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Rubber and Rare Earths: Critical Elements in Supply Chain Shortages

Supply chain shortages and resulting inflation is all the rage in pundit land these days. The range of opinions go from “It’ll be over next year” to “It’ll have long term effects.” I favor the former forecast with a little wiggle room out to 18 months.

But two critical areas in the shortages need a longer forecast and realization that they’re critical to US national economic performance. They’re Rubber and Rare Earth Elements. Transportation and critical technologies rely on continued availability. That availability is threatened.

America moves on rubber. Yes, I mean tires. But also all other applications for the material from hoses to gaskets, engine mounts to coatings, door seals to wiring. Rubber producers are battling climate change, the pandemic, a destructive fungus, shipping container shortages and port disruptions. The supply is 90% concentrated in Asia.

Rare Earth Elements (REEs) are the hinge-point for key technological advances in technology, especially clean energy, electric vehicles, alternative power sources, and computer technology. The label is a little mis-leading. REEs aren’t that “rare” - they’re just rare in “minable” concentrations. Those concentrations only exist in a few global locales.

But the “rare” also means they’re critical when you consider that owning a Prius or Tesla needs REEs. So does building a cruise missile that’s accurate to a meter. Or even your iPhone which requires neodymium, a key miniaturization enabler, to be built.

Again, it’s an Asian-centric issue. China is the world’s leading supplier of REEs: In 2019, it produced 62% of the world’s supply of these raw materials. The United States produced 12.2%. The PRC also holds a majority share of REE and critical mineral reserves. Owning 36.7% of global totals, whereas U.S. reserves are at 1.1%.

The US imported 80% of its REEs from China last year. Not a recommended dependency given issues like restraining North Korea or maintaining the independence of Taiwan where the US could face embargoes in negotiations with Xi Jinping. The recent de-escalation of tariffs is a good trend but it’s going to be a fraught navigation through the next 3 years.

The Chinese aren’t content with their refining and trade dominance. They’re moving to block access to South American sources of REEs. Brazil is a significant provider at about half the volume of China and a major Chinese port already has a significant alliance with Brazilian iron ore providers for supplies destined for China refineries. It’s a short distance to a REE agreement.

The US government realizes this is a significant challenge. Both Trump and Biden put executive orders in place to call out the danger and initiate beefing up of US-benefitting REE production. Funds have already been advanced to an Australian corporation to build a REE-refinery in Texas. Another target is Greenland where significant REE deposits exist. Although Inuit politics have recently turned against extraction, it’s believed that Danish support of a NATO ally will prevail.

As you watch critical advances in green-tech, transportation innovation, and consumer uptake of EV’s keep your vision geographically wide for critical supply chain issues.

Photo by Thomas Millot on Unsplash @tmillot
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