October 10, 2011

The Rare Earth Challenge: How companies reactand what they expect for the future

Roland Berger Strategy Consultants
Munich, October 9, 2011

Prices for rare earths have skyrocketed: worldwide market volumes in 2011 have grown to an estimated EUR 27 billion 

Price developments are hurting profitability or are even threatening the existence of some high-tech companies, especially in the automotive and renewable energy sectors 

China maintains a monopoly in extracting and processing rare earths 

Companies must develop the right strategies to ensure their supplies

Due to skyrocketing prices, worldwide market volumes for the 17 elements known as "rare earths" are expected to rise to EUR 27 billion in 2011. Just three years ago, global market volumes for these metals amounted to only EUR 2.4 billion. Besides greater industry demand, the reason for exploding prices is primarily due to China's monopoly position as the global supplier. High-tech businesses, especially in the automotive or renewable energy sectors, are being hit particularly hard by these developments. Many companies have realized what's going on and are giving this issue top management attention. These are the findings of a study by Roland Berger Strategy Consultants entitled "The Rare Earth Challenge."

"The availability of rare earths at competitive prices is currently playing a key role in production at many technology companies," explains Thomas Rinn, Partner at Roland Berger. "It's no surprise that top management is now focusing on the topic of rare earths. Many companies are facing the challenge of dealing with a resource that is in increasingly short supply and becoming more expensive."

High-tech businesses hit especially hard

The share of rare earths in the production at many companies has risen considerably over the past few years. Simultaneously, massive price increases have led to estimated global market volumes of rare earths totaling EUR 27 billion by the end of 2011. The 17 rare earth elements are used mainly in the automotive industry for manufacturing electric motors or in renewable energies for wind turbines. Of the approx. 137,000 tons of raw materials belonging to the group of rare earths, which companies will probably consume in 2011, the lion's share (30%) is used for glass and ceramic production. Approx. 20% is used to make magnets, e.g. for car electric motors or wind turbine generators. Furthermore, rare earths can be found in catalytic converters (19%), metal alloys and batteries (18%), or in the lighting industry, e.g. for LED lights (7%).

China's monopoly position

The price explosion for rare earths is due to two factors in particular: rising demand in the industry and China's monopoly position as the main supplier of these metals. China controls the global market. This is due to the fact that it extracts and processes 95% of the rare earth elements. Price developments are hurting the profitability of many businesses, or are even threatening their existence in some cases. "The rising demand for hybrid and electric drivetrains in the car industry means more rare earths are required, especially by suppliers," explains Thomas Schlick, Partner at Roland Berger. "If the prices for these raw materials skyrocket out of control, suppliers will not be able to pass on these price increases and many companies will find themselves on the ropes."

Alternative strategies

In light of the sharp price increases and scarce resources, affected businesses are now facing the challenge of developing a suitable strategy to remain competitive. "Companies are giving two approaches top priority," explains Sebastian Durst from Roland Berger. "On the one hand, companies are trying to reduce their consumption of rare earths by using innovative technologies. On the other hand, business are looking into different sourcing strategies." For instance, companies are trying to renegotiate prices with suppliers of rare earths or set up framework agreements. Alternatively, many are looking into new supply sources or are taking a direct stake in upstream suppliers. At the same time, some companies are trying to pass on the higher costs to their customers. The option of shifting production to China to benefit from low local prices for raw materials has so far hardly been looked into.


Rare Earth (RE) are a group of 17 metals which are required for many high tech applications – And they are not really "rare". Due to skyrocketing prices, RE have developed from a rather small and widely neglected market of ~2.4 bn Euro in 2008 to a multi-billion business of top strategic importance. This threatens the profitability and even the existence of many high tech companies. Affected companies are taking action:

In all surveyed companies, RE are now a management/board level issue Companies prepare/apply several different strategies to tackle the RE challenge, especially "secure supplies" and "reduce usage"; applied levers vary We have applied our proven scenario technique to forecast the RE price development: Prices for LIGHT RE are expected to decrease in the short to medium term depending on the behavior of China and the extent/timing of substitution Prices for HEAVY RE are expected to increase in the short term and stay constant/gradually decrease in the long term 

1 comment:

Marketing Research said...

Rare earths are also known as technology metal, because without the use of rare earths it would not be possible to make the latest digital technology products. Although rare earths are used in small quantities, their role is pivotal. Unlike other elements, the rare earths industry is dominated by China, which accounted for 95.3% of the total global production. Rare Earths Market