Rare Earths: China and the Battleground for Defense, Technology and Energy

April 17, 2026 | (10 mins 17 secs)

In this episode of Metals in Motion, Steve Schoffstall focuses on rare earth minerals. He breaks down the massive supply-demand imbalance, China’s grip on the market and why governments are racing to build new supply chains. He explores how rare earths are emerging as strategic assets at the intersection of national security, energy transition and advanced technology, with demand underpinned by multi-trillion-dollar global investment trends.

For the latest standardized performance and holdings of Sprott Rare Earths Ex-China ETF, please visit REXC. Past performance is no guarantee of future results.

Video Transcript

Thalia Hayden: I'm Thalia Hayden with ETFguide. Today, the rare earth metals market is roughly $14 billion. It's on track to more than double by the mid-2030s. And to help investors understand these important materials, we're speaking with Steve Schoffstall, Managing Partner and Head of ETFs at Sprott Asset Management. Welcome back, Steve.

Steve Schoffstall: It's great to be back. Thank you.

Thalia Hayden: Good to see you. Rare earths are the silent engines behind our smartphones, EVs and defense equipment. They've also been called the vitamins of modern industry. What are rare earth elements, and what makes them so important to today's economy?

Steve Schoffstall: Rare earths are a group of 17 different elements. They're chemically similar. They have magnetic properties. We consider rare earths are a subset of critical materials, and you'll see them on many critical minerals lists across many countries. One important thing to note about rare earths is that they're not rare. What is rare is finding them in concentrations that make mining them economically viable. Because of their magnetic properties, rare earths are extremely important to many industries, including technology and defense.

Thalia Hayden: Now, let's focus on the demand side. What industry sectors are experiencing the greatest need for rare earths?

Steve Schoffstall: Artificial intelligence, defense and energy transition are three key industries that are driving growth in rare earths. The important thing to note about rare earths is that they're essential to many aspects of the economy. They can't be substituted, and that's what makes them so important.

When you look at the structural and strategic demand for rare earths, there's a lot of spending and investment happening behind the scenes. The investments in energy transition, artificial intelligence and defense have all increased by about 70% since 2020. Over $5 trillion of the global economy is being invested in these three key sectors.

When you look at defense, many current headlines show where rare earths are used, such as missile guidance systems, drones and anti-missile defense. The F-35 fighter jet uses 900 pounds of rare earths in each jet. In technology, it's used in AI data centers and robotics, particularly humanoid robotics, which is slated to be an expanding part of the overall robotics landscape.

In the energy transition, rare earths are used in applications such as EVs and wind turbines, where powerful magnets are essential for generating energy (in wind turbines) or powering the EV engine.

Thalia Hayden: Steve, China is often talked about in the same breath as rare earths. What role does China play in the rare earth supply chain?

Steve Schoffstall: This is an industry that the U.S. once dominated up until about the early 1990s. And since that time, China has been able to take control away from the U.S., whether through acquiring intelligence on how to separate and manufacture rare earths and magnets and the mining process. But all told, now China currently owns about 69% of all rare earth mining.

And when we look at refining and magnet production, it's well over 90%. China is a major player in the global rare earth market. What makes China so important is its history of seeking to weaponize its control over the supply chain for rare earths. They could do this in several different ways.

Just last year, on two occasions in April and October, we saw China impose export restrictions on a wide range of rare earths shipped to Western countries, including the U.S. We've seen in the past that they've pushed prices lower to keep new entrants out of the market, so they can continue to hold the leading position in rare earth production. It’s become a very important national and economic security concern. And that's why we're seeing the U.S. and like-minded allies look to reshore and friendshore this very valuable and important supply chain.

Thalia Hayden: With that said, what steps are Western nations taking to decrease dependence on China?

Steve Schoffstall: There are a couple of things that are happening at the moment. Last October, the U.S., Australia and Japan, separately through agreements, worked out frameworks to increase cooperation on rare earth production. This is important not only because it relates to financing new projects, but also because it highlights one of the problems plaguing mining: the long lead time in the permitting process for new mines.

It looks to ease that aspect. We also see that the European Union and the U.S. are working on a partnership related to critical materials, looking not only to invest in them but also to secure their supply chains. But we're seeing, in many cases, governments, particularly the U.S. government, looking to make direct investments in these rare earth miners.

We've seen that with MP Materials. Lynas Rare Earths, an Australian miner, has had some direct investment. This aligns the goals of this strategic and important supply chain aspect with national security concerns. Under these agreements, some are looking to purchase up to 10 years of rare earth output from these mines.

Something we haven't seen outside the last 12 months or so is price floors becoming an aspect of rare earth mining and production. And this is all geared toward providing some certainty around investing in the rare earth space. And that's where the U.S. has made some inroads on price floors.

There are also discussions at the EU and G7 levels to establish a price floor. A lot of moving parts here are all aimed at reducing China's importance in the global supply chain.

Thalia Hayden: The Sprott Rare Earths Ex-China ETF, ticker REXC, offers a unique investment approach. How is REXC different from its peer group, and what makes it a potentially compelling choice?

Steve Schoffstall: We're excited to bring this fund to market. It's the only ETF with a dedicated focus on rare earths, and it invests only in rare earth companies. On top of that, it highlights what we've come to be known for at Sprott: our pure-play methodology.

We have a 50% threshold for investing in various companies, including miners, development and exploration companies, refiners and separation companies. All of these are important aspects of the rare earth supply chain. Not only does it provide exposure to mining, but it also offers some exposure on the downstream side.

The third difference we see compared with other funds that provide exposure to rare earths is that ours has an explicit Ex-China focus. We've developed the index methodology because we believe the investment opportunity moving forward largely exists outside China.

That's where we see many of the investment headwinds. We wanted to make sure that was front and center. All told, the strategy has an allocation of about 95% to 96% to rare earths, which is way higher than what we see from other strategies. 

We're seeing a shift among existing ETF strategies, with some now positioning themselves as rare earth companies. In many cases, we're seeing they'll provide somewhere around 10% exposure, down to 6% for rare earths, which is a stark difference from the more than 95% afforded by REXC’s strategy.

Thalia Hayden: Final question, Steve, what role might REXC play inside a diversified portfolio that may already have broader exposure to other critical materials and mining stocks?

Steve Schoffstall: As you're aware, critical materials is a very broad category. When you start looking at things like uranium, for example, those types of funds wouldn't provide exposure to rare earths. Typically, we don't see much exposure to rare earths in those portfolios. And a lot of times, the exposure that investors do have has a significant weighting to China. REXC addresses the strategic importance of investing not only in rare earth companies but also in those companies outside China.

And we think there's an opportunity for investors who are already aware that rare earths have strategic importance, unlike many other metals we see. And that structural demand we're seeing can provide resilience during economic downturns. So that's another benefit we're seeing from rare earth investing as well.

Thalia Hayden: Steve, thanks so much for your timely insights, and keep up the great work.

Steve Schoffstall: Great. Looking forward to next time.

Thalia Hayden: See you next time. And that does it for today's episode of Metals in Motion. Thanks so much for joining us.