State of Economic Research, Sourcing Risks, and Capital Market Perception
3. Sourcing risks and (financial) risk management options. The example of rare earth metals
”For the merchant, even honesty is a financial speculation.”
In recent years, the supply of rare earth metals has become a center of attention in many industries, especially in the automotive industry and in several Cleantech related applications. Many new technologies such as wind turbines, solar panels, batteries and highly efficient electric motors rely on a handful of Rare Earth Elements (REEs) which turn out to be critical input factors. Since rare earth minerals are produced almost exclusively in China, the sourcing of the required minerals has become increasingly difficult and expensive for Western-run firms. In general, China’s domestic prices for rare earths differ significantly from export prices. It seems as if China systematically makes use of its nearly monopolistic position and market power in favor of its own industry location. When the Chinese government announced the tightening of export quotas, prices of many scarce minerals exploded in 2011. The prices for some minerals have multiplied as much as tenfold above 2010 price levels before dropping back down. According to a survey of different manufacturing industries conducted by PricewaterhouseCoopers (PwC), the sectors renewable energy (78%), automotive (64%) and energy & utilities (57%) have already experienced instability in supply and do not expect the situation to improve in the next five years (PricewaterhouseCoopers (PwC), 2011). For many strategic decision makers in firms, this leads to the question of what an appropriate strategy would be for reducing price and supply risks. The purpose of...
You are not authenticated to view the full text of this chapter or article.
This site requires a subscription or purchase to access the full text of books or journals.
Do you have any questions? Contact us.Or login to access all content.