Assessing the risks of resource scarcity on companies

Abstract

The price and availability of raw materials is increasingly under pressure, mainly due to emerging economies, a growing middle class, a strong increase in world population and the development of new technologies. The inability of companies in sourcing their raw materials at a reasonable price could threaten a firm growth prospect, competitive advantage or could even force them to change their business models. This problem is even more severe for companies in the EU as most critical elements are imported from just a few (political unstable) countries, making firms vulnerable for supply risks and (extreme) price increases. The rare earth’s dysprosium, neodymium, europium, terbium and yttrium have been designated in this thesis as the most critical elements for companies in the EU. This is based on the large supply-demand deficits, an unpredictable supply from main producing country (China), the inability to substitute these elements, low recycling rates and a high concentration of production in China. From all sectors investigated, the “display and lighting” and “permanent magnets” sector seem the most dependent on these critical elements and therefore also more vulnerable for the consequences of resource scarcity. Dysprosium and neodymium are very important for the production of strong permanent Nd-magnets used in electric transportation applications and gearless wind turbines. Europium, terbium and yttrium are essential for the production of phosphors used in energy efficient lightning applications like compact fluorescent lamps and LED’s. The development and implementation of these and other (sustainable) technologies might be hampered due to the strong dependency on these critical rare earth’s. Financial institutions like the Rabobank provide financial products for a variety of small, medium and large (Industrial) companies and thus share in the (financial) risks of a company’s resource use and management. As resource scarcity has an increasing impact on the financial performance and liquidity of a company it was in the Rabobank’s interest to develop a tool that is able to make an assessment of these risks. In this thesis the structure, methodology, indicators and calculation models are described that are essential for the construction of this tool.