source:Quartz
The global computer chips shortage that began worsening late last year has disrupted supply chains around the world, snarling production of everything from cars to phones to household appliances. And the rare earth industry is watching closely.
Both chips and rare earths form critical supply chains that power the high-tech economy, and are the subject of intense scrutiny by governments looking to shore up supplies as a matter of national security. Rare earths are a group of 17 metals crucial to the manufacturing of high-tech products.
At MP Materials, the operator of the only active rare earths mine in the US, executives and staffers are carefully studying the company’s own supply chain for weaknesses and chokepoints, in part motivated by the situation surrounding the prolonged chips shortfall. If a lack of chips has idled auto plants from India to Canada, what can be done to minimize the risk that a dearth of rare earth products will disrupt wind turbine and electric vehicle battery manufacturers?
Ryan Corbett, CFO of MP, said the chips crunch has prompted major manufacturers to rethink “the last 50 years of just-in-time manufacturing.”
That just-in-time approach kept costs low by spreading out the supply chain globally and placing orders on an as-needed basis rather than stocking a large inventory. But it presents its own risks. That’s especially so when faced with an unprecedented crisis like a once-in-a-century pandemic, as the Covid-exacerbated chip shortage has illustrated. When the pandemic brought about a sudden swing in demand, with consumer spending first tanking before ramping up soon after, it set in motion the bullwhip effect up and down the supply chain. Now, the chips shortage is expected to last through at least the end of 2021.
Similarly, a shortage of rare earth magnets, would risk throwing manufacturing processes of critical components of climate economy products like electric vehicles and wind turbines into disarray.
And even if supply disruptions were temporary—say, a short-term export ban or a months-long shutdown of a major rare earths mine and processing facility due to financial constraints—the impact on prices, demand, production, and capacity could extend years beyond the actual period of disruption. That’s according to a study published in January by researchers from the US Department of Energy’s Argonne National Laboratory, who modeled the effects of different disruptions like mine closures and natural disasters on the global rare earth market.
Though the researchers focused on modeling hypothetical disruptions in the rare earth industry, there are certain parallels with the ongoing turmoil in the semiconductor sector.
“The semiconductor supply chain is very complex, which presents difficulties in responding to demand changes”—and similar challenges play out in the rare earth market, said Allison Bennett Irion, study co-author and chair of Argonne’s supply chain security research. “An increase in demand can be difficult to absorb relative to a complex industry.”