Assessing Supply Risk for Alternative Energy Metals

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Minor Metals, Sourcing Strategies

This week, we spent a little time taking a quick fly-by of these rather more obscure metal supply markets such as indium and lithium. Whether you believe alternative forms of energy will create long term uses for some of these metals or not, for those of you sourcing them, the reality requires a thoughtful supply management strategy. So instead of taking the 80,000-foot view of where the US government needs to go in terms of supporting domestic mining efforts, we’ll offer up a few more frameworks for immediate sourcing considerations.

Bear with me as I regress to the ever-so-dry consultant’s two-by-two matrix. Now all firms call these boxes by a different name and most manufacturing firms, no matter what they produce will likely consider their metals categories somewhere on the right half of the chart.

Source: PWC and Google Images

We would argue that companies involved in the production of any of these new technologies be they batteries, solar panels, wind turbines etc, review their categories and specifically examine the more obscure metals. We would venture to guess that since most manufacturers may not source say lithium ore directly, they might pay less attention to the supply market. After all, the battery comes from some value-add manufacturer lower in the food chain. But by examining the raw material content more thoroughly from the outset, companies have the opportunity to reduce risk and shore up supply for the longer term. Consider how Boeing tied up its titanium requirements before it went into production of the 787. Of course the now rather often-told screw-up in terms of the aircraft manufacturer not tying up their fastener spend (upper left corner of the 2×2) suggests a different issue.

But by looking at several dimensions of key metals, companies can begin to determine where their individual risks lie. What might this 2×2 look like? Admittedly, this is a crude look at how to begin to think about developing a sourcing and risk management strategy:

Source: National Academy of Sciences and MetalMiner  

The graph simplifies several elements that can aid in the plotting of all metals categories. Along the X axis, we have the supply elements ” access to key minerals, ease of processing, clean mining, governmental incentives and policies to promote mining, secondary sources of supply such as recycled materials, access to landfills etc. We would also add diversity of supply sources both in terms of geography and sheer number (does the raw material come from one country and one supplier? Or can it be procured from more than one country from multiple producers?). Another consideration involves spikiness of demand, or volatility. Some of these metals, such as indium have less flexible supply chains than other metals such as copper. The Y-axis really relates to how critical this particular raw material is to the product you are sourcing. A nickel-hydride battery may not replace your iron-phosphate lithium-ion battery.

Companies that understand potential bottlenecks, risks and upstream supply chains, generally devise more creative sourcing strategies and create competitive advantages.

Let us know what you think of this framework and drop us a line if you have a particular metal you would like to see covered in greater detail.

–Lisa Reisman

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