Critical Materials for Critical Technologies
Commodities / Metals & Mining Feb 03, 2012 - 10:36 AM GMTBy: Richard_Mills
Critical materials have been described in various ways, with perhaps the clearest being the following two definitions:
A critical or strategic material is a commodity whose lack of availability during a national emergency would seriously affect the economic, industrial, and defensive capability of a country.
The critical materials are natural resources that have a threatened supply availability and are a necessity for technology that is experiencing growing demand.
The French Bureau de Recherches Géologiques et Minières rates high tech metals as critical, or not, based on three criteria:
- Possibility (or not) of substitution
- Irreplaceable functionality
- Potential supply risks
What are the Critical Materials?
In its first Critical Materials Strategy Report, the U.S. Department of Energy (DOE) focused on materials used in four clean energy technologies:
- wind turbines - permanent magnets
- electric vehicles - permanent magnets & advanced batteries
- solar cells - thin film semi conductors
- energy efficient lighting - phosphors
The DOE says they selected these particular components for two reasons:
- Deployment of the clean energy technologies that use them is projected to increase, perhaps significantly, in the short, medium and long term
- Each uses significant quantities of rare earth metals or other key materials
The DOE defines "criticality" as a measure that combines importance to the clean energy economy and risk of supply disruption.
A Report by the APS Panel on Public Affairs and the Materials Research Society coined the term "energy-critical element" (ECE) to describe a class of chemical elements that currently appear critical to one or more new, energy related technologies.
This report was limited to elements that have the potential for major impact on energy systems and for which a significantly increased demand might strain supply, causing price increases or unavailability, thereby discouraging the use of some new technologies.
The focus of the report was on energy technologies with the potential for large-scale deployment so the elements they listed are energy critical
Critical Raw Materials for the EU listed 14 raw materials which are deemed critical to the European Union (EU).
"Raw materials are an essential part of both high tech products and every-day consumer products, such as mobile phones, thin layer photovoltaics, Lithium-ion batteries, fibre optic cable, synthetic fuels, among others. But their availability is increasingly under pressure."
Taking all the metals, from all three lists, gives us:
Antimony beryllium Cerium Cobalt Dysprosium Europium fluorspar Gadolinium Gallium Germanium Graphite |
Helium Indium Lanthanum Lithium Magnesium Neodymium Niobium Palladium Platinum Praseodymium |
Rhenium Samarium Selenium Silver Tantalum Tellurium Terbium tungsten Yttrium |
The U.S. Department of Energy, in its Dec. 2011 report entitled Critical Materials Strategy examined the role that rare earth metals and other key materials play in clean energy technologies such as wind turbines, electric vehicles, solar cells and energy-efficient lighting.
Five rare earth metals -dysprosium, neodymium, terbium, europium and yttrium are considered to be the most critical of the elements considered in the report.
The key issues in regards to Critical Metals are:
1. Finite resources
2. Many of these metals are sourced only as a byproduct of other metal production, which renders them supply inelastic. Mine production of many metals is showing a number of similarities:
- Slowing production and dwindling reserves at many of the world's largest mines
- The pace of new elephant-sized discoveries has decreased in the mining industry
- All the oz's or pounds are never recovered from a mine - they simply becomes too expensive to recover
- Mining is cyclical
3. Chinese market dominance in many sectors. For many of the critical raw materials, their high supply risk is mainly due to the fact that a high share of the worldwide production mainly comes from a handful of countries, for example:
- China - Rare Earths Elements (REE)
- Russia, South Africa - Platinum Group Elements (PGE)
- Democratic Republic of Congo - Cobalt
4. Long lead times for mine development
5. The majority of these metals cannot be hedged as they are not traded on an exchange, this makes financing for mining more difficult to arrange
6. Resource nationalism/country risk
7. High project development cost
8. Relentless demand for high tech consumer products. Critical Materials demand is driven by several specific global macroeconomic trends:
- Miniaturization
- Environmental protection
- Increasing demand for energy, power and fuel efficiency
9. Growing global middleclass
10. Shifting global trade patterns
11. Rapid technological advances shrink a device's operational lifespan
12. Ongoing material use research - Specialty metal demand trajectory is discovery driven rather than directly correlated with a country's GDP
13. Low substitutability - Substitution of certain metals or elements with those in the same group is sometimes possible, unfortunately such substitution frequently results in the price of the substitute itself increasing. Substitutes used from outside of a group tend to require more of and usually always results in a bulkier, heavier device with worse performance characteristics
14. Such trace amounts (such as the amount in a cell phone) are used prices are usually inelastic.
15. Environmental crackdowns
16. Low recycling rates - Most high tech devices end up in a landfill
17. Lack of intellectual knowledge and operational expertise in the west
18. Mineralogy is mineral composition, metallurgy the process of extraction. Complicated mineralogy, as is often the case with these critical metals, can mean complex, expensive, power intensive, time consuming metallurgy
The Myth:
Its often said that each of these metals represent a market of less than a few billion dollars in a $50 trillion economy so they don't matter, they are inconsequential and are not really investable.
Let's look at why they matter and give an example using Rare Earth Elements (REE), and in particular Neodymium.
The current size of the rare earth sector is estimated at US$10-15 billion annually. Global production is about 120,000-130,000 tonnes of rare-earth oxides per year.
China provides 97% of the world's REE production but, according to the USGS Mineral Commodity Summaries 2011 China only has 48% of the world's known reserves of rare earths. Demand inside China is growing at a faster rate than outside of the country as a consequence China has been imposing export quotas on rare earths which has created two separate rare earth markets - an internal Chinese market and globally, pretty much everyone else. The Chinese export quota for the year sets the global supply and price of REEs.
Demand forecasts indicate steady growth. In the next five years Chinese demand for REEs is expected to grow between 7-12%. In the magnet industry demand for neodymium is expected to grow by about 10% per year. The shift away from electromagnetic systems towards permanent magnetic-based direct drive systems is increasing demand for these high powered magnets. The continuing miniaturization of electronic devices - such as disk drives and micro motors - is possible because of the ability of rare earth magnets to combine high magnetic strength with a small size and weight.
Rare earth oxides are the beginning building blocks used to produce magnetic powders, these powders are the primary material used in the manufacture of rare earth permanent magnets - processing specific combinations of elements results in distinct magnetic and physical characteristics. The main REE oxides consumed in the manufacture of Neo and samarium-cobalt permanent magnets are; neodymium, samarium, some dysprosium and praseodymium.
Neodymium is the key to making the highest-coercivity rare earth permanent magnets - the superior high strength permanent magnets used for many energy related applications, such as wind turbines (the most efficient turbines require approximately 1,000 kg of neodymium for each megawatt of electricity to be produced) and hybrid automobiles.
The flow of electrical signals on every printed wiring board used in electronic devices is regulated and controlled by the use of dielectric chips known as multi layer ceramic capacitors ("MLCC's"). Many use rare earth formulas containing lanthanum and neodymium.
"Magnetic technology rates as the most important use of REEs due to its many uses in green technologies and military applications. The two primary rare earth magnets are the samarium-cobalt (SmCo) magnet and the neodymium-iron-boron (NdFeB) magnet. The SmCo magnet is able to retain its magnetic strength at elevated temperatures. Because of its thermo-stability, this type of magnet is ideal for special military technologies. These technologies include precision guided munitions--missiles and "smart" bombs and aircraft.
The NdFeB magnet came about in the 1983 when scientists from General Motors and Hitachi each found that NdFeB had superior permanent magnetic properties, and submitted applications for patents. A battle ensued and both companies came to an agreement that split the rights to the discovery.
GM needed the magnets for its vehicles and in 1986 the company established a new division to produce the NdFeB magnets. They called the division Magnequench. In 1995 two Chinese groups, the Beijing San Huan New Materials High-Tech Inc. and China National Non-Ferrous Metals Import & Export Corporation, joined forces with Sextant Group Inc, an American investment firm founded by Archibold Cox, Jr., and tried to acquire Magnequench. The purchase was reviewed by the U.S. government and finally went through after China agreed to keep Magnequench in the United States for at least five years. Magnequench was located in Anderson, Indiana.
The day after China's deal to keep Magnaquench in the United States expired in 2002, the entire operation, along with all the equipment, disappeared. All employees were laid off and the company moved to China.
In less than one decade, the permanent magnet market experienced a complete shift in leadership. Whereas in 1998, 90 percent of the world's magnet production was in the United States, Europe, and Japan, today, rare earth magnets are sold almost exclusively by China or using Chinese rare earth oxides." The Rare Earth Dilemma: China's Market Dominance, Cindy Hurst thecuttingedgenews.com
"Magnequench began its corporate life back in 1986 as a subsidiary of General Motors. Using Pentagon grants, GM had developed a new kind of permanent magnet material in the early 1980s. It began manufacturing the magnets in 1987 at the Magnequench factory in Anderson, Indiana.
In 1995, Magnequench was purchased from GM by Sextant Group, an investment company headed by Archibald Cox, Jr - the son of the Watergate prosecutor. After the takeover, Cox was named CEO. What few knew at the time was that Sextant was largely a front for two Chinese companies, San Huan New Material and the China National Non-Ferrous Metals Import and Export Corporation. Both of these companies have close ties to the Chinese government. Indeed, the ties were so intimate that the heads of both companies were in-laws of the late Chinese premier Deng Xiaopeng.
At the time of the takeover, Cox pledged to the workers that Magnequench was in it for the long haul, intending to invest money in the plants and committed to keeping the production line going for at least a decade.
Three years later Cox shut down the Anderson plant and shipped its assembly line to China. Now Cox is presiding over the closure of Magnequench's last factory in the US, the Valparaiso, Indiana plant that manufactures the magnets for the JDAM bomb. Most of the workers have already been fired.
It's clear that Cox and Sextant were acting as a front for some unsavory interests. For example, only months prior to the takeover of Magnequench San Huan New Materials was cited by US International Trade Commission for patent infringement and business espionage. The company was fined $1.5 million. Foreign investment in American high-tech and defense companies is regulated by the Committee on Foreign Investments in the United States (CFIUS). It is unlikely that CFIUS would have approved San Huan's purchase of Magnequench had it not been for the cover provided by Cox and his Sextant Group.
One of Magnequench's subsidiaries is a company called GA Powders, which manufactures the fine granules used in making the mini-magnets. GA Powders was originally a Department of Energy project created by scientists at the Idaho National Engineering and Environmental Lab. It was spun off to Magnequench in 1998, after Lockheed Martin took over the operations at INEEL.
In June 2000, Magnequench uprooted the production facilities for GA Powders from Idaho Falls to a newly constructed plant in Tianjin, China. This move followed the transfer to China of high-tech computer equipment from Magnequench's shuttered Anderson plant. According to a report in Insight magazine, these computers could be used to facilitate the enrichment of uranium for nuclear warheads.
GA Powders isn't the only business venture between a Department of Energy operation and Magnequench. According to a news letter produced by the Sandia Labs in Albuquerque, New Mexico, Sandia is working on a joint project with Magnequench involving "the development of advanced electronic controls and new magnet technology".
Dr. Peter Leitner is an advisor to the Pentagon on matters involving trade in strategic materials. He says that the Chinese targeted Magnequench in order to advance their development of long-range Cruise missiles. China now holds a monopoly on the rare-earth minerals used in the manufacturing of the missile magnets. The only operating rare-earth mine is located in Batou, China.
"By controlling access to the magnets and the raw materials they are composed of, US industry can be held hostage to Chinese blackmail and extortion," Leitner told Insight magazine last year. "This highly concentrated control-one country, one government-will be the sole source of something critical to the US military and industrial base." Jeffrey St. Clair, The Saga of Magnequench
Conclusion
Each rare earth element has different end uses and applications, and is produced in different quantities - certain rare earths, including Neodymium, are already in a supply deficit, both in China and in the west.
It is not the size of an individual REEs market, or even the whole critical materials market one should consider. Rather, it's the manufacture of value added products enabled by these materials that counts - for example green energy (wind turbines, electric vehicles, solar cells and energy-efficient lighting) and consumer products (miniature speakers, cell phones, batteries, and screens) account for a large percentage of global GDP. We're no longer talking a billion or two, we're talking hundreds of billions, perhaps trillions of dollars.
What value is placed on the defense of a country by its leaders and citizens?
Without the Critical Materials on our list many of these critical technologies, products, and yes gadgets and toys, would not exist.
Critical materials, and their value added markets, should be on every investors radar screen. Are they on yours?
If not, maybe it should be.
By Richard (Rick) Mills
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Copyright © 2012 Richard (Rick) Mills - All Rights Reserved
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