Rare Earth Elements Explained: Supply and AI Demand

What rare earths are, where they are mined and refined, how China's export controls work, and where AI hardware fits into demand.

Rare earths are 17 metallic elements that are common in the Earth's crust but rarely concentrated enough to mine cheaply. Their main job is making permanent magnets, which account for about 95% of rare earth consumption by value, according to the IEA. The supply issue is less about mining than about separation, refining and magnet making, where China's share is above 90%.

What rare earths are

The group covers the 15 lanthanides plus scandium and yttrium. They behave so similarly in chemistry that separating one from another takes many processing stages, which is the expensive and technically hard part of the business.

The US Geological Survey splits them into light and heavy groups. The heavy rare earths, in order of atomic number, are terbium, dysprosium, holmium, erbium, thulium, ytterbium and lutetium. Heavies are less abundant and more valuable per kilogram.

The IEA singles out four magnet rare earths as the most strategically important:

Neodymium and praseodymium (often sold together as NdPr oxide), the main ingredients in neodymium-iron-boron magnets.
Dysprosium and terbium, heavy rare earths added in small amounts so magnets keep their strength at high temperatures.

Rare earths are often confused with other critical minerals used in chips, such as gallium and germanium. Those are separate elements with their own supply chains.

Where they come from

Mine output is more spread out than most people assume. Refining is not. Here is the USGS picture, in tonnes of rare earth oxide equivalent, published February 2026.

Country	Mine production 2025 (est.)	Reserves
China	270,000	44,000,000
United States	51,000	1,900,000
Australia	29,000	6,300,000
Burma	22,000	Not available
Thailand	4,800	Not available
Brazil	2,000	11,000,000
Canada	0	830,000
World total (rounded)	390,000	Over 75,000,000

The IEA's figures for 2024 show how concentration rises along the chain. China accounted for about 60% of magnet rare earth mining, 91% of refined output and 94% of sintered permanent magnet production. Its magnet share was about 50% in 2005. In 2024 China exported 58,000 tonnes of rare earth magnets.

Canada has resources but little production. The USGS estimates measured and indicated rare earth resources in Canada at more than 14 million tonnes. In September 2024 the Saskatchewan Research Council, a provincial Crown corporation, said its Saskatoon facility had produced NdPr metal at commercial scale, and said it expected capacity of about 400 tonnes a year once fully operational. For the federal funding side, see Canada's critical minerals strategy.

Why AI hardware needs them

AI does not run on rare earths the way it runs on silicon and copper. The link is through magnets and motors. The IEA lists AI data centres, electronics and hard disk drives among the uses of rare earth permanent magnets. Hard drives, which still store much of the data that AI systems train on, rely on rare earth magnets. Data centre cooling relies on fans, pumps and chillers driven by motors, and FP Analytics, citing the IEA, lists magnets in data centre cooling fans as a rare earth use.

The same FP Analytics report cites IEA analysis that data centre buildout could add roughly 3% to global rare earth demand by 2030. That is small next to electric vehicles, wind turbines and industrial motors. The practical point is that data centres compete for the same magnet supply as those larger users. The IEA expects demand for magnet rare earths, which has doubled since 2015, to rise by about another third by 2030.

Export controls: the dated record

April 2025: China added export controls on samarium, gadolinium, terbium, dysprosium, lutetium, scandium and yttrium, covering metals, oxides, alloys and compounds.
October 2025: China expanded controls to europium, holmium, erbium, thulium and ytterbium, and, per the IEA, to products made abroad containing Chinese rare earths.
November 2025: China suspended the October measures for one year. The April controls stayed in place, though China began issuing general export licences to selected exporters, according to the USGS.

The IEA estimated that full implementation of the 2025 controls would put about US$6.5 trillion a year of downstream production outside China at risk, across autos, high tech, defence and energy.

By the numbers

A worked comparison using the sources above:

China's share of 2025 mine output: 270,000 divided by 390,000 is about 69%.
China's share of refining in 2024: 91%. Of sintered magnets: 94%.
Average NdPr oxide price reported by the USGS: $124 per kg in 2022, $55 in 2024 and $69 in 2025 (free on board).
Average terbium oxide price reported by the USGS: $812 per kg in 2024 and $1,010 in 2025. Dysprosium oxide: $257 and $239.
US net import reliance for rare earth compounds and metals: 67% in 2025, down from more than 95% in 2021 and 2022.

The price spread between light and heavy rare earths is also worth doing. At 2025 averages, terbium oxide at $1,010 per kg against NdPr oxide at $69 is a ratio of about 15 to 1. Magnet makers use heavies in small amounts, but each kilogram carries far more value, and several heavies were among the elements covered by the April 2025 controls.

The gap between 69% of mining and 94% of magnets is the whole story. A country can dig up rare earths and still send them to China to be turned into something useful. The IEA's 2026 outlook also noted that European prices for dysprosium and terbium were about five times Chinese domestic prices, a gap created by the controls.

What to watch

November 2026, when China's one-year suspension of its October 2025 controls runs out.
The USGS Mineral Commodity Summaries 2027, normally released in late January or February.
IEA Global Critical Minerals Outlook updates on refining and magnet concentration.
Announcements of separation and magnet capacity outside China, including in Canada.

Sources

Frequently asked questions

What are rare earth elements used for?

Rare earth elements are mainly used to make permanent magnets, which the IEA says account for about 95% of rare earth consumption by value. Those magnets go into electric vehicles, wind turbines, industrial motors, electronics, hard disk drives, defence systems and AI data centres. Other uses include catalysts, glass, ceramics, polishing and metallurgical alloys, according to the USGS.

Which country produces the most rare earths?

China produced an estimated 270,000 tonnes of rare earth oxide equivalent in 2025, out of a world total of about 390,000 tonnes, according to the USGS. The United States was second at 51,000 tonnes and Australia third at 29,000. China's lead is larger in processing: 91% of refined output and 94% of sintered magnets in 2024.

Why does AI need rare earth elements?

AI hardware needs rare earths mainly through permanent magnets. The IEA lists AI data centres and hard disk drives among magnet uses, and FP Analytics also points to magnets in data centre cooling fans. FP Analytics, citing the IEA, says data centre buildout could add roughly 3% to rare earth demand by 2030.

Rare Earth Elements Explained: Where They Come From and Why AI Needs Them