Rare Earth Metals: The Electrical Industry`s Newest `Issue`

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Courtesy of Connexion

It seems that every year there’s a supply / demand issue our industry is faced with. Last year was the infamous ‘ballast shortage’ due to the world wide electronic component shortage. This year we may be seeing a new issue rearing its ugly head; the shortage of 'rare earth' metals.

Rare earth metals are a group of 17 elements that are used in a wide range of products we use every day, including iPhones, hard drives, hybrid cars and wind turbines. If you're a business person and currently not interested in hybrid cars or wind turbines - you might be interested in fluorescent lamps. A major manufacturer of compact fluorescent lamps has recently announced a 15 percent price increase due to the 'increase phosphors used in fluorescent lamps. This year the cost of phosphor has gone up nearly 900% and continues to rise'. These phosphors are a byproduct of our rare earth minerals.

China has become a leading producer of rare earth metals - which leads us to today's situation, where China now produces an enormous 97 percent of the world's rare earth supply. As you may have guessed, having a single source for the world's need may lead to problems if something happened to that source. Well, that is exactly what is happening. What follows here is an article written by Joe Salimando addressing China's control of the rare earth market and its impact on our industry.

If you're a follower of Joe's work (as we at Connexion are), you'll find this article has his unique blend of factual data and opinion and as expected - is spot on. To read more from Joe go to: http://electricalcontractor.com/.

REMs? Found In CFLs, EVs & Wind Turbines…

By Joe Salimando (Originally appeared in tED Magazine and reprinted with permission)

Rare earth metals (REMs), a group of 17 elements on the periodic table, are hot-hot-hot these days. The credit for the fire goes to wind turbines, which use a big heap of REMs, and EVs, which use a smaller heap…and the Chinese, of course. If all this sounds familiar, you’ve been reading tED’s print editions—where the Commodity column covered these things in the March 2010 and May 2011 issues.

If you didn’t read those issues—or can’t recall them—find them at this link. If you’ve not registered, do so (it’s fast and free). You can see recent back issues there, including the two above. Once you’ve arrived at either of the above issues, click on “Current” and then on “Commodities” to get the REM basics.

Why revisit this now? At the Electric Drive Transportation Association national meeting in Washington, D.C. in mid-April covered here previously —see the past four Special Reports here—there was a session devoted to rare earths. Additionally, I’ve come across more info than I had when I wrote the May 2011 tED article.

Hang on. There’s a lot to know, much that’s disputed, and—as it turns out—this might actually be important.

Some Disputable Facts

CHINA—First, you have to understand that—as a result of the way this planet formed 4.5 billion years ago—the Chinese seem to be sitting on 95% of the current supply of those 17 items. What’s important is that they’ve imposed export restrictions on REMs. Why?

a.       Hey, remember—the guys running China were appointed by the previous guys, who were Communists. The current guys might be Communists, too. The country still has five-year plans (it’s on the 12th of these right now…).

b.      Let’s say the ground on which you stood contained the REMS proven vital to the construction of wind turbines. BUT: You have a growing industry that makes said turbines for export. AND: You need to put more people to work (is there a country that doesn’t have this problem?).

            You face a basic question: Do you want to export the raw materials or do you want to export the finished goods?

c.       Capitalism “works”—internationally—when everyone plays by the same rules. Think about these questions: (a) Have the Chinese historically played by the same rules as everyone else, ever?; (b) if you could really get away with having yourself excepted from the rules, why wouldn’t you?; and (c) if you thought your country needed to provide employment for all those excess men (the “one-child” rule led a lot of Chinese moms and pops to drown their first child, when it was a girl)…wouldn’t you be biased toward exporting finished goods rather than raw materials

WHERE THE REM ARE—In the early history of the universe, what we basically had, for a time, was hydrogen and helium. Then there were supernovas. These things emitted all of the other elements (I am NOT making this up). In other words, for a short time the universe consisted of two elements on the periodic table…and then, literally, all heck broke loose.

If this explanation plays, then all the metals in the Earth’s crust (yes, even copper) were spit out by supernovas, drifted in the galaxy for a while, and then (some of them) congealed here when the planet brought itself together. This is a heck of a thing to think about and, of course, doesn’t really have anything to do with whether copper is $4.17 per pound or $3.35.

If all this sounds extremely unlikely, consider that Earth is only 4.5 billion years old. The 9 billion in between the creation and our planet’s congealing allows for lots of time for supernovas, and more. No one knows how the Earth came together; but it’s clear that a heck of a lot of oil ended up beneath Saudi Arabia. And China got a disproportionate share of the easier-to-access REMs.

            [What did the United States get? A heck of a lot of really good dirt, a wonderful place to grow things.]

OTHER PLACES—the REMs aren’t all in China alone, of course. A company called Molycorp Inc. is in the REM business. In August 2010, you could have obtained its stock (shortly after a late-July IPO) for no more than $17.60. In May 2011, the stock price soared as high as $79.

There probably ARE many other places outside of China where the rest of the world could obtain REMs. However, even if you know where the REMs are hiding in the ground, it takes an awful lot of time (five to 10 years) to site, prep, and start up a mining operation. And it takes a huge investment—and commitment over time—to move the tons of ore one must sift through to get pounds (or even ounces) of those precious 17 elements.

As someone who (a) follows copper pretty closely,  (b) is a precious metals investor, and (c) has had an interest in crude oil and its products since working on a petroleum industry magazine in 1976, I can tell you…it’s taking more and more effort and more and more money to harvest stuff from the ground. Gold miners who formerly got an ounce of the stuff from 3 tons of rock-harvesting are, it is said, closer to wresting only ONE ounce from every 3 tons.

            (Hey, could this be a reason gold’s price has gone straight up? Naaaah.)

            (Hey, is this in part what the Macondo oil disaster was about? Naaah.)

OK. I could go on for many 1000s of additional words here; go read the pieces from tED’s print editions for more of the basics. For now, let’s “cut to the chase” and look at what was said in the EDTA break-out session (in front of an audience of automobile people and electric utility folks).

EDTA’s REM Session

Breakout panelists included professionals from Arnold Magnetic Technologies, Chemetall (Battery Products operation), Western Lithium, and the Rare Earth Industry and Technology Association. The moderator: Tracy Weslosky of Pro-edge Consultants. Of note: Chemetall called itself (in the opening slide) “The Lithium Company.” I don’t know if the Western and Chemetall guys do not/did not like each other, but there was a “vibe” to that effect.

At some point—while the info presented in this session ranged from merely interesting to positively fascinating—I wondered why this session was where it was. It would be like going to a breakout at the NECA Show on motors and motor controls and finding yourself in a lecture about the selection of bushings in the design of energy-efficient motors (sure, important and interesting…but not why you got out of bed that morning!).

    110607sr

Slide from Keith Delaney’s presentation at EDTA’s April event.

Keith Delaney, executive director of the association, included the info that REMs are used in “advanced lighting.” Included in his assertions:

“The Chinese will continue to manage [their] RE virtual monopoly to induce even more downstream (value add) manufacturing to relocate to China.” How’s that? If you put your REM-using facility INSIDE the Middle Kingdom, you are not subject to the PITA export restrictions(!).

Delaney also speculated that by 2015 China itself might have to become an importer of REM. His exact words were “experts predict” that this will happen…a phrase that chills my spine.

            I have no way of knowing if this is true but—assuming it is—the Chinese might end up learning the truth of that old adage about “be careful how you treat people on your way up, you might meet them again when you’re on your way down.”

More from REITA. Note that GE and GM are both members of the association.

Among other things said that are written up LARGE in my notes:

  • Delaney: “It takes five to 12 years and $1 billion to bring a new rare earth property (mine) into production.”
  • CFLs are, for rare earths, “a real small market, but important.”

Can We Substitute For REMs?

Delaney’s presentation was titled “Clean Energy Demand for Rare Earth Permanent Magnets.” He noted that the EV-maker Tesla (the company with the $109,000 price tag on its initial introduction) has managed to bring its product to market without use of REMs. The company’s vehicles use induction motors. The problem, Delaney claimed: “There is a trade-off [for Tesla]…in size and weight.”

NOTE: Tesla isn’t the only company looking for a way around using REMs. An EDTA presentation from Remy Electric Motors was titled: “Game-Changing Technology to Advanced Electric/Hybrid Vehicles—Reducing Dependency on Rare Earth Permanent Magnets.”

A quick thing to think about: Does it seem as if, in our quest for “energy independence” (code words for “let’s buy nothing from the Arabs”), we are rushing to put ourselves in a vise created especially for us by the Chinese?

            Are you sure the Arabs hate us more than the Chinese do? Do the Arabs have hunter-killer satellites up in the sky? Do they have hackers testing the cyber security of our defense contractors and power grid…tens of thousands of times each day?

Next time: What the three private company execs on the REM panel had to say, a bit more from the Remy folks, and info that’s come out since.

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