November 15th, 2010
04:59 AM GMT
Hong Kong, China (CNN) – For the past decade, a small company in Estonia has struggled to carve out a slice of the rare earth industry dominated by China. Now Silmet Rare Metals suddenly finds itself on the map as a result of recent trade disputes between China, the U.S. and Japan over rare earth minerals.
"We've been trying to get in the door for the past ten years, Suddenly, we're the prettiest girl at the dance," says CEO David O'Brock.
The story of Silmet Rare Metals is an interesting one. Its factory in the port town of Sillamäe, Estonia was originally a uranium enrichment plant for the Soviets during World War II. In the 1970's, the factory buildings were transformed into a rare earth metals and minerals production facility. Today, Silmet purchases raw materials from a Russian mine and then processes out rare earth elements that can be used in the auto, glass and electronics industries.
O'Brock is an American who has lived in Estonia for 12 years and runs the 500-employee company. He says Silmet produces 3,000 tons per year – just a fraction compared to China's 130-140,000 tons per year.
The recent political disputes and China's chokehold on the industry have made many international manufacturers very nervous about their future supplies of rare earth minerals. The situation has put Silmet in the enviable position of being the hottest ticket in town.
Unfortunately, says O'Brock, he can't take full advantage of the demand and has to turn away potential new customers. "We're a very small producer on a world scale. Our bottleneck has always been raw material. Because we don't source from China, we don't have enough capacity for what the world needs," he says.
Silmet is sticking with its longtime, if small, customer base of about 15 companies from the U.S., the EU and Japan. While Silmet cannot take on new accounts, it is taking advantage of surging market prices. O'Brock gives an example of the cheapest raw earth metal: Cerium which is used in the glass industry.
Last year, cerium sold for $3.50 per kilogram. Today Silmet sells it to his customers for $40 a kilogram – a 1000% price increase! Do his customers complain?
"They understand the political situation and the market forces," O'Brock says. In other words, they have no choice. Silmet is a private company and will not release financial figures. After pressed for some perspective, the CEO acknowledged that Silmet has never made a profit until this year.
Sometimes, a little controversy can be good for business.
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