Scarcity of minerals, metals a concern for manufacturers, suppliers: PwC survey

TORONTO - Global manufacturers are sounding a cautious note over a scarcity of rare minerals and metals used to build everything from mobile phones and jet planes to cars and trucks, a new study has found.

A report from business consultancy firm PwC, released Wednesday, says that 77 per cent of manufacturers surveyed said they believe tighter supplies of the materials are causing stress for their suppliers.

PwC said the most concerned industries include infrastructure, high-tech hardware and the auto sector.

The study points to both dysprosium, a rare earth metal used in super magnets, and tantalum — a component of aircraft and medical equipment, automotive electronics, mobile phones and LCD screens — as two resources that are under pressure due to increased demand.

Both specialty metals have "experienced explosive price increases in recent years," the report said.

Past reports have noted scarcity of a variety of metals, from beryllium to cobalt, some of which are mined and produced in Canada.

Beryllium is used as a lightweight component in military equipment and in the aerospace industry. It is used in high-speed aircraft, missiles, space vehicles and communication satellites. Cobalt is used in making specialty steel for jet turbine engines and for auto rechargeable batteries.

Other materials in short supply include flurospar, used in construction, cement, glass, iron and steel castings and lithium, needed to make wind turbines and lithium-ion batteries in hybrid cars.

The Chinese government has also tightened the quotas for some rare metals used in mobile phones and other high-tech products in an attempt to boost prices and counter weak demand. China accounts for 97 per cent of rare earth output.

In December, China reduced the amount of rare earths it could export by 27 per cent to 10,546 tons for the first half of 2012 compared to the same period a year earlier.

The government also reduced the number of companies allowed to sell abroad to 11 from 26.

By curbing exports, China also benefits from boosting costs for manufacturers that buy its supplies, while making it cheaper for foreign manufacturers to move operations into China.

Demand for rare earth minerals has been weak, the Commerce Ministry said last month. China's exports were only 49 per cent of the total annual quota during the first 11 months of last year, it said. PWC did not say whether the shortage of special metals and minerals will increase prices of consumer electronics, cellphones and other popular products in the coming years. But it said companies are worried as they see supplies dry up.

"Manufacturers recognize that the lack of minerals and metals is a serious issue, but it's not as clear whether various industry stakeholders are aware and are being responsive to the matter," said Calum Semple, consulting partner and leader of the operations practice at PwC in Toronto.

The United States, Canada and Australia also have rare earths but stopped mining them in the 1990s as lower-cost Chinese ores flooded the market.

Surging demand has prompted companies in Canada, California, India, Malaysia, Russia and other countries to develop rare earths mines, some of which are expected to start producing by 2015.

Some of the Canadian companies currently developing projects include Frontier Rare Earths Ltd. (TSX:FRO) in South Africa and Canasia Industries Corp. (TSXV:CAJ) which is focusing on deposits in Quebec.

Semple said the metals shortages also force companies to find new ways to secure supplies.

"Buying power, co-ordinated purchasing policy, recycling and extraction, upgrading technology and forward contracts with key suppliers are just a few of the current and potential opportunities resource scarcity presents to manufacturers," he said.

The PwC survey involved 69 senior executives in seven different manufacturing industries across Canada, the United States and Mexico, the Asia Pacific region and Europe.

- with files from The Associated Press