It's Elemental
The most recent breakdown in trade negotiations between the US and China, which resulted in China reinstating strict restrictions on the exportation of rare earth materials, has focused considerable attention on how this change might affect prices of various CE products going forward. While this is certainly a point to be reckoned with, we also took a look at the increases seen in certain other metals that are key to the internal pricing for components and sub-systems in CE devices. The rare earth issue is one of on/off, whether there is enough inventory of these materials to maintain supply or not, while the price of other metals is more ongoing and could continue to affect CE prices without regard for supply.
Aluminum, Carbon, and Iron make up ~53% of the weight of an average smartphone, while gold, silver, platinum, and palladium make up less than 1%, yet those four precious metals make up ~90% of the value of the metals in a smartphone, making them the most sensitive to price changesl. Based on the increases we have seen in these four precious metals to date, the value of metals in a smartphone, even assuming all other metals are flat for the year (including ‘other’), the current value of metals in an average smartphone has increased by 44% to date.
As to the impact of that increase on the overall cost of producing a smartphone, we note that the model of the phone has a large influence on the sensitivity to the increase in precious metal prices. We have seen estimates between $1.13 (from 2020) and $5.00 for the value of metals in a typical smartphone, so we use both $3.00 and $5.00 to represent the low and high end of the range. Using the $3 base and only applying the precious metal increases, the precious metal base increases to $4.23. Using the $5.00 base, the precious metal cost rises to $7.01.
Aluminum, Carbon, and Iron make up ~53% of the weight of an average smartphone, while gold, silver, platinum, and palladium make up less than 1%, yet those four precious metals make up ~90% of the value of the metals in a smartphone, making them the most sensitive to price changesl. Based on the increases we have seen in these four precious metals to date, the value of metals in a smartphone, even assuming all other metals are flat for the year (including ‘other’), the current value of metals in an average smartphone has increased by 44% to date.
As to the impact of that increase on the overall cost of producing a smartphone, we note that the model of the phone has a large influence on the sensitivity to the increase in precious metal prices. We have seen estimates between $1.13 (from 2020) and $5.00 for the value of metals in a typical smartphone, so we use both $3.00 and $5.00 to represent the low and high end of the range. Using the $3 base and only applying the precious metal increases, the precious metal base increases to $4.23. Using the $5.00 base, the precious metal cost rises to $7.01.
While the impact to a smartphone BOM is relatively small, certain components hold the major share of those precious metals. PCBs are at the top of the list with gold, platinum, and silver appearing in electrical contacts, pins and board edge connectors, along with plating for through-holes, traces, and pads. Palladium is used in some MLCCs (Multilayer Ceramic Capacitors) and most ICs have some precious metal content, so those components are more likely to see price increases due to precious metal price increases, rather than the phone framework itself.
All in, the increase in precious metal prices should have only a minor effect on smartphone BOM and CE products in general but will put additional pricing pressure on some specific components if precious metal prices are sustained. However, rare earths make up extremely small amounts of CE product weight and value. They are primarily sourced from China and the US government and private companies maintain relatively small rare earth stockpiles (1,300 Tons), leading to estimates that rare earth inventory would last ~2 months based on current usage statistics if no new purchases were initiated. Certain rare earths might last for less as they are not heavily stockpiled, while some light rare earths can be purchased from Australia, Estonia, and Vietnam but the amounts are relatively small and require refining in most cases.
All in, the increase in precious metal prices should have only a minor effect on smartphone BOM and CE products in general but will put additional pricing pressure on some specific components if precious metal prices are sustained. However, rare earths make up extremely small amounts of CE product weight and value. They are primarily sourced from China and the US government and private companies maintain relatively small rare earth stockpiles (1,300 Tons), leading to estimates that rare earth inventory would last ~2 months based on current usage statistics if no new purchases were initiated. Certain rare earths might last for less as they are not heavily stockpiled, while some light rare earths can be purchased from Australia, Estonia, and Vietnam but the amounts are relatively small and require refining in most cases.
This leaves the rare earth trade situation almost entirely in the hands of the Chinese, who are using it as leverage in their tariff negotiations with the US. The US military, automotive, and consumer electronics spaces are most at risk and while the price of precious metals gets most of the press, in another 60 or 90 days things could become more critical if the situation is not resolved. It’s one thing for consumers to have to postpone the purchase of a new smartphone or laptop because of shortages, but it has more far-reaching implications for the automotive space and even greater implications for the military.
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