Skip to main content
All insights
Mining & Critical Minerals

Critical Minerals Are Forcing Aerospace to Rethink Materials, but Substitution Has Limits

Aerospace suppliers are testing alternatives to rare-earth-dependent coatings as China’s dominance in critical-mineral production and processing keeps supply-chain risk elevated. Substitution can reduce exposure in selected applications, but it does not solve the wider problem of concentrated refining and component supply.

Alliance Equity Research7 min read
Jet engine turbine blades, ceramic-coated components, mineral samples, and materials-testing equipment arranged in an aerospace research laboratory.

Rare earths and other critical minerals are usually discussed through the lens of electric vehicles, permanent magnets, semiconductors, and defense equipment. Aerospace is now providing another example of how concentrated mineral supply can affect product design itself.

Suppliers are revisiting older thermal-barrier coating technologies and alternative ceramic systems as access to materials such as yttrium becomes more difficult and expensive. Canada’s National Research Council is studying zirconium dioxide and other ceramic-oxide systems that were used decades ago, while Oerlikon Metco is developing coatings that reduce or eliminate rare-earth inputs.

This is an important shift.

Companies are not simply looking for another mine or another supplier. Some are trying to reduce the quantity of strategically exposed materials required in the final product.

That can lower mineral intensity over time, but aerospace qualification cycles are long and performance requirements are strict. In practice, substitution is likely to be gradual rather than immediate.

China Still Controls a Large Share of the Supply Chain

The scale of China’s position explains why manufacturers are looking at product-level alternatives.

China accounted for an estimated 82% of global mined tungsten production and 71% of mined rare-earth production in 2024. It also produced 99% of primary gallium, 88% of primary magnesium, 87% of silicon metal, 70% of refined indium, and 82% of natural graphite.

The concentration becomes even greater further downstream.

The International Energy Agency estimates that China represented approximately:

Supply-chain stageChina share, 2024
Magnet rare-earth mining60%
Rare-earth refining91%
Sintered permanent magnet production94%

The 94% share in permanent magnets is particularly important because downstream manufacturing capability is harder to replicate quickly than mine supply alone.

The distinction matters for investors. A new mine can improve raw-material availability, but it does not immediately create separation, refining, alloying, magnet manufacturing, or aerospace-qualified component capacity.

Prices Show That Supply Risk Is Already Economic, Not Theoretical

The supply issue is visible in commodity pricing.

China domestic NdPr oxide, a major feedstock for NdFeB permanent magnets, was quoted at approximately RMB 738,000 per tonne on September 24, 2026, up from RMB 593,500 at the end of December 2025.

That represents an increase of roughly 24% in nine months.

Dysprosium oxide was quoted at RMB 1.435 million per tonne on the same date, while terbium oxide was around RMB 6.575 million per tonne. These heavier rare earths are used in high-performance magnet applications where temperature resistance and magnetic stability matter.

The pricing signal is not limited to rare earths.

Tungsten APT, the main intermediate benchmark used in the tungsten industry, was quoted at roughly $3,000 per metric tonne unit on a CIF Rotterdam basis in early September 2026.

That level is especially relevant because tungsten is used in high-temperature, high-density, cutting, aerospace, and defense applications, while China produces more than four-fifths of mined supply.

These prices do not prove that every downstream user is facing the same procurement cost. Export licensing, geography, contract terms, product purity, and inventory positions can produce large differences between domestic Chinese benchmarks and ex-China delivered prices.

But they do show that strategic-mineral supply risk is increasingly showing up in actual input costs.

Trade Data Also Points to Persistent Supply Friction

China’s rare-earth magnet exports to the United States fell to 512 tonnes in August 2026, down about 21% from July and roughly 13% from a year earlier.

That matters because permanent magnets are not just raw materials. They are already highly processed components used across motors, aerospace systems, electronics, industrial machinery, and defense equipment.

The data also highlight how sensitive supply remains to trade policy.

In July 2026, Chinese rare-earth magnet exports to the United States had risen sharply, including a 32.6% month-on-month increase according to Chinese customs data. By August, shipments had fallen again.

This volatility is one reason manufacturers are reconsidering how much strategic-mineral exposure they are willing to accept in product design.

Substitution Is Easier in Some Materials Than Others

Substitution is often discussed as though it is a binary question: either a mineral is essential or it can be replaced.

The reality is more specific to each application.

For aerospace thermal-barrier coatings, alternative ceramic systems may reduce reliance on yttrium-containing formulations in some use cases. But changing a coating can affect heat resistance, durability, oxidation performance, maintenance intervals, and operating life.

A material can therefore have a technically available substitute without that substitute being economically or operationally equivalent.

This is especially important in aerospace because certification cycles can take years.

A manufacturer may choose to continue paying a higher price for an existing material rather than accept the cost, engineering work, testing, and certification required to replace it.

That creates a lag between commodity-price pressure and actual demand destruction.

Tungsten Is a Good Example of Why Substitution Risk Varies

China produced an estimated 82% of global mined tungsten in 2024.

Tungsten is valued for a combination of characteristics that are difficult to reproduce in a single replacement material:

  • very high melting point
  • high density
  • hardness
  • wear resistance
  • strength at elevated temperatures

These properties support its use in cutting tools, wear-resistant components, aerospace, defense, electronics, and high-temperature systems.

In applications where the physical requirements are strict, the question may not be whether tungsten can be eliminated entirely, but whether less can be used or whether supply can be diversified.

That makes the investment case different from a mineral where downstream users can switch materials with relatively limited performance loss.

The Processing Bottleneck May Be More Important Than the Mine

This is another area where headline production statistics can be misleading.

A 2026 USGS study covering 77 mineral commodities found that China produced 74 of them and was the world’s leading producer for 39.

But mineral reserves are often far less concentrated than processing capacity.

China controlled 91% of rare-earth refining and 94% of sintered permanent-magnet production in 2024, compared with 60% of magnet rare-earth mining.

That gap explains why a Western mine can come into production without materially changing downstream dependence.

A complete non-Chinese supply chain requires:

  1. mining
  2. beneficiation
  3. chemical processing and separation
  4. oxide refining
  5. metal and alloy production
  6. component manufacturing
  7. customer qualification

Each stage requires capital, technical expertise, permitting, and customers willing to support the supply chain.

For public-market investors, this means midstream and downstream capacity can sometimes be more strategically valuable than the mineral deposit itself.

What This Means for Critical-Mineral Investors

The aerospace example adds another variable to the critical-mineral investment framework.

A mineral can benefit from supply concentration and strategic demand, but that does not automatically create a strong long-term investment case.

Investors need to consider at least four factors:

Supply concentration How much mining, refining, or component manufacturing is concentrated in China or another single jurisdiction?

Substitutability Can end users switch to another material without sacrificing performance?

Qualification time Even if a substitute exists, how long will it take customers to approve it?

Price sensitivity At what price does substitution, recycling, or redesign become economically attractive?

The strongest supply-security cases are likely to be those where concentration is high, substitution is technically difficult, downstream capacity is limited, and customers have strong reasons to secure supply regardless of short-term pricing.

The Investor Takeaway

Aerospace suppliers testing alternative coatings do not invalidate the critical-minerals thesis.

They show why the thesis needs to be more selective.

Higher prices and supply restrictions encourage three responses at the same time:

  • development of new mines and processing capacity
  • recycling
  • reduction of material intensity through substitution and redesign

Some minerals will be more exposed to substitution than others.

For materials with limited technical alternatives, long qualification cycles, and concentrated processing capacity, supply security can remain a major driver even when prices rise substantially.

For materials where alternative technologies can be adopted more easily, high prices may eventually weaken demand growth.

The key question for investors is therefore not simply whether a mineral is classified as critical. It is whether the underlying application can realistically function without it, how quickly that change can happen, and where the bottleneck sits in the supply chain.

This material is provided for informational and educational purposes only and does not constitute investment advice or a recommendation to buy or sell any security.

About AER Insights

Alliance Equity Research publishes timely insights on company-specific developments, industry trends, capital markets activity, and emerging investment themes across global public markets, with a particular focus on undercovered companies, sectors, and developments that often receive limited attention from mainstream financial research. Our analysis focuses on the financial, strategic, and valuation implications behind the headlines, using company disclosures, filings, market data, and sector context to help investors understand what matters, why it matters, and what to watch next.

Get AER Insights by Email

Receive new AER Insights and research updates in your inbox.

Subscribe
Illustrative industrial ventilation fan and steel ductwork in a mechanical plant room.Industrials & Aerospace

Volution’s Acquisition Strategy Is Broadening Its Markets and Increasing Its Funding Needs

Volution’s latest results show how a ventilation manufacturer can grow through acquisitions while improving operating margins. Expansion into mining and European heat recovery adds new customers, but acquisition payments are absorbing cash and increasing the importance of returns on invested capital.

Alliance Equity ResearchOctober 12, 20266 min read
Read article
Conceptual illustration of copper plates, industrial tanks and pipework, with solar panels in the background.Mining & Critical Minerals

Ivanhoe’s Copper Recovery Gains Support From Acid Sales and Solar Power

Kamoa-Kakula’s latest operating update shows how local acid demand and a changing power supply can influence copper margins. Understanding the benefit requires following the project from underground ore through processing, sales and the costs of its continuing recovery.

Alliance Equity ResearchOctober 11, 20265 min read
Read article
Illustrative autonomous vessel moored beside docking equipment in an industrial harbour.Special Situations

Exail’s Thales Takeover Brings Its Earlier Acquisition Financing Back Into Focus

Exail’s revised accounts bring obligations from its 2022 expansion into focus as Thales pursues a €134-per-share takeover. Its maritime robotics and navigation businesses are growing, while settlement rights held by ICG and employees add complexity to the acquisition’s financial structure.

Alliance Equity ResearchOctober 10, 20269 min read
Read article
Industrial pipes, processing vessels and an ore conveyor in an illustrative gold-processing facility.Mining & Critical Minerals

Caledonia’s Lower Gold Guidance Still Requires a Sharp Fourth-Quarter Recovery at Blanket

Caledonia has reduced its 2026 production outlook and raised unit-cost guidance after equipment and processing problems at Blanket. The revised target still assumes a fourth-quarter recovery, while deferred capital expenditure provides near-term cash relief without reducing the underlying investment requirement.

Alliance Equity ResearchOctober 9, 20265 min read
Read article
View all insights