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Rare earth metals are the lifeblood of AI technology development.
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Barclays finds the market very concentrated
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Spinning demand for major minerals could lead to a surge in prices.
The AI competition is a competition for physical resources, because it is a competition to maximize computing power.
The AI boom has strengthened new demand for rare earth minerals, a key component of cardiac AI technology and hardware, but the global market for these materials is very complex and easily disruptive.
"These scarce, highly concentrated inputs are extremely vulnerable to disruption, making them a new battlefield for the supremacy of artificial intelligence," Barclays analysts said in a note published on Friday.
In a detailed analysis, banks outline the imbalance in rare earth trade, which means serious consequences for price and technological advances
These elements are unique for their magnetic properties and are the lifeblood of semiconductor and data center technologies. However, key metals such as copper, lithium, aluminum, nickel and cobalt are controlled by only a few market participants.
Three things to know about the metal market to understand the AI boom.
What is not controversial is that the rare earth market is very concentrated.
China is China, and its dominance in mining and processing makes it "nearly monopoly."
"China is a leading global supplier of refined minerals, offering nearly 80% processed cobalt, 65% refined lithium, 44% refined copper and 27% refined nickel," the bank wrote. "Overall, it directs nearly 50% of the global refined mineral market."
Beijing is well aware of its leverage in this field. China has fought back against export controls of rare earth metals after Donald Trump released huge tariffs last month.
According to the Center for Strategic and International Studies, the United States is particularly vulnerable to rare earth extrusions. Currently, no heavy rare earth separation has occurred in the United States. Losing access to these materials has implications for everything from chip production to defensive manufacturing.
However, there may be room for breathing on the road. China may hold the royal family when it comes to refined metals and magnetic minerals, but other countries are gaining a foothold in the trade of unprocessed minerals.
Chile, the Democratic Republic of the Congo and Guinea are the leading producers, each of which dominates a particular ore. These countries have been focusing on improving mining capacity, and Guinea's aluminum exports have increased twelve times since 2010.
"By developing reliable supply chains for critical minerals, emerging and developing countries can gain geopolitical leverage. They can ensure strategic advantages by establishing trade relations and alliances with technology economies such as the United States, the EU and Japan," the bank said.
The United States has shown its willingness to participate. This week, a deal was reached with Ukraine that privileged Washington access to the country's resources, including metals and minerals that are crucial to AI.
Primitive Earth metal is an important part of a large number of technologies, whether it is electric vehicles, renewable energy, AI data centers or military equipment.
But investors have not yet fully awakened the fact, Barclays said.
“There must be imported scarce minerals and demand is expected to increase by 500% by 2050, which could make copper, lithium and nickel more valuable than oil and gas,” the analyst wrote. “The rising demand for these minerals over the next decade may drive prices – a topic that the market has not yet fully focused on.”
Prices have been falling over the past two years, reflecting a combination of highs and large inventory in the Covid era. Barclays noted that this is not necessarily a positive thing, as the sluggish price discourages more investments needed to meet future demand.
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