Demand for rare earth magnets have seen the greatest surge in recent years, as they are found in much of the latest technology, from smartphones to wind turbines to electric vehicles.
By 2035, Adamas Intelligence forecasts that global demand for rare earth magnets will triple, but supply won’t be able to keep up. The firm expects global production to only double, constrained by long lead times to bring new rare earth oxide production online.
Rare earths will be an important focus for the resource sector well into the next decade as more countries in the west work to create supply chains that are less dependent on top producer China. But doing this while scaling up production to meet the increasing demand will not 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 discussion at this year’s Future Facing Commodities conference 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 earth industry. In 2022, its domestic output reached 210,000 MT, according to the US Geological Survey, with the second-largest producing country, the US, far behind at 43,000 MT. When it comes to the processing of rare earths, China accounts for about 85 percent of the world’s total and more than 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 earths magnets space to build an integrated supply chain outside of China,” Northern Minerals’ (ASX:NTU) Nicholas Curtis told the audience in Singapore.
Sharing his thoughts on developing non-Chinese supply chains, Gavin Lockyer of Arafura Resources (ASX:ARU) said South Koreans are putting a lot of effort into research and development, with some groups starting to build magnet plants now.
“The IP for sintered magnets has been developed over many years by Hitachi, which basically defended their IP as long as they possibly could. It now pretty much all sits in China,” he said.
Tesla and rare earths
Pioneer US electric car maker Tesla (NASDAQ:TSLA) official Colin Campbell took the rare earth industry by surprise earlier this year after making comments on the amount of rare earth elements that would 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.
“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 US’ Inflation Reduction Act is a clear example, with the legislation requiring automakers to have 50 percent of critical minerals used in EV batteries come from North America or US allies by 2024.
Challenges ahead to build out supply chains for REE
But building out supply chains for critical minerals face different challenges ahead. Curtis said that who champions the supply chain is a function of the market, while government intervention is not a must.
“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 shared with the audience in Singapore.
“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 said.
The Rare Earth Observer’s Thomas Kruemmer said the biggest problem for rare earth 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 byproducts lanthanum and cerium.”
Even to map the industry flows of the material through the various stages is extremely difficult, Curtis added. “It’s very hard to know the volumes.”
“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.”
But a key aspect that needs to be improved in the rare earth supply chain is transparency. For Kingsnorth, that would lead to increased costs for companies which take shortcuts.
“The majority of the original equipment manufacturers, 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 identify 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.