By John Ebert, Business Manager • Yunsheng USA, Inc.
The growing interest in rare earth (RE) materials has created new opportunities in motion control design and an entirely new generation of applications from BLDC motors to aerospace guidance systems. It has also spawned a burgeoning magnetics industry within China, from mineral extraction to magnet production and magnetic assemblies and subcomponents. However, RE materials are still greatly misunderstood because so much of the knowledge concerning its extraction and production into magnets has disappeared from the North American landscape since the mid-1990s. This depreciation of technical knowledge has spawned a host of misconceptions about RE materials and China’s role in the world.
A technically-ignorant media and special-interest groups have contributed to the sensationalizing and perpetuation of myths surrounding the scarcity and accessibility to RE materials. The result is a badly misinformed public. The objective of this article is to provide a fundamental restatement of the RE “crisis” and debunk the major underlying myths surrounding rare earths.
Myth 1: Rare earths are rare.
Myth 2: China controls the world RE supply.
Myth 3: China will restrict/ban RE products to US manufacturers.
Myth 4: RE raw material prices are unstable.
Any organization that currently does or plans to do business with Chinese RE magnet suppliers needs to understand how RE materials will affect their design, costing, procurement and supply stages. Advanced materials engineers, purchasing managers, project managers and chief executives involved in RE projects need to re-educate themselves on the fundamentals of RE materials and its availability.
Myth 1: Rare Earths Are Rare
Rare earth elements comprise seventeen elements from atomic number 57 to 73. Fifteen of these are grouped under the Lanthanides series of elements and are split into Light RE and Heavy RE elements. Table 1 highlights the entire family of RE elements. [1]
How rare are rare earths? Rare earths have sometimes been compared to diamonds in their scarcity. Yet, there is nothing rare about rare earths other than the moniker in the name that was given to them. The term “rare earths” was coined to describe a relatively little-known, little-used group of elements, at the time. There is an estimated 99,000,000 metric tons of RE reserves throughout the world. Unfortunately, the name stuck and the public and media lacking a basic understanding of the origin of the name, have embraced this moniker and its implied rarity ever since.
The US government’s rare earth strategy encompasses certain key elements and supporting elements within this group. The key strategic materials, many of which fall within the RE elements, are illustrated in Table 2. [2]
Myth 2: China Controls the World RE Supply
A well-publicized fact is that China currently produces as much as 97 percent of all RE materials and products. Currently, almost all rare earth ore/oxides (REO) are mined in China. The largest and best-known deposits are located in Inner Mongolia, which account for more than 80 percent of all known deposits in China. A much less publicized fact is that China only holds 36 percent of the world’s estimated RE reserves. After the Commonwealth of Independent States (former Soviet Union), the US has the world’s third largest reserve of RE ores, estimated at 15 percent. Table 3 shows the relative distribution of RE reserves throughout the world.
While the world has grown dependent on China’s RE ores and magnets, and neglected the development of their own RE reserves, it has unfairly placed the burden upon China to supply almost 100 percent of all the world’s needs with only one third of the world’s resources. Furthermore, the US and Japan, have demonized China as a resource-hoarding nation holding the world to ransom with export quotas. Yet, the former holds claim to the third largest REO reserve in the world, while the latter has been suspected of stockpiling quantities of REO sufficient to last it more than three years should China completely cease all its REO exports to Japan.
Self-sufficiency in energy generation is China’s biggest concern going into the next two decades. RE materials have their greatest usage in renewable energy applications such as wind power generators, hydro-electric generators, Hybrid and electric vehicles. It would appear that China has been unjustly demonized for simply preserving its own mineral resources for domestic consumption in the impending green revolution sweeping across the globe.
Myth 3: China Will Restrict/Ban RE Products to US Manufacturers
China has cut its REO exports by more than 70 percent in the second half of 2010. The single most misunderstood point regarding the REO quotas is that they include a worldwide restriction or ban on RE products (magnets, assemblies) from China. The specific language of the quotas does not place any restrictions whatsoever on RE magnets, assemblies or any finished RE product. The restriction pertains purely to REO. There are some 30+ domestic and foreign companies permitted to export REO. Table 4 and Table 5 indicate the current REO export quota restrictions.
In its quest for self-sufficiency in renewable energy, China is limiting its REO exports. The most affected nations are Japan and Germany. Much of the currently mined oxides are earmarked for domestic use in green energy applications. In the long-term, China may itself become a major importer of REO from the US while restricting its own REO exports. The US conducts the same self-serving policy with regards to its own energy (petroleum) reserves, under the guise of national security.
Over the next decade, China needs to create 200 million new jobs or almost 20 million new jobs annually. Magnet production produces twice as many jobs as mining oxides. Manufacturing magnetic assemblies generates five times as many jobs as mining oxides. Naturally, China must strive to move its RE production downstream away from mining. Exports of finished RE products are the key driver of China’s economy and restrictions of any sort would gravely hinder China’s economic development plans.
US manufacturers are not going to have any issues securing stable supplies of finished RE products from China. In fact, they may find themselves going even further downstream for RE subcomponents and assemblies. A US Department of Energy report [2] stated that the US government’s own REO stockpiles are sufficient to remain unaffected by China’s REO quotas. With 15 percent of the world’s REO reserves, the US government should stop focusing blame on China for its REO supply woes and hurriedly support the revitalization of its own forlorn magnetics industry.
Myth 4: RE Raw Material Prices are Unstable
The lack of stability in REO prices is purely a perspective based upon the lack of a sufficiently broad understanding of empirical data points. Rare earth metals are still relatively new to the marketplace. However, there is sufficient historical data to determine a normal, low and high for domestic and export REO prices. Reference prices have been established for the better part of a decade. Table 6 provides a five-year record of domestic Nd prices from 2006 through 2010.
There is no equivalent of Exchange Traded Futures (ETF) for RE elements. There is no equivalent exchange for RE elements such as a London Metals Exchange (LME) or Minor Metals Trade Association (MMTA). However, there does exist services such as www.asianmetal.com and www.metalprices.com. These are the closest equivalent to price indexing for REO and RE alloys.
For those familiar with pre-recessionary REO prices (pre-Sept 2008), the reference prices for key elements like Neodymium, Dysprosium and Terbium, have a fairly well-established “normal” range. For those who became involved in RE materials during the recession (Sept. 2008 to Jan. 2010), they will find themselves at sea without a compass. Designing RE applications using recessionary REO prices will guarantee sticker shock when REO prices inevitably rebound as they have done. Purchasing managers and design engineers must necessarily regard REO pricing as a historical data set rather than a singular price point.
Moreover, REO pricing is only one aspect of the total RE product cost. In the production of Chinese RE products, one has to consider multiple cost factors:
- Non-RE materials – Fe, B, Al, Nb, etc.
- Labor – wages, worker’s comp, benefits, employment taxes, etc.
- Transportation – shipping, customs duties, excise taxes
- Financial – licensing, exchange rates, insurance, inflation, VAT recovery, etc.
- Hardware – energy, capital expenditure, tooling, equipment maintenance, etc.
These additional factors will vary with the ebb and tide of commerce and prevailing government policies.
American customers are accustomed to absolute certainties and instant answers at the push of a button. There is a pill for every ailment and answers are expected in black and white. Unfortunately, there is no simple formula or magic pill for RE product costing.
The Chinese RE market is part of a far older culture where simple answers inevitably reveal a more complex truth and truth is merely an evolving perspective in the global RE marketplace. Flexibility and foresight will be your most useful tools in the RE material pricing game.
References
[1] http://geology.com/articles/rare-earth-elements/
[2] http://blogs.nature.com/news/thegreatbeyond/2010/12/doe_issues_criti- cal_materials.html
About the Author
John Ebert is the business manager for Yunsheng USA, Inc. Ebert received Joint Honors B.S. Environmental Science and Computer Studies from the University of East Anglia, UK. Industry experience includes Magnetics, HVACR, business consulting, IT, MIS, ecommerce, commodity futures, and forex. International trade experience: Far-East, India-Pakistan, Italy, France, Balkans and Middle-East. John can be reached at johnebert@yunshengusa.com.
Published in Spring 2011 Issue
