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Panelists: Better Rare Earths Supply Chains Needed, Transparency Key
Countries and companies around the world are working to build out rare earths supply chains that are less reliant on China, but the road ahead is bumpy.
Rare earth magnet demand has surged in recent years, spurred on by increasing usage in many of the latest tech products, from smartphones to wind turbines to electric vehicles.
By 2035, Adamas Intelligence forecasts that global demand for rare earth magnets will triple, while global supply will only be able to double, constrained by long lead times in bringing new rare earth oxide production online.
Countries in the west also face the challenge of creating rare earths supply chains that are less dependent on top producer China, but doing this while scaling up production to meet increasing demand won't be an easy task.
“I would suggest that — given the time that we have to develop alternative supply chains to China — that we're probably going to have to delay the use of new (separation) processes, because that could well delay bringing projects on stream,” Dudley Kingsnorth of Australian Rare Earths (ASX:AR3) said during a panel at this year’s Future Facing Commodities event in Singapore.
“It's better for us to adopt solvent extraction, which is well established. Might be a little bit more expensive, but we've got a better idea of how long it takes to bring it on stream,” he added.
China is the dominant player in the rare earths industry by far — the latest US Geological Survey data shows that in 2022, its domestic output reached 210,000 metric tons, with the second largest producer, the US, far behind at 43,000 metric tons.
When it comes to processing rare earths, China accounts for about 85 percent of the world’s total. Meanwhile, over 90 percent of rare earth magnet production happens in the Asian country.
“Who is going to crack that and change it? I think there's an opportunity for development in the sintered rare earth magnet space to build an integrated supply chain outside of China,” Northern Minerals’ (ASX:NTU) Nicholas Curtis told the audience.
Sharing his thoughts on developing non-Chinese supply chains, Gavin Lockyer of Arafura Resources (ASX:ARU,OTC Pink:ARAFF) said South Korea is putting a lot of effort into research and development, with some groups building magnet plants now.
“The (intellectual property) for sintered magnets has been developed over many years by Hitachi (OTC Pink:HTHIF,TSE:6501), which basically defended (it) as long as they possibly could. It now pretty much all sits in China,” he said.
Tesla's move to eliminate rare earths
Colin Campbell, an official at US electric car pioneer Tesla (NASDAQ:TSLA), surprised the rare earths industry earlier this year after making comments about the amount of rare earths that will be used in future models. Speaking at an investor meeting, he said the carmaker's next drive unit will use a permanent magnet motor that eliminates these elements completely.
Watch Campbell speak at Tesla's 2023 investor day.
“As the world transitions to clean energy, the demand for rare earths is really increasing dramatically. Not only is it going to be hard to meet that demand, but mining those rare earths has environmental and health risks,” Campbell, who is vice president of powertrain engineering, said. “We have designed our next drive unit motor to not use any rare earth materials at all.”
Tesla has already been reducing the amount of rare earths used in its models for some time.
“The comment was probably a clarion call to the lack of sufficiently transparent supply chains outside of China, rather than a statement of, ‘We will change unless the pricing is right,’ or anything else,” Curtis said. “I think it actually might have been more about the strategic imperative for a supply chain that is completely independent of the Chinese system from a Tesla point of view, which you'd understand given what's going on in the US at the moment.”
The US has been making moves to build a more resilient critical minerals supply chain that is less dependent on China. The country's Inflation Reduction Act is a clear example, with the legislation requiring automakers to have 50 percent of critical minerals used in electric vehicle batteries come from North America or US allies by 2024.
Building out rare earths supply chains will be tough
Building out critical minerals supply chains outside China faces other challenges as well. Curtis said government intervention is not a must; instead, supply chains must receive support from the market.
“Governments will influence the success of that supply chain, but the market must be able to sustain that supply chain, from primary production of concentrate through to the price of magnets,” he said.
“I think that the demand will be and continues to grow into an intensely tight situation for the rare earth and the magnet supply chain, meaning prices go up — meaning the incentive for development is there, and meaning that the market is able to actually supply,” he shared with the audience in Singapore.
The Rare Earth Observer’s Thomas Kruemmer said the biggest problem for rare earths projects, apart from permitting, is that there’s not a market for rare earths.
“What we buy from China is 70 percent lanthanum and cerium. And of the remainder, the value-added rare earth products, most of it goes to Japan,” he said. “We simply do not have the downstream market for the value-added rare earths — we have it for the cheap throwaway by-products lanthanum and cerium.”
Even to map how materials flow through the various stages is extremely difficult, Curtis noted.
“The key point that I certainly make is that qualification must be short-cut or supported,” he said. “If a government has the ability to actually do anything, it's not financial. It's just to ensure that the qualification process is not one that takes five years, because you can't build that level of risk into a project and take five years to get a customer on the way through.”
Another key aspect that needs to be improved when it comes to rare earths supply chains is transparency. For Kingsnorth, that would lead to increased costs for companies that take shortcuts.
“The majority of the original equipment manufacturers (OEMs), when they show you a supply chain, it begins at the metal, because they don't like to admit that there's a mine at the front,” Kingsnorth said.
“If OEMs went back and included the mine, that would make those companies that don't comply with global environmental standards improve those, and that would increase the cost. Then that would, in itself, make it much easier for countries like Australia to compete in the rare earth supply chain.”
Lockyer also shared his thoughts, saying that OEMs and governments need to understand that they are enablers.
“Don't be a disabler through lengthy processes to qualify or to permit,” he said.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
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Priscila is originally from Buenos Aires, Argentina, where she earned a BA in Communications at Universidad de San Andres. She moved to Vancouver for the first time in 2010 and fell in love with the city. A few years after she went to London, UK, to study a MA in Journalism at Kingston University and came back in 2016. She enjoys reading, drinking coffee and travelling.
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