You know you are a metal nerd when you rush home from a family dinner and force your kids and your kids’ friends to watch a 60 Minutes segment on the state of the rare earths market!
For those of you that may have missed Leslie Stahl interviewing MetalMiner friends and colleagues Daniel McGroarty and Ed Richardson last week, it’s not too late to take a look:
The segment does a great job of highlighting the public policy issue at the core of the rare earth metals debate – that national security relies upon a raw material supply source provided exclusively from one nation – a nation that is not exactly Washington’s best friend – China.
That creates substantial risk for US security interests.
But the private sector appears to be not only a deer in the headlights, but dead at the wheel!
Why The Inaction?
The answer is actually quite simple. The underlying supply and demand fundamentals create absolutely no business case for the private sector to behave any differently. As long as heavy rare earths continue to flow from China (we are talking about the following metals: yttrium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, and tuteium and some might add europium and gadolinium) at a “not break the bank” price, the private sector remains content with the status quo.
And let’s face it – the rare earth metal complex as tracked by MetalMiner is far and away the worst performing price basket of any metal group we track (including the base metals, ferrous metals, precious metals and the ferro alloys) – despite the March 2015 increase:
In addition, as the 60 Minutes segment showed, the light rare earths literally are in oversupply. Yes, I’m talking about a supply glut. That has really dampened prices and put America’s sole rare earth mining company, Molycorp seriously in the red (they will likely go bankrupt but restructure and remain open according to industry experts).
Ask Not Why But What if?
Okay, you chief procurement officers of major manufacturing companies, this is a shout-out to all of you. If you were sitting in our offices what would we be asking you?
- What if the US and China got into some political or military dispute and China cut off rare earth supply to not only the US but to US companies operating within China? What is your strategy to avoid manufacturing shut-downs?
- How many of your product lines, absent heavy rare earth metals would you have no alternative source of supply for that you would literally have to cease production? (I can think of many of our readers who would be in very deep trouble if they couldn’t access heavy rare earth metals)
- What is your risk mitigation plan for those SKU’s containing heavy rare earths?
- What have you proactively done in North America and elsewhere to develop alternative supply channels?
We’re pretty sure not many of you have even considered 4 above. Now look your CEO in the eye and tell him you are actively managing your company’s supply risk.