Standard Lithium Ltd plans to extract lithium from a dry Californian lake bed © David McNew/Getty Images
Standard Lithium Ltd plans to extract lithium from a dry Californian lake bed © David McNew/Getty Images

Why preparing for the next commodity shortage is a blend of 'trust and paranoia'

In the wake of the semiconductor crisis experts have warned procurement must prepare for shortages in other areas such as metals and advanced technologies.

The semiconductor industry’s crisis period forced producers to invest in capacity and buyers to purchase buffer stock. The industry is now entering a period of “oversupply”, leading procurement teams to assess where the next wave of disruption will come from.

Richard Gordon, practice VP at Gartner, told Supply Management the emergence of deglobalised supply chains would create a gap between regions with important resources and those with the technical expertise to use them.

“China isn’t going to have the technological capability, and the west doesn’t have the financial incentive. There’s potentially going be a crack in the middle, of things China can’t do and things the west doesn’t want to do, because there aren’t high enough margins. Some advanced technologies might become more scarce, because China’s making a lot of that,” he explained.

Gordon added the recent US ban on sending advanced technologies to China would impact its ability to produce important products similar to semiconductor chips.

He continued: “Maybe [China’s] going to focus on legacy technologies instead, microcontrollers and such. Things like advanced wafers, turbines, anything that relies on mined resources, a lot of that comes from Africa. Who mines in Africa? China. You have to ask, are we going to be able to get lithium, or cobalt?”

Phil Dunne, managing partner at management consultancy Roland Berger, is inclined to agree. He told SM: “With the rise in demand for electric vehicles, the next constraint is going to be battery supply, and more specifically lithium as a raw material. The other big concern is going to be energy costs, which won't prevent assembly but will start to make it uneconomical.”

The risks to EV battery manufacturing do not stop at lithium, however. Shaun Verner, chief executive of Tesla raw materials supplier Syrah Resources, told the Financial Times the graphite industry was under threat. Graphite, alongside lithium and silicon, is a rare earth metal used to make battery components.

Verner said the market for graphite was “opaque”, particularly because it was largely centralised in China. This meant supply agreements were done bilaterally through long-term deals between producers and customers, reducing transparency and making it difficult to predict changes. 

Joseph McCabe, CEO of forecasting company AutoForecast Solutions, told SM he saw a long list of potentially disruptive elements. “Petroleum-based products like plastic, steel, also minerals. There’s always going to be disruption, but all the minerals involved with battery-making are definitely going to be in the wild west over the next decade. Being reactive, in this environment, is going to be very difficult for your survival going forward.”

McCabe said procurement teams should aim to collaborate and partner with experienced suppliers who have knowledge of how best to get supplies to where they’re needed. Manufacturers need to work more closely with their tier one and two suppliers.

Gordon added many procurement teams were already getting started on the best ways to manage the next disruption, which included localisation, nearshoring, and investing in alternative supply types. He emphasised especially the importance of long-term, mutually-beneficial agreements.

“This is really important, don’t just rely on a contract, because contracts get broken all the time. Build a relationship. If you want a supplier to be with you for the next five, 10 years, you have to make sure they’re on board and invested in the relationship. Don’t focus strictly on picking up pricing, you have to approach it more as a partnership.

“Now, don’t just ignore if that company is unstable, make sure to check what risks are they facing, what is the region like, are the politics going to affect them. It’s a combination of trust and paranoia.”

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