Is the supply of rare earths caught between a rock and a hard place?

Our lives have been completely revolutionized by a vast assortment of innovations. As technology continues to simplify our day to day rituals, we become increasingly dependent on new developments in order to maintain a sense of normality. However, many of us are probably completely unaware of a looming supply issue which could have a huge impact on the future of both civilian and military technologies.

The issue in question is the availability of a vital set of raw materials known as rare earths. These 17 elements are key components in a wide array of products ranging from IPod Nanos to nuclear bombs. Whether the minerals form a key component in the final product or part of the production method, rare earth minerals are required in any supply chain that makes use of electronic components. As a result, life without these 17 elements would be a very different endeavor as both business performance and national security would be severely compromised.

At present, 95% of these critical materials are sourced from China. While the Chinese mineral deposits account for only 23% of the world’s total rare earth reserve, cheap labor and relaxed environmental restriction has enabled the sovereign state to monopolize supply. In the past, China’s mineral reserves were viewed as a key strategic resource the country could extract to achieve a global advantage in a number of industries. However, more recent developments have thrown industry practices into question, casting a shadow of doubt over the future supply of these vital materials.

For example, in response to growing concerns over the devastating environmental impact of mining, namely the destruction of the landscapes and people’s livelihoods resulting from polluting extraction methods, China has recently begun regulating the mining industry. However, there is some speculation as to whether China’s regulation tactics were merely a front enabling them to further exploit their dominate position in the industry. When the leading exporter of rare earths started to enforce export restrictions, it seemed China was making a deliberate attempt to force up the price of the precious materials. But regardless of the true motives, for some multinationals, the export restrictions were so severe they had little choice but to move production to China, just to ensure they were able meet their rare earths supply requirements.

That being said, few were willing to give into Chinese pressures and since the export restriction took effect in 2010, other nations have started their own rare earth elements extraction programs. Japan, the world’s biggest consumer of rare earths, is the most recent country to announce plans to mine a major new source of rare earths which would enable Japanese organizations to considerably reduce their reliance on Chinese supplies. In addition, prominent businesses such as Toyota and General Electric have also taken action to mitigate China’s influence through investing in the development of sustainable alternative materials.

While such attempts are huge steps towards breaking up China’s monopoly, it could be some time before new sources offer viable alternatives that are capable of meeting the global demand for rare earth minerals. As highlighted by the US Department of Defense, although finding alternative sources is an urgent priority, it could still take up to 10 years to build a sustainable supply chain. Until then, the world is at the mercy of Chinese suppliers. For many organizations, this uncertainty surrounding future supplies will be an unsettling thought. Given the huge price fluctuations and supply shortages already endured as a consequence of China’s control over the industry, businesses in every industry have plenty of good reasons to be concerned.

As a result, businesses must take a proactive approach in order to safeguard their supply chain from sudden unexpected changes in the supply of rare earths.  For example, through adopting tools that account for risk in the supply chain, businesses can take appropriate action to mitigate the effects of a supply shortage or rapid price increase: a huge competitive benefit considering the severity of the problem.

While the future supply of rare earth materials is as ambiguous as a fortune cookie, organizations should review their supply chain management in order to tackle supply issues head-on. Failure to implement tools that improve supply chain visibility could not only prevent organizations from taking full advantage of new sources of supply, but also leave them dangerously exposed to China’s volatile politics.