Rare Earth Metal Pricing Skyrockets, May Result in Higher Electronics Pricing

The semiconductor industry is one of the most complex ventures on the planet, with a supply chain relying heavily on natural resources. Nikkei reports that we are at an inflection point for the semiconductor industry - mostly due to its most basic prime matter, rare earth metals (such as copper, lithium, or tin), which are used as elements for the manufacturing of semiconductors, having seen tremendous price increases in the last year. An interplay between COVID-19-weakened supply chains, soaring demand, and political tensions between the US and China are being pointed as major forces behind the increases.

A look at the yearly price action for some such rare-earth metals showcases just how much more expensive any sort of manufacturing that uses them has become in the past year. The fact that lithium dioxide has increased around 150% YoY can be identified in the increasing popularity of electric cars. However, lithium isn't alone in its upwards price run; copper (one of the most common conductors) has seen price increases to the tune of 37%; aluminium, which enables lightweight metals and is commonly found on computing's cases, has increased by 55%; and tin has increased 82%. Even relatively niche rare earth metals such as neodymium (commonly found in audio drivers and related electronics) and praseodymium (used as an alloying agent for magnesium in aircraft engines and other applications), have increased by almost 74 percent YoY. Several other rare-earth metals have also increased in pricing.

The price increase for these most elementary elements in almost anything technologically-related will (and likely already is) leading to increased end-user pricing. There is only so much that the manufacturing and supply chains can absorb before they hit the red zone. However, as is always the case, it's the small players being affected first. Electronics suppliers for hardware assembly and manufacturing giants such as Lenovo, HP, Apple and Samsung face a notoriously unforgiving competitive landscape, and they can't easily transfer the increased component costs to their global clients.

A perfect storm of COVID-19 and its interaction with supply chain logistics is one of the reasons for this price increase, as well as the currently ongoing (and seemingly never-ending) component shortages. Coupled with soaring demand from multiple technological inflection points (such as vehicle electrification and machine learning as well as the increasing demands for data volume processing) also led to supply-chain management problems and skyrocketing prices for some of the major industry players' products, as we've extensively reported.

However, another major element is also a part of the equation: geopolitics. China currently stands as the only country with a fully integrated, in-territory supply chain that covers everything in the production of rare earth metals, from extraction to refinement and eventual processing. As of last year, China was responsible for around 55% of global rare earth mining output, and 85% of all rare earth minerals have to go through China in one way or another throughout their manufacturing process. This gives China powerful leverage in its relationship to the global economy.  Potential tightening when it comes to China's export controls was enough to partly fuel price increases.

Angela Chang, an analyst with the Industry, Science and Technology International Strategy Center (ISTI) at the Industrial Technology Research Institute broached the subject with Nikkei Asia.

"China has the upper hand and dominated production and refining of global key rare earth materials, and it also controls some other key metals that are all needed for building not only civilian, and industrial devices but military and aerospace equipment," she told the publication. "The Chinese advantage has become a key bargaining chip for Beijing to negotiate with Washington." 

Even as both superpowers vie for economic supremacy, with China's control of the rare metal earths and the US' blacklisting of several China-based companies and even China-bound exports, the escalating tension between them likely will only push prices of those key materials higher in the long term, Chang added.