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OM in the News: The Rise and Fall of Rare Earths

November 14, 2012

Manufacturers of high-tech products rely on a steady stream of metals–some of them scarce–to make their goods. These “rare earths” are light-weight, malleable  metals that are essential to hybrid cars, cell phones, and hard disk drives. (Toyota Prius batteries use neodymium to power the car.)  Rare earth metals, a collective name for 17 minerals used in products like these, had skyrocketed in price in the past 2 years as China (which controls 90% of global production) slashed exports to tighten control over the sector. Lanthanum, for example, jumped from $10/kg in 2009 to $160/kg last year. Neodymium surged from $20/kg to $455/kg. Prices of many other rare earth elements rose more than 10-fold in a little more than a year.

But The Wall Street Journal (Nov.13, 2012) reports that companies– like Australia’s Kimberly Rare Earths, Black Fire Minerals, and Sable Minerals– that bet on rare earths as a hot commodity play are canceling investments  after being caught by a sharp fall in prices this year. Fears of overinvestment and a supply glut are the driving forces. Lanthanum—used in oil refining and hybrid vehicles—now fetches just $13/kg. Cerium, which is used in catalytic converters and plasma televisions, is now down to $16 a kilo, from $102 a kilo last year. Neodymium, used in wind turbines and music players as well as in batteries, has fallen to $85 a kilo from $234 a kilo.

Sentiment in the wider mining industry is souring on concerns over the slow pace of the global economic recovery. “All of a sudden we have 400 years of rare earths being drilled out,” said Kimberly’s director. “Smaller projects just aren’t viable anymore.” Although demand for rare earths will more than double to nearly 250,000 tons over the next decade, the growth in supply will outstrip demand between 2014 and 2019 as new mines start operations.

Discussion questions:

1. Why are rare earths so important in manufacturing?

2. What lessons do OM managers learn from these price fluctuations?

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