Critical Metals: A.I., Defense, And The Grid Buildout

Key Takeaways:

• Rare earths and copper remain critical to AI, defense, electrification and broader industrial resilience.
• Supply chain vulnerability is becoming a structural issue, not just a short-term geopolitical risk.
• Building rare earth supply outside China may require years of coordinated investment across mining, processing, magnet manufacturing and recycling.
• Copper supply remains constrained by declining grades, deeper mines, project delays and rising capital intensity.
• Resource equities may offer a broader opportunity set as disciplined capital spending, higher commodity prices and stronger free cash flow support shareholder returns.

Rare earths and copper are no longer niche commodity stories. They sit at the center of several of the world’s most urgent structural themes: AI infrastructure, defense modernization, grid expansion and supply chain security.

Recent price action reflects more than short-term geopolitical volatility. Copper has rallied near all-time highs, while rare earth prices remain elevated as export controls, national security concerns and underinvestment expose the limits of today’s supply chains. In rare earths especially, the challenge is not simply mining more material. It is building an integrated, ex-China supply chain that can span mining, separation, alloying, magnet production and recycling.

Highlights from the conversation:

Supply chain vulnerabilities are being exposed — Recent geopolitical events have again highlighted how fragile commodity supply chains can be. While energy markets often receive the most attention, the impact has extended into metals, mining inputs and critical materials. The result may be continued pressure on both volumes and production costs, creating a more supportive environment for select commodities.

Rare earth prices reflect geopolitical scarcity — Neodymium-praseodymium, often used as a proxy for rare earth pricing, has experienced significant volatility driven by export controls and geopolitical tension. China controls the dominant share of rare earth supply and has restricted exports of both rare earth materials and magnet-making equipment. With limited near-term relief, rare earth prices may remain supported.

Rare earths have an outsized economic impact — Rare earths represent a small physical market, but they play an essential role in aerospace, defense, electronics, communications and transportation. Substitution is difficult in many of these applications, especially where high-strength, high-heat permanent magnets are required.

Defense and robotics may drive magnet demand — Permanent magnets vary by strength and heat tolerance. Defense applications typically require some of the highest-performance magnets, while robotics demand very strong magnets as automation expands. Across transportation, defense, robotics and communications, permanent magnet demand could rise meaningfully over the next decade.

The ex-China supply chain remains incomplete — Western investment has begun to flow into rare earth mining and separation, but the largest opportunity may lie further downstream in alloys, magnets and recycling. A fully integrated “mine-to-magnet” supply chain will require investment across several stages, many of which remain underdeveloped outside China.

Rare Earths: Why the Supply Chain Challenge Is Bigger Than Mining

Mining is only one piece of the rare earth supply chain. Building a competitive ex-China ecosystem also requires separation, alloying, magnet manufacturing and recycling capacity.

China currently dominates multiple stages of the rare earth value chain, from raw material supply to separation, alloying, magnet production and recycling. Western governments have responded by supporting domestic mining and processing capacity, including price floors and strategic investments. But building a competitive alternative will likely take years.

Rare Earth Dependence Exposes $1.2T of U.S. Economic Activity

Takeaway: Many exposed industries have limited near-term substitutes, increasing vulnerability to supply disruptions or export controls.Reducing dependence requires years of investment across mining, separation, refining, recycling and magnet production.

Source: Bloomberg Economics. Data as of May 2026. For illustrative purposes only.

The opportunity may be especially meaningful in downstream parts of the chain. Separation, magnet manufacturing and recycling are all critical to reducing reliance on imports. Recycling, in particular, remains underappreciated. China produces a meaningful share of its permanent magnets from recycled material, including end-of-life and factory-floor recycling. Outside China, this infrastructure remains far less developed.

The broader implication is that rare earth supply security will likely require a coordinated effort among governments, private companies, investors and end users. This is not a short sprint to bring a few mines online. It is a long-term industrial buildout.

Copper Supply: A Structural Constraint, Not a Temporary Shortage

Copper faces a different but equally important challenge. Unlike rare earths, copper is a much larger and more liquid global market. But supply growth remains difficult.

Long-term constraints include declining ore grades, fewer major discoveries, project delays and increasing capital intensity. New copper projects are becoming more expensive, more complex and harder to develop. Mines are also getting deeper, which can increase operating costs, capital costs and technical risk.

One example is the growing complexity of deep underground projects. Deeper mines often require more infrastructure, ventilation, power, cooling and material movement. These requirements can make future supply more expensive and slower to bring online.

Major Copper Discoveries Are Getting Deeper

Takeaway: Recent copper discoveries are increasingly deeper, making development more complex, costly and technically challenging. As easier-to-access deposits are depleted, future supply growth may require longer timelines and higher capital investment.

Source: VanEck, Bloomberg. Data as of December 2025. For illustrative purposes only. Not a projection of future results. Past performance is not indicative of future results. Short-term geopolitical dynamics have added another layer. Copper production depends on key inputs such as sulfuric acid, and disruptions around the Strait of Hormuz region have raised concerns about availability and cost. Sulfuric acid prices have risen sharply, adding pressure to production costs and reinforcing the idea that copper may have stronger cost support than in prior cycles.

AI, Grid Buildout and Critical Metals Demand

AI infrastructure remains a major long-term demand theme, but the metals impact may unfold in phases.

The first phase is physical construction: concrete, steel, buildings and supporting infrastructure. The second phase involves generation, connectivity, grid upgrades and power availability. Metals and minerals become increasingly important as data centers move from construction to full energy integration.

Utilities and data center operators are already thinking years ahead about power supply. That planning has implications for copper, uranium, steel, aluminum and other critical resource markets. While it may be too early to identify the exact point at which metals shortages could slow AI infrastructure deployment, the direction of travel is clear: AI will require more physical materials, more power and more resilient supply chains.

Capital Discipline: Why Resource Equities Look Different This Cycle

Mining companies are behaving differently than in prior cycles.

Rather than chasing volume growth at any cost, many companies are focused on financial discipline, balance sheet strength and shareholder returns. Capital expenditures have plateaued, and companies are increasingly mining for profit rather than simply mining for production growth.

That matters for investors. Higher commodity prices, combined with disciplined spending, can improve free cash flow generation. Many resource companies have adopted capital allocation frameworks that split cash flow between reinvestment and shareholder returns. In some cases, this has translated into attractive free cash flow yields and the potential for dividends or buybacks.

This discipline may be especially important because the opportunity set has broadened. The discussion was not limited to rare earths and copper. Gold, lithium, diversified miners, energy and other resource-related equities may also benefit from supply constraints, geopolitical uncertainty and structural demand growth.

Lithium and Battery Materials: A More Positive Setup

Although rare earths and copper were the primary focus, lithium also entered the discussion.

The lithium market has remained nuanced, but conditions appear more constructive than they were several months ago. Some oversupply from China has faded, while production downgrades at major assets such as Greenbushes in Australia have helped improve the supply picture. Demand is also broadening beyond electric vehicles into battery packs and other storage applications.

This does not eliminate volatility, but it may provide a firmer price floor for select Western lithium producers.

The Equity Opportunity: Selectivity Matters

For investors, the central message is not simply that commodity prices could move higher. Selectivity is becoming more important.

Rare earth companies may benefit from national security priorities and government support, but many still face financial, operational and execution risk. Some companies are scaling from pilot operations to commercial production, which can be a difficult transition. China also remains a major competitive force, with established revenue, cash flow and operating capacity.

Copper producers and diversified miners may offer a different profile. Many have operating assets, stronger balance sheets and more visible free cash flow. In an environment where supply constraints and cost inflation support commodity prices, established producers may be well positioned.

VanEck offers several ways to access these themes, including:

VanEck Rare Earth and Strategic Metals ETF (REMX) — Provides global exposure to companies involved in mining, refining and recycling rare earths and strategic metals, including materials tied to AI, defense, electrification and advanced technologies.

VanEck Copper and Green Metals ETF (EMET) — Offers exposure to companies involved in copper and other critical electrification metals, including those tied to grid expansion, data centers and clean energy infrastructure.

VanEck Global Resources Fund — A diversified resource equity strategy that provides exposure across natural resources, including base metals, critical metals, energy, agriculture and precious metals.

What Investors Should Watch Next

The next phase of the critical metals story may be shaped by several developments.

First, rare earth policy support is likely to remain a major factor. Price floors, government investment, export controls and defense procurement could all influence the pace of ex-China supply development.

Second, copper supply remains structurally challenged. Declining grades, deeper mines, fewer major discoveries and higher capital intensity suggest that new supply may struggle to keep pace with demand.

Third, AI and defense demand are still evolving. As data center construction moves toward power generation, grid connectivity and equipment deployment, the metals intensity of the AI buildout may become more visible.

Finally, investors should watch whether capital discipline holds. If mining companies continue prioritizing balance sheets, returns and profitability, resource equities may remain attractive even if commodity markets remain volatile.