For Some Industries, Rare Earth Elements Becoming Rarer Still

by Jack McGuinn, Senior Editor

Rare Earth Elements

The manufacturing world is filled with wonders—both natural and man-made—but its workings usually go unnoticed and underappreciated by those who benefit from it most—us. And that fact is no more apparent than is the case of rare earth metals. These metals have very special and useful optical and magnetic properties, including magnets (powerful neodymium-iron-boron magnets were discovered in the 1980s; more than twice as strong as previously known magnets, this touched off a revolution in miniaturizing electronic devices).

For the record, the known, existing rare earth elements are the seventeen chemical elements found in the periodic table, consisting of yttrium and 15 lanthanide elements—lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium and lutetium. The last, scandium, is found in most rare earth element deposits and is sometimes classified as a rare earth element.

Like anything else, because they (earth elements) are rare they are coveted by industrial countries around the world. And it is not so much the value of the elements themselves that is staggering, but in what they are used for. For instance: Major uses include powerful magnets for electric motors; special batteries for electric vehicles; clean energy applications like wind turbine generators; and cell phones, laptop computers, small hard drives and other electronic hardware.

And then there are the military applications like missile guidance systems and jet engines, to name just a few.

For insight regarding what has recently become a turbulent atmosphere regarding rare earth elements, we turn to EWI's website (ewi.org), an Ohio-based manufacturer in the aerospace, automotive, defense, energy and chemical, government, heavy manufacturing and electronics sectors in explaining the various "iums."

"Rare earth metals are absolutely vital to high strength magnets. These magnets have quietly found their way into an incredible array of consumer and military uses, far more than the public typically understands. Japan is the major producer of rare earth magnets and high-value-added systems that use the magnets. China dominates the world supply of the raw materials for the magnets and wishes to grow economically, ending Japan's dominance in the end markets. The United States and the European Union are stuck in the middle as the primary end users with little near-term capability to produce either the raw materials or the end magnets."

Playing the China card is commonplace today, but not without good reason.

In the early 1990s China became the world's dominant producer of rare earth elements. Call it lack of attention to detail by the U.S. if you like, but when production here began to decline, China's dominance increased rapidly and, by 2000 China accounted for about 90 percent of the planet's rare earth production. The newest economic superpower then proceeded to sell rare earths at such low prices that state owned-and-operated mines around the world were unable to compete. And doesn't that sound all too familiar?

By early 2010 China accounted for over 95 percent of the world's rare earth production. And, by the way, China is also the dominant consumer of rare earth elements, used mainly in manufacturing electronics products-big shout-out here for Japan-for domestic and export markets. The Perfect Storm-Japan and the United States are the second- and third-largest consumers of rare earth materials.

The upshot: prices for some rare earth elements skyrocketed more than 1,000 percent last year, and , in a recent Fortune article, Ernst & Young LLP analyst Michael Nestour was quoted saying in an April report that the market for rare earths could double within a few years—to as much as $6 billion.

As the saying goes, "Politics ain't bean bag," and neither is winning global market share. To illustrate: China in 2010 announced that they would significantly restrict their rare earth exports to ensure a supply for domestic manufacturing. This of course triggered the expected panic buying and rare earth prices rocketed to record levels.

And ever since, Chinese companies have also been seeking—wait for it—rare earth properties in other countries; e.g., the China Non-Ferrous Metal Mining Company subsequently bought a majority stake in Lynas Corporation, an Australian company that has one of the highest outputs of rare earth elements outside of China. But beyond that, China today mines more than 97 percent of the rare earth elements used worldwide.

Meanwhile, other countries are waking up.

The U.S. mining giant Molycorp's Mountain Pass, California mine (closed since 2002) resumed some operations in 2011 with hopes of supplying up to 40,000 tons (of the estimated 180,000 tons global rare earths demand) by the end of 2013. Australia's Lynas Corp. projects are next-closest to producing rare earths. And, very significant Canadian reserves of rare earths exist, but will require major development efforts. But even with these added sources, rare earth production may not meet global demand in the near to mid-term (5-15 years).

You can also add the U.S. Congress to those entities coming out of their slumber.

Upon his return from a recent visit to China, Rep. Mike Coffman of Colorado said in an interview with the Pittsburgh Tribune-Review that "The Chinese are not proving to be reliable trading partners," adding to that understatement that Chinese officials made it "clear to me that they are going to reduce exports."

In what can be construed as a national security response, Coffman introduced a bill that would establish a national stockpile of certain rare earths for military use, similar to the nation's strategic oil reserve. His bill would streamline permitting for rare earth development here—once a world leader in rare earth magnet production—and provide loan guarantees to companies that secure rare earth materials.

But now here comes a report from the IMARC Group stating expectations of an exponential growth in the demand of rare earth based-magnets in the coming years, but a shortage of the needed raw materials for magnets may jeopardize the growth of this entire industry.

"Rare earth-based magnets represent the world's strongest permanent magnets," the report states. "These magnets enable a higher efficiency and motor power, and at the same time significantly reduce the size and weight of the components. IMARC Group expects the current and future demand of these magnets in hard drives, wind power, hybrid vehicles, dynamos, breaks, cordless tools, flashlights, etc. to increase exponentially in the coming years. The projections from the report suggest that the share of magnets in the global rare earth elements consumption will increase from 21 percent in 2010 to nearly 26 percent by 2015."

A major finding from the report, however, suggests that three elements—i.e., neodymium, terbium and dysprosium, which act as raw materials in the production of these magnets—will face a critical supply shortage in the coming years. This is expected to significantly increase the price of these magnets and even jeopardize the growth of the entire industry.

Indeed, according to a new report on the world linear and torque motor market from Austin-based IMS Research, the continuity of supply of rare-earth magnets is the biggest threat to the industry, although other countries are moving forward with exploration and production.

And yet, there is hope. Beyond the reliance on the natural to make things move, there exists something on the drawing board that would preclude the need for rare earth elements (magnets). And that would be an electric motor that is not reliant upon elements such as neodymium.

Sunnyvale, Calif.-based NovaTorque has engineered a highly efficient electric motor that is cheaper to produce than conventional motors because it doesn't rely on magnets composed of rare earth elements like neodymium.

"We can use low-cost ferrite magnets," says Dan Mertens, vice president of marketing. "Neodymium is 15 to 17 times more expensive."

As its website states, "NovaTorque is not susceptible to high costs and supply vagaries (regarding rare earth elements)," because its "patented, flux-focusing, conical air gap rotor and stator geometry allow" for a "rare-earth, magnet-like performance with low-cost, readily available, ceramic ferrite magnets." NovaTorque (novatorque.com) released its first products-two and three 1,800 RPM motors-in 2010. The motor consists of conical hubs containing magnets separated by a tapered motor shaft. The key design element is that the interface between the magnetic surface of the hub and the shaft is diagonal-not flat-as with most motors. A diagonal interface dramatically increases the surface area between the two, thereby increasing magnetic flux transmission and reducing materials.

A December online article in Environmental Finance Minerals, citing a report by the consulting group PwC on metals scarcity in manufacturing, sums up the rare earth picture as we move into 2012, with a surprise or two thrown in.

"A global scarcity of rare earth metals over the next five years could be 'a ticking time bomb' for renewables and clean-tech. Hybrid cars, rechargeable batteries and wind turbines are among the sectors which could be affected by a shortage of these metals, which include cobalt, lithium and platinum" says PwC's report. "Rare earth metals are a key element for producing gearless wind turbines using permanent magnet generators," Daniel Guttmann, London-based director for renewables and clean-tech at PwC, points out. Manufacturers are now increasingly favoring gearless turbines, as they are more reliable than geared turbines, which are heavier and have more moving parts. But the rare earth issues "is a real headache for the industry and may negatively impact the cost-curve of offshore wind," Guttmann says.

Guttman also cautions in the report that "Two ways that automotive manufacturers expect to meet tightening emission regulations are electric vehicles and reducing vehicle weight, and rare earth metals are required to construct batteries of the right cost, weight and size. Scarce supply and the associated price implications could make it more difficult for (manufacturers) to keep pushing emissions down cost effectively."

On the (surprising) bright side, however, PwC surveyed 69 executives from seven different industries that would be affected by a scarcity of rare earth metals, and almost three quarters expressed a lack of concern or a low concern.

In the renewable energy industry, for instance, 67 percent felt that they are sufficiently prepared, as did 64 percent of the automotive industry. This is compared to about half of the respondents in the aviation industry and only about a third in the high-tech and chemical industries.

(Sources for this article: EWI; Pittsburgh Tribune-Review; Marketpressrelease.com; IMARC Group; Environmental Finance; IMS Research; Motion System Design; and Fortune Magazine.)