Highlights

• Rare earths like neodymium and dysprosium are critical to semiconductor manufacturing and data center infrastructure, enabling precision wafer polishing, EUV lithography, high-speed storage, and efficient cooling systems.
• China controls 60% of mining and 85% of global rare earth refining, creating a dangerous supply chain bottleneck that Western nations are scrambling to address through domestic capacity building.
• The U.S. and EU are investing heavily in diversification strategies including new refining plants, allied partnerships, and circular economy initiatives like Western Digital's 90%+ recycling program for HDD magnets.

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Rare earth elements (REEs) like neodymium, praseodymium, dysprosium, terbium, cerium, and lanthanum are the silent enablers of today’s digital infrastructure. Though used in small amounts, they’re indispensable in semiconductor manufacturing and data center hardware—from wafer polishing and lithography to cooling systems and storage drives. Yet the supply chain for these materials remains dangerously concentrated, making them a focal point in the global tech race.

Semiconductors: Precision Powered by Rare Earths

Modern chip production hinges on the precision and purity REEs make possible:

Wafer Polishing

Cerium oxide slurries are used in chemical-mechanical planarization (CMP) to polish silicon wafers to nanometer flatness, a crucial step for etching circuits at the atomic scale.

Lithography Optics

High-refractive-index lenses in lithography machines rely on lanthanum-doped glass to minimize distortion and enable advanced patterning for 5nm and below chips.

Precision Motors

Inside fabrication tools, neodymium-iron-boron (NdFeB) magnets—often alloyed with praseodymium and stabilized with dysprosium or terbium—power sub-nanometer motion stages and robotic arms in extreme ultraviolet (EUV) lithography systems.

These applications are invisible to end-users but critical to chip performance, throughput, and energy efficiency.

Data Centers: Rare Earths Behind the Cloud

Data centers—the physical backbone of cloud computing—are filled with components that depend on rare earths:

Hard Disk Drives (HDDs)

NdFeB magnets in HDDs enable fast and precise head movement. Dysprosium helps maintain performance under high heat. With millions of drives in hyperscale data centers, REEs are embedded in the heart of digital storage.

Cooling Systems

High-efficiency fans and liquid cooling pumps rely on rare-earth magnets for compact, torque-rich motors that help manage the enormous heat generated by CPUs and GPUs.

Optical Communications

Terbium and praseodymium enhance optical isolators and amplifiers that drive high-speed fiber optics—key to fast server-to-server data transmission.

In essence, REEs ensure the speed, stability, and scalability of cloud infrastructure.

A Concentrated Supply Chain

Despite their critical roles, REE supply remains highly concentrated:

• China accounts for over 60% of rare earth mining and around 85% of global refining. It also dominates downstream magnet and alloy production.
• The U.S. has a single major mine—Mountain Pass in California—but lacks substantial refining capacity. Much of its concentrate is still processed in China.
• Europe imports nearly all rare earths and has only limited processing capability, though new projects in Estonia and Sweden aim to change that.
• Australia (via Lynas) offers one of the few non-Chinese sources of separated oxides, exporting mainly to Japan and the U.S.

Processing is the choke point: refining rare earths requires complex, environmentally intensive separation of closely related elements—capabilities China has spent decades building.

Western Response: Diversification and Recycling

Facing rising geopolitical risk, Western governments and companies are investing to reduce dependency:

• The EU Critical Raw Materials Act aims for 40% domestic refining capacity by 2030, with projects in Estonia, France, and Sweden.
• The U.S. is funding refining plants, magnet factories, and stockpiles under the Defense Production Act and CHIPS Act. MP Materials and Lynas are expanding processing capacity on U.S. soil. Since Trump 2.0 the U.S. has accelerated investment in rare earth element supply chain activity (e.g. MP Materials, etc.).
• Allied partnerships are forming between Australia, the U.S., Japan, and Korea to coordinate supply chain resilience.

Case Study: Western Digital’s Rare Earth Recycling

To lessen demand for new mining, companies are embracing a circular economy. Western Digital (WD), in partnership with Microsoft and U.S. recyclers, has piloted large-scale recovery of rare earths from decommissioned hard drives.

• Over 90% of the neodymium, praseodymium, and dysprosium content was recovered from HDD magnets using domestic facilities.
• The recycled oxides were reused in new components, cutting greenhouse gas emissions by up to 95% compared to newly mined materials.

This approach not only builds supply resilience but also reduces environmental impact—transforming e-waste into a strategic resource.

Tiny Elements, Outsized Impact

Rare earths might be invisible to consumers, but they’re foundational to semiconductor and data center technology. Their unique magnetic and optical properties underpin everything from chip lithography to cloud storage.

With China holding a dominant grip over mining and processing, supply security is no longer an abstract concern—it’s a technological bottleneck. Western nations are racing to secure these materials through new mines, refining capacity, and closed-loop recycling.

As the world continues to digitize, demand for rare earths will only grow. Securing these metals isn’t just about raw materials—it’s about the future of computing, connectivity, and economic sovereignty.

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