Prices for rare earth metals have exploded over the last 12 months, moving nearly 50% higher on average since March.
This development could push prices of electronics components higher than ever. As a perfect storm of expensive raw materials + limited production capacity + higher demand = rocketing prices.
As we are seeing with the global semiconductor shortage, fluctuations in supply chains ripple through the electronics industry.
Electronic component shortages have, in part, been caused by reduced mining quota for raw materials including rate earth metals. But the problem now isn’t a lack of mining, but the soaring demand for rare earth metals.
The high price reflects strong demand. Rare earth metals are used in most electronic components and devices, from integrated circuits to displays, vibration motors and storage, so it’s easy to see why demand is so strong.
For example, materials like neodymium and praseodymium used to make magnets have seen a 73% increase in demand in 2021. Holmium oxide used in sensors, terbium oxide used in displays and cobalt used in batteries have also seen increases.
Why have prices exploded?
China is the only country in the world with a complete supply chain for rare earth metals from mining, to refining, to processing. With over 55% of global production and 85% refining output, the world depends on them for rare earth metals.
In January, Beijing hinted at tightening controls for earth metal exports, triggering panic across the world and sending prices soaring.
For those of you who remember, rare earth prices exploded in 2011 when China’s export volumes collapsed. China cut export quotas of the 17 rare earth metals and raised tariffs on exports, sending prices soaring by more than 50%.
Talk about déjà vu!
Another factor for the price explosion is supply and demand. Even with China’s hints, demand for rare earth metals is outstripping supply. The world is using more electronics than at any time in its history, and rare earth metals are needed to make more of them.
It isn’t only relatively unknown materials like neodymium and praseodymium that are surging in price, but also more commonly known materials like tin, aluminium and copper, which have also surged in price in 2021.
What will happen next?
So, in a nutshell, demand for rare earth metals is outstripping supply. China (which has significant control over rare earth metals) has hinted at tightening exports, sending a shockwave through the supply chain.
The issue is bad and will take time to resolve. The United States is the second biggest producer of rare earth metals. In February, President Joe Biden announced a review into domestic supply chains for rare earths, medical devices, chips and other resources, with a $30 million initiative to secure new supply chains.
Unfortunately for the world, China’s control of 55% of global production and 85% of refining output for rare earth metals means they control the market. Missteps, problems at home, and hints about tightening controls have already sent rare earth metal prices soaring, and it stands to reason they will continue creeping higher in the near-term.