Totality Deep Dive: Rare earths’ market-tape whiplash

Australian rare earths are about more than just "mining”. They sit at the intersection of the Artificial Intelligence (AI) infrastructure build-out, the defence procurement process, and the contest for control over the physical inputs that power the digital world.

Critical minerals in this category are increasingly behaving less like cyclical commodities, and more like national security-linked strategic materials. The price tape continues to oscillate around policy signalling, not geology.

The critical idea here is that rare earths are quietly shifting category from “resources” to “sovereign capability inputs”.

This Totality Deep Dive for November 2025 is for general informational purposes only and reflects aggregated market data and publicly available research. It does not consider any reader’s specific financial situation or objectives and should not be used as a basis for investment decisions.

1. What is happening?

The market narrative over the past quarter has been driven less by demand signals out of AI hardware, and more by short-term policy posturing in Washington and Beijing.

We saw multiple US press reports indicating that China may moderate or pause certain categories of rare-earth export controls, and analysts suggesting the China export threat had dissipated. This triggered a sharp pullback in US-listed rare earth equities (notably the constituents of the VanEck Rare Earth and Strategic Metals ETF [REMX.XNYS]), but not because of any structural demand collapse. Instead, this pullback occurred because the “scarcity premium” embedded in the price of rare earths was priced out in minutes.

In short, the market had priced in a China “choke-risk”, then headlines “de-risked” it and capital rotated out.

Meanwhile, behind these short-term moves, the story that matters has not changed: the US is still pushing strategic capital into domestic rare earth processing capacity via Pentagon-linked facilities and new onshoring programs.

2. Why it matters

Rare earths are one of the clearest places where the market tape is driven by neither inventory, nor immediate reported demand, nor marginal cost curves. Instead, it is being driven by policy probability.

Rare earths occupy a geopolitically-sensitive corner of the supply chain. Headline signals around export controls, tariff moderation or observed industrial policy posture can move the price tape more aggressively than any typical commodity factor.

Even if China pauses export controls in the short term, the concentration risk is unchanged. China remains the dominant global processor of rare earths and it is processing, not extraction, that constitutes the production bottleneck.

So the medium-term diversification policy remains intact, and the policy logic has not shifted. Only the headline tone has changed.

To illustrate this, look at the relationship between REMX, made up of rare earth equities, and US defence outlays (chart above). While not perfectly correlated, the “pull-forward premiums” in REMX broadly tracked the multi-quarter step-up in US defence procurement.

Also note how REMX’s price action diverged relative to copper and lithium (chart below).

3. Australia's position in the chain

This is where Australia becomes structurally relevant.

Australia is not just a “resource jurisdiction”. It is being explicitly positioned by US defence industrial strategists as a preferred partner jurisdiction for critical minerals supply chain diversification.

And when US policy staffers talk about “friend-shoring” and “securitising the long arc of supply for critical inputs into AI and strategic weapon platforms”, Australia is implicitly in the front row. The US does not want to rely on China for the magnets that go into numerous pieces of national security infrastructure, such as

• jet fighters,
• hypersonics,
• advanced radar systems,
• AI inference hardware,
• high-end EV motors, and
• maritime battlespace sensors,

and the US cannot snap-build a competitive processing base without aligned partners.

So Australia’s rare earths are not simply a geological asset. They are a geopolitical asset—which means the future “price behaviour function” will be a policy function, not a pure commodity function.

That is why the rare earths category is a candidate for a structural re-rating over the medium arc: because if something stops trading as a commodity, and starts trading as a capability input, the price ceiling moves.

4. The sovereign balance sheet layer

The policy machine matters here. What looks like commodity volatility on the tape is increasingly a function of sovereign financing decisions.

This is something that markets to date have struggled to discount correctly. Rare earths are not simply exposed to global demand curves; they are underwritten by governments who view these inputs as essential to their national industrial base.

This is where the United States Office of Strategic Capital (OSC) enters the frame. It is a civilian-facing extension of the US defence industrial strategy, designed to co-invest in promising critical mineral capacity where traditional private capital either will not, or cannot, fund the ramp. Its design intent is simple: reduce fragility in the inputs that power AI hardware, high-end semiconductors, and advanced weapons platforms.

In plain terms, OSC is providing a mechanism for sovereign balance sheet support.

Australia has built its own institutional analogue in the Critical Minerals Facility (CMF). The CMF is designed as a credit enhancement tool—the Commonwealth is not buying commodities, but instead underwriting supply chain resilience. The logic: sovereign capital should be used sparingly but decisively to help new processing footholds cross the so-called “valley of death” between geology and scaled, economically viable production.

This is where rare earths distinguish themselves from the rest of the commodity complex.

Copper and lithium are still largely priced on demand expectations, inventory, production cost curves and cyclical beta. Rare earths do not. Rare earths now price inside a policy corridor. When the US signals it will put sovereign balance sheet capital to work to anchor critical mineral processing capacity, the floor under this category rises. When China signals a loosening posture on export restrictions, the scarcity premium compresses. The entire category moves not on tonnage, but on political probability.

5. The AUD connection

The AUD therefore takes on an important barometer function. In this category, AUD/USD acts imperfectly as a sentiment instrument for “China-linked risk” and “Australia-as-secure-supplier”.

In periods where markets abruptly de-escalate China constraint risk, AUD often softens on the margin. Conversely, when the US leans harder into diversification and securitisation narratives, AUD often strengthens on the margin.

This is not to claim AUD/USD is a precise signal of fair value in rare earths. But in a world where “commodity” is the wrong mental model for this category, AUD becomes a useful shorthand for where the market thinks supply chain power is shifting.

6. Observations

If you step back and look at the past 12 months, the pattern becomes clear: rare earths trade like a geopolitical risk asset, not a cyclical commodity.

The pullback in US-listed names triggered by the “China export threat is gone” headlines was not irrational—markets simply removed the premium they had attached to the risk that China might weaponise rare earth exports into AI supply chains. The correction was not about demand, but about the re-pricing of the threat function.

The subsequent stabilisation of rare earths is also not irrational, because the structural drivers have not changed. The US still cannot onshore rare earth processing at scale without multi-year sovereign support. The Pentagon still requires non-Chinese magnet procurement for advanced weapons platforms. And the AI hardware build-out still requires the physical inputs that sit behind high-strength permanent magnets.

This is why we believe a key conceptual mistake is treating rare earths as if they belong inside the commodity “mental bucket”. Rare earths, especially in Australia, belong inside the sovereign industrial strategy mental bucket. In that bucket, short-term price volatility is noise, and the structural underwriting is the signal. Rare earths are not a "trade”, but a capability input.

7. What to watch for next

• Formal communiques on export controls: Any APEC/G20 language that codifies a “pause” (or, conversely, a re-tightening) on rare-earth export curbs will likely reset the scarcity premium.
• Sovereign financing cadence: New US programs (e.g., OSC facilities, DoD-linked loans/offtakes) and Australian CMF deployments that move projects from pilot to commissioning.
• Commissioning milestones and cost curves: Company updates on throughput, recovery rates, and magnet-grade separation yields, especially any sensitivity to permit regimes or offtake terms.
• Allied supply chain deals: US–Australia–Japan–EU tie-ups that explicitly exclude Chinese processing or extend to recycling/magnet finishing capacity.
• AI hardware capex: A second leg of data centre/GPU build-out would reinforce the “dual-use” demand spine.

8. Relevant market instruments

Totality offers multiple relevant products, including shares such as MP Materials (MP.XNYS), Neo Performance Materials (NEO.XTSE), Lynas Rare Earths (LYC.XASX), Iluka Resources (ILU.XASX) and Arafura Rare Earths (ARU.XASX), as well as ETFs and instruments across other asset classes.

‍Mention of specific securities or instruments is for illustration only and does not constitute an offer, solicitation, or recommendation to trade. Examples of ETFs or equities are available globally; these are referenced for educational purposes only.

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Sources: Australian Government Critical Minerals Facility releases; US Department of Defense/Office of Strategic Capital public materials; public fund/ETF factsheets (including VanEck’s REMX); ASX company disclosures (Iluka - Eneabba); commodity benchmark providers (Trading Economics).

Data inputs reference: REMX ETF historical prices (VanEck website); US defence outlays (FRED; US Treasury Monthly Statement); copper benchmarks (Trading Economics); lithium benchmarks (Trading Economics). Chart data used herein reflects illustrative synthetic indexing derived from these data themes for directional comparison—it is not live or historical price data.

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Disclaimer: This publication is intended for informational purposes only. Figures represent historical observations and should not be interpreted as financial advice, recommendations, or forecasts. Past performance is not indicative of future results. All information is believed to be accurate at the time of publication but is subject to revision without notice. This Totality Deep Dive was produced by Totality Market Strategist Aaron Zanchetta.