I was thinking about choke points the other day. This is a term used by military strategists which refers to a narrow passage that hinders troop movements. The Strait of Hormuz is a choke point. The Fulda Gap is a choke point.
But I was thinking more about commodities that are choke points because only two or three companies/countries produce them. For example:
- Rare earth metals. China controls 85% of the production of rare earths.
- Advanced lithography: One company, ASML in the Netherlands, is the sole source of the EUV lithography machines that are necessary to make the most advanced semiconductors.
- Advanced semiconductors: Three companies—Intel, Taiwan Semiconductor (TSMC), and Samsung—are the sole sources of the most advanced semiconductors. TSMC, in particular, is a singular choke point because it owns the most advanced foundry and manufactures a vast number of chips designed by third parties (Apple, Nvidia, AMD, etc.).
What are some other examples of this? The key things I'm looking for are products/commodities that are (a) central to the economy, and (b) available from a tiny number of sources. This eliminates things like Hershey bars, which are available from only one company but are hardly critical to the economy, and commodities like lithium and helium, which are critical but fairly widely available.
Any ideas?
Information is the most valuable commodity in the new economy. The choke points are primarily the result of legal frameworks. If SCOTUS decided that Google, et al couldn't harvest user information and sell it under the current business model, that would create a huge choke point, or its equivalent.
Kazakhstan produces 45% of the world's uranium.
Food sources are increasing controlled by a handful of companies.
The top 7 broiler producers control 72% of the market (2020 numbers, and better than 2012 where they had 73%). Look a little closer, and the top two companies are 2 to 3x larger than their next competitor.
https://www.wattpoultryusa-digital.com/wattpoultryusa/march_2021/MobilePagedReplica.action?pm=2&folio=24#pg26
In general, there has been a lot of consolidation in the food and beverage industries--each with many brands in their portfolio that can give rise to the impression there's still a lot of competition.
Production ≠ reserves.
We have plenty of rare earths in our territory.
The President, Congress, and railroad chief executive officers agreed railroad workers labor is a choke point for continuing accumulation of wealth.
Phosphorus (but see morrospy above)
Not all constraints are made the same.
For example, if demand for ASML products exceeds supply, within a reasonable period of time, additional capacity can be added. In contrast, rare natural resources, primarily located in 'unfriendly' countries or controlled by some third parties, such as China, are a larger concern.
I'm not sure about your example: finding, mining, and refining a new source of rare earth materials may require less expertise/social capital than developing expertise to compete with ASML
bharshaw - perhaps allow me to expand on my point. If the market demand for ASML's products increased then, they would (potentially) build more factories or license the technology to a third party. Thus, potentially, we get more ASML product and or a new competitor to ASML.
In contrast, to give a intentionally designed counter example, imagine a new revolution in battery technology that required Yttrium or Terbium (rare earth elements): the path to vastly increase supply of some materials is rather limited.
I would rather solve the challenge by increasing the price instead of searching the global for more or having to negotiate with an unfriendly country ....
rare earth elements are not rare in the sense that there isn't much of the material--they are actually quite common in the Earth's crust. They just take more processing to extract because they generally aren't all in a big vein of ore like copper or something. And the processing technology is not particularly difficult.
Cobalt certainly qualifies for consideration -- it's critical to a number of industries like healthcare and energy and will be even more critical to the energy transition and current supply is highly concentrated in a small number of geographical locations with horrific humanitarian records:
https://www.sciencedirect.com/science/article/pii/S0921344920300653#:~:text=The%20cobalt%20supply%20is%20highly,is%20diversified%20by%20artisanal%20mining.
Cobalt definitely qualifies. Used in machine tools and high performance alloys, it was periodically in short supply even before it was used in EV batteries.
I believe that all commercial aircraft above a couple dozen passengers is controlled by Boeing and Airbus.
All commercial aircraft (except Russian / Chinese) are powered by GE/CFM, P&W, or Rolls-Royce
At least for mineral commodities the CIA Factbook has a comprehensive list
https://www.cia.gov/the-world-factbook/references/strategic-materials/
The fascinating thing about the top end semiconductors are that they are a natural bottleneck.
It takes so much expertise and knowledge to build, run and maintain the machines that there are only a very limited number of people alive on earth who are even able to learn how to do it. China for example has spent a huge amount of time and money on this and they can't do it. If they invade Taiwan and the Taiwanese destroyed TMSC, China would get nothing and couldn't rebuild it.
How did Taiwan manage it?
Many, many years of investment, Apple, and Intel dropping the ball...amongst other things, e.g. cheaper workforce (at the time).
The NPR program Throughline had devoted a program to this:
https://www.npr.org/2022/10/05/1127015286/silicon-island
Soon: fluorinated chemicals. Because of all the incoming bans on PFAS, 3M is leaving the business in two years. There are precious few companies to make chemicals incredibly important in high-end computing, energy, firefighting, medical devices, etc. and they will be made in very few countries within the next decade.
The price will go up for sure, but this will incentivize smaller companies to produce fluorocarbons for the few markets where there is no suitable alternative.
You men these PFAS?
"Because of their widespread use and their persistence in the environment, many PFAS are found in the blood of people and animals all over the world and are present at low levels in a variety of food products and in the environment."
"Scientific studies have shown that exposure to some PFAS in the environment may be linked to harmful health effects in humans and animals."
Don't threaten us with a good time.
Rare Earth Metals - are not very rare!
The limiting factor is simply setting up the extraction facility - that imposes a delay of about 2 years
Doesn't have to be the obvious processors only.
Near the start of the pandemic, there was a fire that destroyed the manufacturing facility that produces most of the world's analog to digital and digital to analog chips. Sure, it's not TMSC, but almost any device that makes a noise and was made less than 10 years ago has those chips in them. Not least of which: cars.
And then, guess what: the factory of the 2nd biggest producer of these chips also suffered a somewhat mysterious fire too. Coincidence? You tell me.
Take out two facilities, shut down most long range, large scale production of anything that makes (or records) sound.
Apparently, baby formula.
100% of the ASML scanners used in production are tethered to a Tokyo Electron coater/developer system.
Throughout the semiconductor system, there are only a few competitors. Equipment, for example, is dominated by four companies (LAM and Applied Materials in the US, ASM in the EU, and Tokyo Electron), and you are lucky if two are competing for a specific type of instrument. Photoresists are primarily from the Japanese firms TOK and JSR. Process chemicals and gases are controlled by a handful of firms such as Entegris (US), and Merck EMD and Air Liquide (EU). Polishing technology and materials are DuPont and Entegris, etc etc.
Fortunately we are all on the same team, but the supply chain is highly consolidated.
Pharmaceuticals. Even if the final active ingredient or drug product is manufactured elsewhere, many, many medications consist of "intermediate" chemicals that are only made / permitted to be used in China due to its lax / non-existent environmental and worker safety rules.
Morocco has 70% of the world phosphorus reserves.
https://en.wikipedia.org/wiki/Peak_phosphorus