31 August 2017 – CLSA issues report titled “Toxic phones: China controls the core”. China Water Risk guest authors this report for CLSA U®, which highlights the risks associated with the highly polluting rare earths and other critical raw materials (CRM) lying at the heart of our phones’ interactive core.

Imagine your iPhone or Android without a touchscreen. Imagine playing Pokemon Go, Angry Birds, Candy Crush or Tinder without swiping right. The report warns that trillions of dollars could be at risk if there is a bottleneck in the supply of CRMs and explores in depth the shaky foundations that underpin this house of cards. Also see how household smartphone brands like Apple, Samsung, Huawei, Nokia or LG are faring.

Here are some key findings:

• Highly polluting and often toxic CRMs lie at the heart of our current swipe lifestyle and drive touch, feel, sound and vision
• Of the 70+ elements found in a phone, at least 14 are key to the interactive core; 9 of these are rare earths but almost all are considered critical by the EU Commission because risks of their supply shortage & their impacts are higher.
• There are 20 CRMs. China has outstanding WTO disputes for 2 out of 3 of these with the EU, US, Japan & Mexico
• There are no effective substitutes for many of these and they are overwhelmingly sourced from China  – indium (44%), antimony (76%), tungsten (82%), light rare earths (87%), heavy rare earths (99%)
• Each smartphone, like the iPhone 6  can include up to 16 of the 17 rare earth elements, which makes brands complicit to the global black market given the lack of a responsible sourcing platform and traceability of these minerals. 1 kg of rare earths can produce 1-1.4kg of radioactive waste
• Previous pollution issues from antimony, indium and rare earths have caused price spikes. China is currently carrying the cost of pollution; rare earth remediation costs in a key producing region is USD29/kg, whereas China exports are only worth USD7/kg
• In addition, China is running out of proven reserves and is looking for more at home & abroad and there are hard caps on tungsten and rare earth production. China’s rare earth imports have increased 11.6x since 2012 and we project the ex-China demand gap can be as much as 70,000 tonnes by 2020. It is unclear who will supply the rest of the world given that China is also securing reserves by stepping up acquisitions of global sources.

The report warns that as China says no to pollution and yes to a high tech future, transitional risks are abound. These can have profound impacts across industries. Smartphone brands’ current no-sense strategies from low recycling rates, built-in obsolescence and poor repairability only serve to compound these risks.

“Brands need to wake up to the new reality of resource scarcity”

Debra Tan

Director, China Water Risk

According to the report, a convergence of risks is hidden in plain sight. China is gearing up to be “future ready” by securing CRM supplies, building a circular economy and cleaning up pollution. Are you?

Get on top of these issues with this report. Click here to access the report.

 

“The clean-up is welcome, and supply chains will adjust, but over the past six years manufacturers have been lulled into a false sense of security. That is all about to change.” Charles Yonts, Head of Sustainable Research, CLSA

 

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Please note that the report is accessible to professional investors only. We shall however review the report in our newsletter next month… sign up now!

CLSA Contact

Charles Yonts, Head of Sustainable Research
[email protected]