UPDATE: A significant trade agreement between the U.S. and China, announced in November 2023, has temporarily stabilized the critical supply of Rare Earth Elements (REEs), crucial for semiconductors and data center infrastructure. This development is vital for CIOs as they navigate the complexities of a supply chain heavily reliant on a single source.
China currently dominates the REE market, controlling approximately 70% of global supply and refining around 90%. This agreement suspends export controls on these elements, ensuring immediate availability for essential technologies, including smartphones and cooling systems for data centers. However, experts caution that this is not a permanent fix.
Cori Masters, Senior Research Analyst Director at Gartner, warns that while the agreement brings short-term relief, reliance on one country for such critical resources poses ongoing risks. “It’s still viewed from a supply chain perspective as a single source of supply—detrimental reliance on a single geography,” she stated.
Despite the recent trade agreement, many CIOs are still experiencing challenges related to longer lead times for server equipment. Ashish Nadkarni, Group Vice President at IDC, highlights the subtle nature of these risks. “When procuring servers from vendors like Dell or HP, the impact of REEs is often invisible,” he explained, likening it to grocery shopping where price increases can be attributed to broader inflation without understanding the specific supply chain issues at play.
As the supply chain complexity deepens, CIOs face significant hurdles. Rare earths are embedded deep within the supply chain, primarily in Tier 3–5 segments, making them nearly invisible to decision-makers. Masters emphasizes the need for CIOs to enhance their understanding of vendor supply chains, encouraging them to ask critical questions about material sourcing and potential shortages.
Experts recommend leveraging supply chain risk software to gain insights into the indirect monitoring of suppliers. Masters advocates for a centralized system to track REEs across multiple industries, as their presence extends beyond high-tech applications to defense, clean energy, and healthcare.
The urgent need for diversification is clear. Although China maintains a dominant position in the REE market, countries like the U.S. and Australia are making strides to extract these elements sustainably. CIOs are urged to support and seek suppliers who utilize alternative sourcing strategies, which can ultimately lead to more resilient supply chains.
While recycling REEs from existing devices remains a challenge for meeting high-volume semiconductor demands, the exploration of new semiconductor technologies that minimize REE use represents a potential solution for the future.
The situation remains fluid, and CIOs must stay vigilant as they navigate these complexities. Experts recommend actively monitoring supply chain risks, enhancing visibility, and fostering strategic relationships with Tier 1 suppliers to mitigate potential disruptions.
As this situation continues to evolve, CIOs are encouraged to remain proactive in addressing supply chain challenges associated with rare earths. The developments surrounding this critical resource not only impact technology procurement but also have broader implications for innovation and sustainability in the tech industry. Stay tuned for further updates as this story develops.
