Ukraine's Drone Warfare Devouring 4% Of Global Germanium Demand As China Chokes Supplies

Our coverage of rare earths dates back to President Trump's first trade war, when we warned that "Rare Earths Are China's Most Potent Weapon In A Trade War."What followed was predictable. During the 2025 trade war, Beijing steadily tightened its control over exports of gallium, germanium, antimony, tungsten and a growing list of other critical industrial metals to the West and its allies. These restrictions represent another weapon in Beijing's economic-warfare toolkit, aimed squarely at the most vulnerable chokepoints in Western defense, semiconductor and advanced-manufacturing supply chains.The latest signals suggest that bilateral tensions are once again deteriorating. China was the sole G20 holdout on language addressing trade imbalances and an unsustainable export-oriented economic model, while Treasury has widened its Iran sanctions campaign to include Chinese entities, refiners and shipping networks.The response from the Trump administration and other Western governments has been to accelerate efforts to restart dormant mines, expand processing capacity and build critical minerals supply chains outside Beijing's control.Our coverage of this trade began with an April 2024 note titled "Next Big Mineral Trade Revealed By Morgan Stanley," which identified MP Materials as one of the miners best positioned to benefit from the Trump-era push to restore domestic critical material supply chains.By early July 2025, we again highlighted MP Materials as one of the clearest stocks for positioning around this decoupling theme. Just weeks later, shares of the rare earth miner surged from around $30 toward triple-digit territory.Wall Street may not fully recognize the decoupling theme until regulatory restrictions translate into physical shortages. Some analysts are beginning to understand the grim outlook facing the West. But Beijing does not need to announce a formal trade embargo to shock markets into a crisis. Slowing export approvals, restricting volumes, or denying shipments to select end users have already made it clear that the West must rebuild critical supply chains outside China, either domestically or through friend-shoring.Another indication that Western critical material supply chains could become a major decoupling theme for Wall Street is the emerging global rearmament cycle.BMO analyst George Heppel noted that the Russia-Ukraine war is expected to account for more than 4% of global germanium demand this year, with an estimated 15 million drones set to be deployed in an environment where China has weaponized critical materials supply chains, given its control of much of the space. "With a staggering 15 million drones estimated to be deployed in the Russia-Ukraine war this year, it is safe to say that the world has entered the era of mass drone warfare," Heppel said.Heppel explained: "Our analysis suggests that gallium, germanium and NdFeB magnets are the most important enablers of drone warfare, with gallium and germanium (alongside heavy rare earths) also being vital components required for counterdrone systems.""Consequently, we expect gallium, germanium and rare earth supply security to continue to be a major priority in the West in the face of this growing threat," he added.Heppel said the massive deployment of drones has opened a new front in the global scramble for germanium, gallium and rare earth magnets. These critical materials are used throughout the drone and counter-drone parts ecosystem, including in systems designed to detect, track, jam and destroy one-way attack drones.The numbers surrounding drone-driven demand for critical materials are staggering:Drones now account for more than 80% of enemy targets destroyed by Ukrainian forces.Governments and military alliances have pledged roughly $150 billion for drone and counter-drone capabilities since 2025.About one-third of that planned spending is directed toward counter-drone systems.Drone warfare could consume 4.3% of global germanium demand this year.Heppel said this is only the beginning of a "high-volume, high-precision" era of warfare that combines industrial-scale drone production with precision-strike capabilities. The transition in warfare technology is making militaries increasingly dependent on these obscure metals, much of whose production and processing is controlled by China. That represents a major vulnerability for the West.Heppel estimates that the average FPV drone contains 46 grams of neodymium-iron-boron magnet material, 0.1 gram of gallium and 1 gram of germanium. Across 15 million drones, this translates into annual battlefield demand of roughly:690 metric tons of NdFeB magnets1.5 tons of gallium15 tons of germaniumGlobal germanium demand was estimated at just 343 tons in 2025, meaning the Russia-Ukraine battlefield could consume more than 4% of worldwide supply this year. That source of demand did not exist before the war. The Squeeze On Prices...Germanium is used in thermal-imaging lenses and in the fiber-optic cables attached to tethered one-way attack drones.China's grip on germanium supply is becoming increasingly alarming (read here) as the US and allied governments commit an estimated $150 billion to drone and counter-drone capabilities.Heppel told clients that several publicly traded companies offer exposure to the critical minerals theme:MP Materials (MP-NYSE; $54.75; Outperform rated by Max Yerrill and Raj Ray) stands out for its NdPr magnet materials business, production of strategic rare earths such as samarium and gadolinium, and efforts to support drone manufacturing through Project Swarm.Neo Performance Materials (NEO-TSX; $31.38; Outperform rated) provides downstream exposure through rare earth separation, magnet production and refined gallium products.Energy Fuels (UUUU-NYSE; $14.75; Outperform rated) offers leverage to the redevelopment of a domestic US rare earth supply chain.For gallium, Rio Tinto (RIO-LSE; £76.74; Outperform rated) and Alcoa (AA-NYSE; $49.95; Market Perform rated) are emerging as prospective Western suppliers, although gallium is unlikely to become a major revenue driver for either company.For germanium, Teck Resources (TECK.B-TSX; $94.51; Restricted) remains a key non-Chinese producer and is evaluating a capacity expansion. Ivanhoe Mines (IVN-TSX; $12.11; Outperform rated) provides indirect exposure through the germanium- and gallium-bearing Kipushi deposit and its potential role in future US critical-mineral supply chains."As a result, we expect drone and counterdrone technologies to become another important driver of government efforts to secure domestic production, strengthen processing capacity, and reduce dependence on vulnerable foreign supply chains," Heppel explained.We have already highlighted Piper Sandler's coverage of LightPath Technologies, whose germanium-free infrared materials offer a synthetic alternative for the West as Chinese export restrictions tighten the global germanium market.Beyond the critical materials covered by Heppel, Jefferies analysts initiated coverage on several critical minerals companies earlier Wednesday, including Almonty Industries. Jefferies assigned Almonty a "Buy" rating, highlighting the miner's direct public-market exposure to Western tungsten supply. Jefferies initiates critical mineral companies Almonty, Materion, USA Rare Earth and Neo Performance with Buy; the firms are expected to benefit from increased demand for supply outside of China. Almonty (buy, PT $26.25) Sees Almonty offering public exposure to Western tungsten… — zerohedge (@zerohedge) September 2, 2026Read more here.