PwC warns on rare earth metals shortage as China tightens supplies

PricewaterhouseCoopers (PwC) sounded an alarm on the impending supply shortage of rare earth metals, which could seriously hit the automotive, chemicals and renewable energy industries.

According to a survey of executives from 69 manufacturing companies released by PwC, 14 of the 17 rare earth metals that include cerium, dysprosium, fluorspar and beryllium are set to become even scarcer within the next five years.

Demand for rare earth metals is currently expected to outstrip supply by 30-50,000 tonnes in 2012.

This shortage is likely to result in a decline in production rate of devices and products such as mobile phones, TVs, military equipment and wind turbines that require rare earth metal made components.

The majority of the companies that participated in the survey are major global players with annual revenues of over US$10 billion, said PwC.

The survey has found that 71 per cent of executives from European consumers of rare earth metal see the shortage as a risk to their businesses.

PwC went as far as calling the situation a "ticking time bomb".

“Put simply, many businesses now recognise that we are living beyond the planet's means,” said global sustainability leader at PwC Malcolm Preston.

It was reported earlier this week that China, the world’s largest producer of rare earth metals that accounts for 94 percent of global output, exported 65 percent less metals in the first nine months of the year compared to the same period of 2010.

Total exports for the period reached 11,000 tonnes, just 40 percent of the export quota for 2011, while demand for the metals outside of China is estimated at around 40,000 tonnes.

China keeps reducing its export quotas to redirect supplies to the domestic markets, prompting users of rare earth metals to move their manufacturing operations to China.

The country’s largest rare earths producer Baotou Steel Rare-Earth Hi-Tech has recently decided to suspend production in order to push the prices higher after China decided to impose new environmental restrictions on the industry.

Broker Fairfax said yesterday there were reports of a “buyers-strike” in the market as consumers including automakers and oil refineries refused to buy metals from China and sought cheaper alternatives.

However, vice chairman of Baotou Li Zhong has said at a conference that the government restrictions make it unrealistic for the prices to drop.

The situation has already caused the US to urgently seek domestic supplies of rare earth metals.

“With the need for new business models, a key challenge for business is how to draw the line between collaboration and competitive advantage,” said Preston.

“This is where strategic decision making meets sustainability.  Getting this right will define the winners and losers of the future.”