Categories
component shortage Covid-19

Will continued global Covid measures extend electronic component shortages?

Will continued global Covid measures extend electronic component shortages?

Continued global Covid measures will likely extend electronic component shortages, hindering manufacturers for several years.

The coronavirus pandemic has reshaped the global economy irreparably. Demand for electronic components has shifted, supply chains are broken, and new, more infectious variants threaten to bend normality further.  

It looks like the world is running out of electronic components, but there’s more to shortages than meets the eye.

The coronavirus pandemic is the biggest reason behind component shortages. With this single statement, we can deduce that shortages will subside when the pandemic subsides, freeing up supply chains through fewer restrictions.

However, we know the coronavirus isn’t going anywhere, and its persistence and ability to evolve means we must learn to live with it.

Add raw material shortages, soaring prices, low investment in new manufacturing facilities, and geopolitical issues related to supply and demand. Now we have a recipe for several years of component shortages.

How covid reshaped supply chains 

In May 2020, the first wave of the coronavirus pandemic hit most of the world. Countries locked down, and most sectors of the economy suffered.

Demand for some categories decreased, while demand for others increased. For instance, demand for vehicles evaporated while demand for home computers soared, creating an imbalance in the supply chain.

Estimates suggest that vehicle sales fell by 50% or more within a single month. In response, vehicle manufacturers scaled backorders for components.  

At the same time, demand for electronics chips and parts soared as more people spent time working from home.

When demand ramped back up for vehicles, there weren’t enough components to serve them and electronics. This is a story shared by multiple industries, with supply chains broken by supply and demand imbalances.

The matter wasn’t helped by local and national lockdowns, circuit breakers, new variants, and mitigating problems like floods and climate change.

There is no easy solution or fast fix 

The pandemic has also caused prices for common and rare earth metals to explode, increasing over 70% since the start of 2021 for some metals. These prices are made even worse by soaring inflation.

Trying to build supply chain resilience during the coronavirus pandemic is like trying to build a house of cards on a jittering floor. Just when you think you have it, something comes along that knocks it down, and you have to start over.  

The simple fact is that the world needs more factories to make components, and it needs to get a grip on inflation. The Covid pandemic is not going away, although the virus appears to be getting milder, which is a good sign for the future.

You can bolster your supply chain by working with an electronic component’s distributor like us, increasing your inventory, and quickly moving to equivalent components when you experience shortages of active and passive components.

Although global Covid measures are likely to extend electronic component shortages, there is no reason why they should stop you from doing business.

Contact Lantek today with all of your electronic component inquiries. Our team will go above and beyond to help you get the components you need.

Categories
Electronic Components

Rare earth metal prices explode

Rare earth metal prices explode

Prices for rare earth metals have exploded over the last 12 months, moving nearly 50% higher on average since March.

This development could push prices of electronics components higher than ever, as a perfect storm of expensive raw materials + limited production capacity + higher demand = rocketing prices.

As we are seeing with the global semiconductor shortage, fluctuations in supply chains ripple through the electronics industry.

Electronic component shortages have, in part, been caused by reduced mining quota for raw materials including rare earth metals. The problem now isn’t a lack of mining, but the soaring demand for rare earth metals.

The high price reflects strong demand. Rare earth metals are used in most electronic components and devices, from integrated circuits to displays, vibration motors, and storage, so it’s easy to see why demand is so strong. 

For example, materials like neodymium and praseodymium used to make magnets have seen a 73% increase in demand in 2021. Holmium oxide used in sensors, terbium oxide used in displays, and cobalt used in batteries have also seen increases.

Why have prices exploded?

China is the only country in the world with a complete supply chain for rare earth metals from mining, to refining, to processing. With over 55% of global production and 85% refining output, the world depends on them for rare earth metals.

In January, Beijing hinted at tightening controls for earth metal exports, triggering panic across the world and sending prices soaring.

For those of you who remember, rare earth prices exploded in 2011 when China’s export volumes collapsed. China cut export quotas of the 17 rare earth metals and raised tariffs on exports, sending prices soaring by more than 50%.

Talk about déjà vu!

Another factor for the price explosion is supply and demand. Even with China’s hints, demand for rare earth metals is outstripping supply. The world is using more electronics than at any time in its history, and rare earth metals are needed to make more of them.

It isn’t only relatively unknown materials like neodymium and praseodymium that are surging in price, but also more commonly known materials like tin, aluminum, and copper, which have also surged in price in 2021.

So, in a nutshell, demand for rare earth metals is outstripping supply, and China (which has significant control over rare earth metals) has hinted at tightening exports, sending a shockwave through the supply chain.

The issue is bad and will take time to resolve. The United States is the second-biggest producer of rare-earth metals, and in February, President Joe Biden announced a review into domestic supply chains for rare earth, medical devices, chips, and other resources, with a $30 million initiative to secure new supply chains.

Unfortunately for the world, China’s control of 55% of global production and 85% of refining output for rare earth metals means they control the market. Missteps, problems at home, and hints about tightening controls have already sent rare earth metal prices soaring, and it stands to reason they will continue creeping higher in the near term.