The Rare Earth Challenge
Press release
New Roland Berger study on rare earths: The price pressure is abating, but the high cost is still a major hurdle for high-tech companies
"The rapid increase in prices for rare earths has proven a burden to the profitability of many companies, and even threatened the existence of some," explains Thomas Rinn, Partner at Roland Berger Strategy Consultants. "Even though the prices have fallen since mid-2011, this issue still has top priority in the companies, because the supply situation remains critical, especially regarding heavy rare earths. Companies have to take the right actions to ensure that they remain able to produce competitively in the future."
The supply of raw materials is a matter for top management
Last year, the world's industry consumed around 137,000 tonnes of rare earths – predominantly to manufacture high-tech products such as permanent magnets for wind turbines and electric automobiles, LED lamps, catalytic converters and batteries for the automotive industry. The rising industrial demand and China's monopoly position as main supplier are driving the prices of this commodity upward. So in 60% of the surveyed companies, the supply of raw materials is a top-management issue.
"Half of the affected companies have already set up a task force to secure the supply of raw materials at competitive prices," says Thomas Wendt, Partner at Roland Berger's Chicago office. "The main thing is to develop and implement strategies that optimize the company's own product costs."
The strategy mix is what counts
Companies are taking a wide range of different measures to counteract the high commodity prices. More than 90% of those surveyed are securing a reliable supply chain for themselves: They are negotiating new agreements with their suppliers or looking for alternative ones. 84% of the survey participants are trying to reduce their consumption of rare earths: They are using other materials in their production or trying to improve their material efficiency. More than half of the companies pass the additional costs of rare earths on to their customers.
"But more and more companies are sounding out alternative options, such as cooperating with other companies. Some are even looking at moving their production to China, because that is where the majority of rare earths are extracted, and the prices are correspondingly lower there," says Wendt.
"In general, companies where production is heavily reliant on rare earths are basing their plans on a balanced mixture of activities. That is the only way they can protect themselves from massive price increases and remain competitive," Thomas Wendt concludes. This is an important aspect, as most participants in the study expect prices for heavy rare earths to continue to rise in the future. Only the prices for light rare earths are expected to remain stable or perhaps even fall slightly.
New Roland Berger study on rare earths: The price pressure is abating, but the high cost is still a major hurdle for high-tech companies
- Prices for rare earths have fallen, but they are still high
- Half of all companies have set up task forces to avoid bottlenecks in supply of rare earth elements
- The companies affected are putting their faith in a strategy mix: Build up alternative sources, find alternative materials, pass on the costs to the customer and cooperate with partner companies
- Price development: Prices for light rare earths will remain stable or fall, while heavy rare earths will continue to become more expensive
"The rapid increase in prices for rare earths has proven a burden to the profitability of many companies, and even threatened the existence of some," explains Thomas Rinn, Partner at Roland Berger Strategy Consultants. "Even though the prices have fallen since mid-2011, this issue still has top priority in the companies, because the supply situation remains critical, especially regarding heavy rare earths. Companies have to take the right actions to ensure that they remain able to produce competitively in the future."
The supply of raw materials is a matter for top management
Last year, the world's industry consumed around 137,000 tonnes of rare earths – predominantly to manufacture high-tech products such as permanent magnets for wind turbines and electric automobiles, LED lamps, catalytic converters and batteries for the automotive industry. The rising industrial demand and China's monopoly position as main supplier are driving the prices of this commodity upward. So in 60% of the surveyed companies, the supply of raw materials is a top-management issue.
"Half of the affected companies have already set up a task force to secure the supply of raw materials at competitive prices," says Thomas Wendt, Partner at Roland Berger's Chicago office. "The main thing is to develop and implement strategies that optimize the company's own product costs."
The strategy mix is what counts
Companies are taking a wide range of different measures to counteract the high commodity prices. More than 90% of those surveyed are securing a reliable supply chain for themselves: They are negotiating new agreements with their suppliers or looking for alternative ones. 84% of the survey participants are trying to reduce their consumption of rare earths: They are using other materials in their production or trying to improve their material efficiency. More than half of the companies pass the additional costs of rare earths on to their customers.
"But more and more companies are sounding out alternative options, such as cooperating with other companies. Some are even looking at moving their production to China, because that is where the majority of rare earths are extracted, and the prices are correspondingly lower there," says Wendt.
"In general, companies where production is heavily reliant on rare earths are basing their plans on a balanced mixture of activities. That is the only way they can protect themselves from massive price increases and remain competitive," Thomas Wendt concludes. This is an important aspect, as most participants in the study expect prices for heavy rare earths to continue to rise in the future. Only the prices for light rare earths are expected to remain stable or perhaps even fall slightly.
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Roland Berger Strategy Consultants, founded in 1967, is one of the world's leading strategy consultancies. With 2,700 employees working in 51 offices in 36 countries worldwide, we have successful operations in all major international markets. The strategy consultancy is an independent partnership exclusively owned by about 240 Partners.
For further information, please contact:
Claudia Russo
Roland Berger Strategy Consultants
Tel.: +49 89 9230-8190
