Cutting off the supply chain
As we know, many rare raw materials come from China. It has a rich soil full of precious metals like Rhodium, Opals and Uranium. In fact, almost 60% of all rare earth metals are dug up and produced in China.
This obviously puts the United States and its allies in a big dependent state when it comes to import. But, as a block, these countries also hold a large number of raw materials that could perhaps supply itself without help.
The Rice University’s Baker Institute for Public Policy has raised the flag on this proposal, stating that it might be time to cut off the supply chain and retake our independence.
What does such a cut-off mean for the price of raw materials?
Such a cut-off is, of course, not done lightly, as it would create an imbalance in supply and demand. From imported, low-wage type of materials, switching to high-wage, home-grown supply changes a lot of things.
Firstly, the price of creating such offer, is a lot higher, which would result in higher buying prices.
Next, the production capacity is limited to a certain extend and it could be that demand could not be met, which drives up the price of these raw materials.
On the other hand, it could also lead to a decrease in price, when not all countries agree to support this cut-off, creating an imbalance in the markets, driving up the bidding wars.
Is it likely that the raw materials will run out?
When cutting-off the supply chain, the back-up plan needs to be able to create enough raw materials to give to the demanding side. If this isn’t the case, there will be a shortage on raw materials.
As the industry is growing and a lot of precious metals like silicon, lithium and hydrogen are in high, growing demand. It is not likely that the industry will accept a plan that creates large shortages.
It is likely that when such a ban will be imposed, the price of these raw materials will go up. But they will stabilize after the market has realized that the supply is at a high enough level to meet demand.
Of course, all of this is speculation, but it is necessary to think about the possibilities and consequences of these thoughts.
When researchers publish articles and the media picks it up, volatility in the market can usually be seen. For investors in raw materials, this is usually the time to make short-term gains. But the impact of this news is a long-term one that has to be awaited by the actions undertaken (or not).