass control over physical supply chains.
Critical metals such as copper, lithium, aluminum, nickel, and cobalt play distinct but vital roles in various aspects of technology infrastructure. Copper, with its superior conductivity, forms the backbone of electrical systems powering data centers. Lithium enables energy storage in batteries that provide backup power to critical systems. Aluminum helps with thermal management in computing hardware, while nickel and cobalt contribute to various components essential for the smooth functioning of advanced technologies.
The unique properties of rare earth elements—particularly their magnetic qualities—make them irreplaceable in many technological applications. These properties cannot be synthetically replicated at scale, creating a dependency that has profound implications for global technology development and geopolitical positioning.
China’s Commanding Position in the Rare Earth Market
Perhaps the most striking revelation from the Barclays analysis is the extraordinary level of market concentration in the rare earth sector. China stands as the unrivaled dominant force, wielding influence that approaches monopolistic proportions across multiple dimensions of the supply chain.
The figures are remarkable: China provides approximately 80% of processed cobalt globally, 65% of refined lithium, 44% of refined copper, and 27% of refined nickel. When viewed holistically, China commands nearly 50% of the global refined minerals market—a position of extraordinary leverage in an increasingly resource-dependent technological landscape.
This dominance extends beyond mere processing capabilities. China has strategically positioned itself throughout the entire value chain, from mining operations to advanced refining processes. This vertical integration gives Beijing unprecedented control over materials that have become essential to modern technological advancement.
The Chinese government clearly recognizes the strategic advantage its position affords. Following President Donald Trump’s implementation of steep tariffs, China responded with a calculated countermeasure: export controls on rare earth metals. This move demonstrated China’s willingness to leverage its resource dominance as a geopolitical tool when necessary.
The vulnerability created by this market concentration is particularly acute for the United States. According to the Center for Strategic and International Studies, America currently lacks domestic capabilities for heavy rare earth separation—a critical process in preparing these materials for technological applications. This gap creates significant exposure should access to Chinese supplies be restricted, with potential impacts ranging from semiconductor production to defense manufacturing.
Emerging Players in the Global Resource Landscape
While China maintains overwhelming dominance in refined metals and magnetic minerals, the global landscape for unprocessed materials presents a somewhat more diversified picture. Several countries have established significant positions in the extraction phase of critical resources, potentially creating alternative supply channels in the future.
Chile has emerged as a powerhouse in copper production, while the Democratic Republic of Congo plays a crucial role in cobalt extraction. Guinea has dramatically expanded its presence in aluminum production, with exports increasing twelvefold since 2010. These nations have focused on enhancing their mining capabilities, gradually carving out specialized niches in the global resource marketplace.
The potential geopolitical implications of this diversification are significant. As the Barclays report notes, “By developing reliable supply chains for critical minerals, emerging and developing countries could gain geopolitical leverage. They could secure strategic advantages by forming trade relationships and alliances with tech-heavy economies such as the US, the EU, and Japan.”
Advanced economies are increasingly recognizing the necessity of securing access to these resources through strategic partnerships. A recent agreement between the United States and Ukraine exemplifies this approach, granting Washington privileged access to Ukrainian resources, including metals and minerals vital for AI development. This deal illustrates how resource access is increasingly shaping international relations and strategic alliances.
Market Dynamics and Future Price Projections
Despite their critical importance to cutting-edge technologies, rare earth metals and critical minerals have not yet captured investor attention proportionate to their significance. The Barclays analysis suggests this disconnect may soon change dramatically.
“Scarce minerals must be imported, with demand expected to rise 500% by 2050, potentially making copper, lithium, and nickel more valuable than oil and gas,” the analysts write, highlighting the extraordinary growth trajectory anticipated for these resources. “Over the next decade, rising demand for these minerals could drive prices up—a theme to which the market has yet fully to pay attention.”
This projection represents a fundamental shift in how we value resources in the global economy. The suggestion that these minerals could eventually surpass traditional energy commodities in value underscores the profound transformation of economic priorities in a technology-driven world.
Recent price trends for these materials have actually moved downward, representing a correction from pandemic-era highs and reflecting temporarily abundant inventories. However, Barclays cautions against interpreting this as a positive development for the industry. The depressed pricing environment has discouraged investment in new production capacity precisely when the foundations for meeting future demand should be established.
This underinvestment creates the conditions for potentially dramatic price increases when current inventories are depleted and demand growth accelerates. The combined effect of rising consumption and constrained supply could create significant price volatility in the coming years, with implications for everything from consumer technology prices to national security considerations.
Applications Beyond Artificial Intelligence
While AI development represents a significant driver of demand for rare earth metals and critical minerals, their applications extend across numerous high-tech and green energy sectors. Electric vehicles rely heavily on these materials for battery technology and motor components. Renewable energy systems, including wind turbines and solar panels, incorporate various rare earth elements in their designs.
Military and defense applications represent another crucial domain dependent on these resources. Advanced weapons systems, communications equipment, and navigation technologies all require specific rare earth components to function. This creates an additional layer of strategic importance beyond commercial considerations.
The breadth of applications underscores why access to these materials has become a matter of national security for many countries. The transition to green energy, maintenance of military capabilities, and development of advanced technologies all hinge on reliable access to these increasingly contested resources.
The Path Forward: Diversification and Innovation
As awareness of resource constraints grows, several approaches are emerging to address potential supply challenges. Recycling initiatives aim to recover valuable materials from discarded electronics and other products, creating a circular supply chain less dependent on new extraction. Research into alternative materials that could potentially substitute for rare earths in certain applications continues, though finding perfect replacements remains challenging.
Government-backed strategic reserves represent another approach, with countries building stockpiles of critical materials to buffer against supply disruptions. Investment in domestic processing capabilities is also gaining momentum in countries seeking to reduce dependency on foreign refiners, particularly China.
The coming decade will likely see increasing attention to this dimension of technological development as the physical constraints on digital innovation become more apparent. For companies and nations alike, securing reliable access to these critical materials will become as important as developing the software and systems they enable.
As the AI revolution continues its rapid advance, the physical foundations upon which it depends will increasingly shape its trajectory and determine which players ultimately prevail in the race for technological supremacy.
Acknowledgment: This article was written with the help of AI, which also assisted in research, drafting, editing, and formatting this current version.
