Urgent Alert: CIOs Face Rare Earth Supply Risks Amid China Deal

UPDATE: November 2023 trade agreement suspends export controls on Rare Earth Elements (REEs) from China, providing a temporary reprieve for CIOs grappling with supply chain risks. As China dominates 70% of the global REE supply and refines approximately 90%, the implications of this deal are critical for technology infrastructure.

Despite the current stability, experts warn that this is not a permanent fix. Cori Masters, Senior Research Analyst Director at Gartner, emphasizes that the dependency on a single source remains a significant vulnerability. “It’s still viewed from a supply chain perspective as detrimental reliance on a single geography,” she states.

CIOs have not yet experienced major delays in server equipment deliveries, but the potential for disruptions looms large. Ashish Nadkarni, Group Vice President of IDC‘s worldwide infrastructure research group, notes that costs associated with REEs could emerge unexpectedly. “The cost will show up in a premium,” he warns, highlighting that vendors may not fully understand the reasons behind price increases, similar to grocery pricing fluctuations.

For CIOs, the hidden risks pose a challenge. REEs are embedded deep within the tech supply chain, particularly in Tier 3-5 segments related to refinement and chemical separation. When sourcing equipment like hard drives and cooling fans, CIOs often overlook the role of these elements. This lack of visibility complicates their ability to manage risks effectively.

As the supply chain landscape evolves, CIOs need to adapt. Experts recommend a dual approach: demand increased transparency from Tier 1 suppliers and utilize advanced supply chain risk management software. Masters urges CIOs to ask strategic questions about their vendors’ supply chains, especially concerning material availability. “CIOs should be looking for indications within their supply base that they’re running out of materials,” she advises.

To mitigate risks, CIOs must prioritize diversification. While China currently monopolizes REE extraction, countries like the U.S. and Australia are ramping up efforts to develop sustainable alternative sources. Encouraging suppliers to explore these options can build resilience against future shortages.

Recycling existing devices for REEs presents another avenue, though it remains expensive and time-consuming. Additionally, while semiconductor designs that reduce REE usage are appealing, viable options are still in development.

As the global tech landscape shifts, CIOs must remain vigilant. The recent trade agreement may offer immediate relief, but the underlying vulnerabilities in the supply chain require ongoing scrutiny and proactive strategies to ensure operational continuity.

Stay tuned for further updates as this situation develops.