How to secure our critical rare earths supply: lessons from China

Not to advance is to drop back – Chinese proverb

Rare earths are a group of 17 elements, known as the ‘vitamins of industry’ because many applications require only minute – but critical – amounts. Permanent magnets are an exception, being composed of 31% rare earths. Permanent magnets are the main driver of the US$3-4billion global rare earths market, accounting for just 20-25% of volume, but 80-85% of value, due to their multiple applications in advanced technology for transport, information and communications, defence and medicine. Permanent magnets are critical for high performance electric vehicles, wind turbines, smartphones, computers, and magnetic resonance imaging, for example.

Dig the well before you are thirsty – Chinese proverb

In 1992, Deng Xiaoping said ‘There is oil in the Middle East. There is Rare Earth in China.’ China’s rare earths industry began with mining and extraction and extended to downstream manufacturing. China has now conquered more than 90% of the rare earths market.

Most people are unaware of the critical role of rare earths in technologies we use daily, and on which our future industries and wellbeing will depend. Consequently, they are unaware of the threat presented by China’s near monopoly in rare earths supply. Single country domination in the production of minerals essential for clean and efficient energy generation, advanced computing and communications, and high-tech defence applications, has the potential to disrupt economies and the security of all nations. While the US, Canada, Japan, Korea and Europe are taking action to secure their rare earths supply, Australia has no such strategy in place.

When you drink the water, remember the spring – Chinese proverb

Companies who buy materials and technology without concern for the origins of their components are enabling China’s dominance of supply. Purchase specifications usually focus on performance criteria and prices, ignoring the source of components. A traceable supply chain from mineral sources through to products requires elemental mapping of materials and devices, and is the first step to addressing the risk of supply monopoly.

There are three truths: my truth, your truth, and the truth – Chinese proverb

Industry platforms quote daily rare earths prices, and news items about market developments provide other price data. Estimating supply is more difficult, as actual rare earths production appears to be much higher than official Chinese government production quotas. Inspections by China’s Ministry of Environmental Protection have identified widespread non-compliance, illegal activities and corruption in rare earths production.

The best way to determine the true state of the rare earths market is to study demand for the rare earths in permanent magnets, which leads price increases. Prices for praseodymium/neodymium (Pr/Nd) oxide, the main magnet rare earths, have increased by over 70% since the beginning of this year.

When the winds of change blow, some build shelter while others build windmills – Chinese proverb

Based on data provided by Professor Dudley Kingsnorth from the Industrial Minerals Company of Australia, some of the big changes affecting the price of rare earths in recent years are as follows:

  • In 2011, China had more than 150 companies involved in mining, processing and marketing rare earths. Consolidation since 2014 has resulted in just six state-owned enterprises, and their subsidiary companies, controlling the rare earths market.
  • In 2015, China removed export taxes of 15-25% from rare earths.
  • The Made in China 2025 initiative is providing $US hundreds of billions in Chinese government support for ten high-tech industries to achieve 70-80% domestic supply by 2025. Electric vehicles, wind power and industrial robots are included industries, which require permanent magnets.
  • Demand for Pr/Nd oxide for permanent magnets has increased from 27,500t in 2011 to an estimated 46,500t in 2017 – a compound annual growth rate of 9%.
  • China’s ‘war on pollution’ (announced in 2014) is showing signs of being a permanent campaign. The cost of rectifying the environmental damage caused by mining and processing over the past 30 years is estimated at US$30-40 billion, driving up rare earths prices.
  • Since 2011, illegal Pr/Nd oxide production has increased by around 3.3 times to 24,500t, or 50% of total supply. (This is a conservative estimate, based on Chinese domestic consumption only.) The Chinese government’s attempts to stop illegal mining – partly to prevent further environmental damage – have driven prices up as customers compete to secure legal supplies.
  • Production shortfall for Pr/Nd oxide has increased from 35-40,000t to 100-120,000t.

Opportunities multiply as they are seized – Chinese proverb

In summary, China’s ‘war on pollution’ appears to be reducing its illegal rare earth supply while domestic demand is increasing with support from government policies. With demand for permanent magnets set to grow at 9% p.a. or more, where will extra supply come from to feed insatiable demand from China and the rest of the world? Chinese companies are not waiting for legal Chinese supply to increase to match demand, but are actively seeking foreign sources of rare earths to fill the gap.

ASM’ Dubbo Project is construction-ready, having received all necessary government approvals. With a substantial estimated mine life, it will produce critical zirconia, niobium, and light and heavy rare earths.

It doesn’t require the wisdom of Confucius to know that Australians should seize this opportunity to secure our high-tech future and economic wellbeing.

The best time to plant a tree was twenty years ago. The second-best time is now – Chinese proverb

Supply chain sustainability driving zirconium prices higher

Leading companies are placing increasing importance and accountability for sustainable sourcing of raw materials, and traceability throughout the supply chain. This includes auditing of suppliers to ensure that all elements or compounds can be traced back to where they have been originally mined, and then processed at various stages across the supply chain. This often involves multiple countries, companies, and responsibilities to ensure that materials are produced to the correct specifications at every step of the way, while also upholding strict social and environmental standards. This also addresses commitments to meet international health and safety standards and conditions for workers, and ensuring there is no exploitation of children or minority groups, such as in the production of cobalt or tantalum in Africa.

“Sustainability” has different meanings to different stakeholder across the value chain, and includes the effect of mining and processing on the environment, downstream manufacturing, and the degree of recycling of end of life products to recover critical elements. Minimising the impact of mining and processing on the environment is a common goal, with efforts to minimise the carbon footprint and use of water and chemicals during processing. This includes minimising the amount of waste and residues produced and how they are safely neutralised, stored, and managed over time. The mineral sands industry in Australia is a good example of how mines can be developed to extract the zirconium and titanium ores, which in many cases are exported for further processing. Once a mine reaches the end of its life, the mine and surrounding areas are remediated so that the original landscape is in many cases left in a better condition than before mining commenced. This includes returning the environment to its natural condition, and meeting obligations undertaken when environmental agreements and licences were first granted.

With China responsible for supplying over 75% of global zirconium materials in the form of fused zirconia and zirconium oxychloride (ZOC) derived chemicals and powders, the importance of secure and sustainable supply chains for these critical elements is becoming increasing important. In the case of ZOC, China now produces over 90% of global supply as traditional producers in Japan, Europe, and North America cut back or ceased production 20-30 years ago when they could no longer compete. Interestingly, the Chinese zirconium industry relies on the importation of zirconium ores and concentrates (zirconium silicate), which are mainly supplied by Australia and South Africa. It has faced many challenges in recent years as it modernises production facilities to minimise air, water, and soil pollution. This has required significant ongoing investment to upgrade facilities to meet tougher environmental laws and policies, and is a continuing trend to address responsible production. Restricted supply and prices increases this year being can be attributed to tougher environmental compliance costs, plus higher chemical and raw material costs. Next in line is expected to be greater scrutiny of zirconium chemicals waste streams and how they are handled, stored and managed, as there is increased emphasis on all types of soil and water pollution. As widely reported, almost all of the uranium and thorium found in ZOC waste streams comes from the zirconium silicate raw material, which adds up to ~65 tonnes per year.

Chinese Premier Li Keqiang announced at the National People’s Congress in March that “we will make our skies blue again…and build a green Great Wall of sustainable development”. This strongly supports the government’s commitment to reduce all forms of pollution, and the widespread efforts by authorities to carry out environmental inspections on its chemicals industry. This includes the zirconium chemicals industry, with Shandong Province temporarily suspending ZOC production in April and May. These are all important steps towards more sustainable production, and is expected to be followed by more environmental inspections and policies to control pollutants, including taxes on waste products, which is expected to further increase production costs.

The increased sense of urgency by western customers over zirconium prices and sustainable supply makes ASM Dubbo Project (DP) an important alternative source of zirconium supply which is independent of China and zircon, as well as other critical rare earths, hafnium, and niobium.