We’ve all heard about peak oil. It’s the phenomenon of steadily increasing prices of oil-based products, such as gasoline and polyester, as a result of resource depletion. The end product costs more because the oil is harder to extract from the earth.
According to a survey report from PricewaterhouseCoopers, the same phenomenon may be occurring in a variety of high-value minerals and metals used to manufacture a host of products, including electronics equipment. It’s a hot topic in the corner office and among policy makers. In fact, it’s expected to be on the agenda at the Rio+20 UN Conference on Sustainable Development in June.
As with peak oil, a combination of political, economic, and physical constraints put a crimp on peak mineral supplies. The confluence of these factors will likely spell trouble for OEMs reliant on these increasingly hard-to-find minerals.
After interviewing close to 70 executives from multibillion-dollar global firms, PwC concluded that OEMs are keenly aware of the issue, and that they expect the risk of scarcity to increase in the next five years -- in some cases, significantly. Scarcity will put pressure on prices and the ability to keep manufacturing facilities humming.
Consider tantalum, which has been in short supply primarily as a result of geopolitical issues. Minerals used in the processing of tantalum are mined in the Democratic Republic of the Congo, where a decades-long civil war has killed millions of people. Because of their value, the minerals and the mines are pawns in the war. As we’ve reported, Congress has designated minerals sourced from that country as “conflict minerals” and has given the Securities and Exchange Commission the task of policing how companies use the minerals.
Then there’s China and its long-standing restrictions on the export of a host of minerals, including bauxite, coke, magnesium, manganese, and zinc. The World Trade Organization ruled in January that China had violated global trading rules by curbing exports, resulting in inflated prices and an unfair competitive advantage for Chinese firms. Global companies expect prices to moderate for these materials now that the WTO has slapped China’s wrist.
However, the ruling did not include rare earth metals, a number of which are used to manufacture electronic products and renewable energy equipment. China supplies 95 percent of the world’s rare earth minerals. We reported recently on its near-monopoly control being challenged by a Malaysian processing facility approved for operation only last month. That plant is expected to help ease the supply constraint (and pricing pressure) on some rare earth metals.
The companies surveyed by PwC are managing supply constraints in ways that run the gamut from improving resource efficiency (most popular) to forming strategic alliances with key suppliers, supplier diversification, increasing R&D on alternatives, and reuse. They’re all good ideas, whether the input is in short supply or not.
Not surprisingly, the eco-friendly Europeans are championing reuse through the collection and reprocessing of materials at the product’s end of life. This is because, as we’ve discussed previously, the EU had the foresight a decade ago to require member countries to follow the Waste Electrical and Electronic Equipment (WEEE) Directive.
Thanks to the directive, the EU has the infrastructure in place to enable the collection, reprocessing, and recycling of e-waste. Because they don’t have such an infrastructure, companies in the Americas and Asia are more focused on resource efficiency.
The PwC report provided a useful checklist of 10 questions OEMs should be asking themselves now to minimize the risk of resource shortages. Here’s the paraphrased list:
- Are you monitoring leading risk indicators?
- Do you know all the material risks that could affect your supply chain?
- How are you managing these risks?
- Do you have systems to act on the early-warning signs of shortages?
- Are you working with suppliers and customers to reduce scarcity risks?
- Are you working with your supply chain to develop a collective approach to managing scarcity?
- Are you identifying ways to conserve scarce materials in your product development processes?
- Do you have systems to reduce or eliminate waste of scarce inputs?
- Have you evaluated extending product life, takeback programs, and other ways to boost sustainability?
- Do you have “cradle-to-cradle” strategies?
If you are not actively managing scarcity, it’s high time to get on board. But these 10 questions seem to make sense whether the input is officially deemed scarce or not. OEMs need a strategy to ensure the continuity of supply for all materials on the bill of materials.