A research report from CITIC SEC indicates that suppliers to the aerospace and semiconductor industries are currently facing a worsening shortage of rare earth elements, with the scarcity concentrated primarily on yttrium and scandium. Chinese zirconia powder manufacturers are accelerating their expansion overseas to capture greater market share. Customers of these zirconia producers, such as manufacturers of dental zirconia blocks, are also expected to benefit as their domestic counterparts gain an advantage. The intensifying shortage of the rare earth elements yttrium and scandium abroad is favorable for relevant Chinese downstream product manufacturers. The report strongly recommends zirconia producers and suggests monitoring filter manufacturers and semiconductor target manufacturers. The key points from CITIC SEC are as follows:
The shortage of rare earth elements overseas is intensifying, with yttrium and scandium significantly impacting the aerospace and semiconductor sectors. According to industry insiders, suppliers to aerospace and semiconductor companies are currently grappling with a growing scarcity of rare earths, focused mainly on yttrium and scandium. Yttrium is used in coatings that prevent engines and turbines from melting under high temperatures. Without regular application of these coatings, engines cannot operate, and some coating manufacturers have now begun rationing materials. Executives from two North American companies that purchase yttrium for coating production stated that they have had to temporarily halt production due to the yttrium shortage. Beyond yttrium, the scandium required by US semiconductor manufacturers is also nearing depletion, according to Dylan Patel, founder and CEO of research firm SemiAnalysis. Patel noted that major US semiconductor manufacturers rely on scandium to produce chip components that are "essentially used in every 5G smartphone and base station."
The price of yttrium oxide has surged, and price transmission through the zirconia industry chain is imminent. Since last November, the international price of yttrium has accumulated an increase of approximately 60%, and the current price is about 69 times higher than a year ago. Yttria-stabilized zirconia, formed by doping zirconia with yttrium oxide, is a high-end ceramic material known for its high ionic conductivity, excellent thermal stability, mechanical strength, and corrosion resistance. It is widely used in medical and dental implants. According to the firm's calculations, yttrium oxide accounts for about 5% of the cost of zirconia powder under baseline pricing. Considering the magnitude of price increases for yttrium oxide overseas, the firm estimates that the cost of zirconia powder abroad has already increased more than threefold. The transmission path of "rising overseas yttrium oxide prices → rising overseas zirconia powder prices → rising prices for zirconia blocks → increased unit profits for domestic zirconia blocks" is accelerating.
Chinese zirconia manufacturers are well-positioned to seize strategic opportunities to expand their market share. If Japanese zirconia powder manufacturers implement significant price hikes, it would directly benefit Chinese zirconia powder producers by accelerating their overseas expansion and market share growth. Simultaneously, customers of Japanese zirconia manufacturers, such as dental zirconia block producers, would also be affected, benefiting their corresponding Chinese counterparts in gaining market share.
Scandium is widely used in radio frequency front-end modules, semiconductor targets, and other areas. Scandium is extensively applied in radio frequency front-end modules for smartphones, Wi-Fi modules, and base stations. Aluminum scandium nitride is critical for high-performance filters, such as bulk acoustic wave (BAW) filters. When scandium is doped into aluminum nitride at ratios of approximately 10% to 40%, ScAlN exhibits higher piezoelectric response and electromechanical coupling coefficients, which are crucial for enhancing signal strength, bandwidth, and energy efficiency in high-frequency telecommunications applications. Scandium can improve the crystalline quality and electrical properties of thin films and is used in AlSc, FeSc, and MgSc alloy sputtering targets.
Risk factors include: enforcement of rare earth export controls falling short of expectations; a decline in overseas yttrium oxide prices; slower-than-expected promotion of new products by relevant companies; and slower-than-expected release of new production capacity by related firms.