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The supply chain is a complex phenomenon and the resilience of a system is not solely dependent on physical disruptions but also on dynamic factors such as societal and geopolitical such as environmental regulation, speculative market, and export ban. Disruptions can have a major effect on the security of supply. This is especially true for critical materials. There are many examples of disruptions ranging from floods to trade disputes to civil wars and in the past decades’ severe supply chain disruptions affected a significant number of material.
Rare earth elements (REE) are important resources because they impact business and governments’ direct policy interventions. Interventions in policies can affect the security of rare earth supply.
The Impact of China’s ban policy on REE on the rest of the world supply chain and increased escalations between China and the US has forced organizations to assess the potential disruption including accelerating their plans to shift portions of their supply chain.
Resilinc identified links and inter-dependencies even where data was not readily available and examined how the overall supply chain will react to various constraints and disruptions. See our report for more details.
What are rare earth elements (REE)?
First, please note that rare earth minerals are not rare. They are abundant in the earth’s crust and are used in numerous products such as battery alloys, polishing powders, liquid crystal displays (LCDs), hybrid cars, and light-emitting diodes (LEDs). They also have a strategic role in such military applications as guidance and control, targeting and weapon systems, and communication platforms
What makes them rare is:
- lack of large minable deposits
- lack of processing alternatives
Why China Dominates?
China’s capacity is double and the existing demand is too high. It is difficult for foreign companies to enter and compete in the supply chain. Approx 80% of the US and other country’s imports of rare earth is dependent on China.
Though the US, Canada, Australia, and the EU have their own rare elements resources they are dependent on China for the processing of these elements. Even the US’s mine in Mountain Pass CA sends its minerals to China for processing because it is extremely polluting and toxic for the environment. So for others, it is difficult to create new capacity
How to Evaluate the Risk?
Lessons from the past: This time the ban on exports of REE to the U.S. could have a significant impact on the rare earth industry because the U.S. would do exactly what Japan did in 2010 and encourage rival sources of supply by providing financial support to them and would also develop ways to use less of the materials.
Utilizing Alternate Resources: Mountain Pass in California in the U.S. has a high-quality rare earth mine but its ore is currently processed by sending it to China. This is where China takes maximum control of the industry, but if given sufficient incentives and efforts rival processing capacity could be built.
What Expert Says
Mountain Pass Mine is intact and operational and is considered a viable backup plan for China ban but will take a time-frame of up to 6 months to bring up and can be longer to a global scale. Also, the cost and impact assessment for refining capacity needs to assessed keeping all the financial parameters in mind.
Recommendations
Understand your needs, what you import, and finally analyze the supply chain impacts of REE down to the product and part-level. Questions to ask yourself include:
- Am I impacted and how so?
- How can I assess potential impacts?
- What steps or action plan can I take today to reduce risk in the future?
Set of action steps may include:
- Understand what you import and answer questions about our own supply chain
- Collaborate with Component Engineering to map reliance on rare earth minerals in various parts/categories and identify suppliers
- Contact these suppliers to create awareness and develop a playbook
- Confirm they use rare earth minerals in their parts or through their suppliers
- Confirm reliance on China as a source
- Indicate whether they export rare earth direct from China to the US vs. indirect from China to other countries
- If directly importing to the US from China, identify what alternative they are planning to protect their supply continuity
- Ask if they have a non-China based source currently qualified
- What percent of supply currently is directly sourced from China vs. non-China source
- Check what mitigation they have planned to protect their supply, and assure their own revenue:
- Inventory, alternate source, alternate site, etc.
- How long would it take them to qualify an alternate source and ramp-up to scale
For more information, please download the full analysis report here
