Europe races to fix its rare earths import dependency
Europe is on a mission to wrest back control of its rare earth magnet supply chain from China.
Permanent magnets, commonly using a neodymium-iron-boron chemistry, are one of the hidden enablers of modern technology, powering everything from robots to refrigerators to laptop speakers.
They also help power electric vehicle (EV) and wind turbine motors, placing them at the heart of the energy transition.
However, as the rest of the world has come to realise, these critical minerals are also critically dependent on China, which dominates the global supply chain from rare earth processing through magnet production.
The United States has already laid out a funding and policy strategy to build out its domestic rare earths capacity.
Now it is Europe’s turn.
“A European Call for Action” by the Rare Earth Magnets and Motors Cluster, part of the European Raw Materials Alliance (ERMA), proposes fast-tracking 1.7 billion euros of investment into projects to kick-start a regional mine-to-magnet processing industry.
MADE IN CHINA
The European Union (EU) imports around 16,000 tonnes per year of rare earth magnets from China, accounting for around 98% of the bloc’s needs.
Demand is only going to grow as EV production and sales scale up. Around 95% of all EVs use traction motors containing rare earths and global usage from this sector alone is forecast to rise from 5,000 tonnes in 2019 to 70,000 tonnes per year in 2030.
As a consequence the “political impact of not regaining control over the rare earth value chain is tremendous”, according to ERMA’s Sep. 30 report.
While the global magnet market itself is relatively small at around 6.5 billion euros, “its downstream leverage is enormous”, the report’s authors note. The EU27 mobility and automotive sector alone is forecast to grow to around 400 billion euros with six million jobs by 2030, all of which is at risk from magnet supply disruption.
Europe currently has one rare earths separation facility, Estonia’s Neo Performance Materials NEO.TO, and a very limited number of magnet makers, the largest of which is Germany’s Vacuumschmelze.
All are trying to compete with China, where the rare earth supply chain is considered a “highly strategic asset” and the largest producers are “state owned and (…) sustained by various direct and indirect state subsidies”, according to ERMA.
The guiding question, it argues, should not be whether EU manufacturers can compete with Chinese ones – a European magnet costs around 20-30% more than a Chinese one right now – but rather what are the real costs of having a sustainable regional supply chain.
And indeed the real costs of “not having access to these materials at a given point in time”.
IF YOU CAN’T BEAT THEM…
Given the immense challenges of trying to compete with China’s rare earth magnet monopoly, the report’s proposals are for a pan-European state-led investment drive.
ERMA has already identified 14 projects spanning the value chain from mining (Finland, Norway, Sweden), separation (Poland), metallurgy (Estonia), recycling (Belgium and France) and magnet making (Germany and Slovenia).
The cumulative 1.7-billion euro investment would lift European magnet production from 500 tonnes per year to 7,000 tonnes by 2030, covering around 20% of European demand.
ERMA proposes the creation of a new raw materials bridge fund to de-risk projects and an IPCEI for the magnet sector. A so-called Important Project of Common European Interest facilitates the navigation of Europe’s state subsidy rules for strategic sectors.
There have already been two such investment rounds in the battery materials sector, the last one in January of this year, when 12 member states contributed 2.9 billion euros of funding.
At least four member states have indicated they would support a similar funding mechanism in the rare earths sector, according to ERMA.
Even more fundamentally, the call for action includes the European Commission exploring “measures to balance a fair level of reciprocity regarding state subsidies”, such as creating tax breaks for both projects and those end-users buying European rather than Chinese magnets.
It also suggests applying Europe’s pending carbon border adjustment mechanism to the rare earths supply chain.
Indeed, sustainable sourcing, another core component of Europe’s build back greener industrial strategy, is seen as a key mechanism for nurturing a domestic magnet sector.
ERMA calls on the EU to formulate a sustainability standard and certification scheme.
This would both enable the build-out of rare earth recycling capacity, which is currently marginal, and incentivise original equipment manufacturers to commit to long-term off-take agreements for “green” magnets.
It would inevitably disadvantage Chinese imports, which travel down a particularly opaque channel when it comes to environmental, social and governance (ESG) considerations.
Highlighting sustainability in rare earth supply chains is thus about far more than consumer preference for green metals. It is about positioning the rare earth magnet sector at the heart of the complex matrix of European Circular Economy, Green Deal and strategic autonomy policies.
UNSUSTAINABLE SUPPLY CHAIN
The EU is now on a similar path to that already taken by the United States, which has targeted critical minerals in its infrastructure bill, including a $140m grant for a rare earths processing plant.
Both aim to bring together government, industry and academia to tackle the whole problematic magnet supply chain from mine to motor.
And both are determined to reduce their near total dependence on China.
This is partly political, reflecting increasingly strained relations between China and both the United States and Europe. But it is also partly commercial.
China’s own demand for rare earths is rising exponentially in line with global magnet demand. The government has just lifted its rare earth production quotas by 20% to the highest ever level to try and alleviate tightness in the local market.
China is also struggling with its own rare earth dependency. Its dominance of the supply chain doesn’t extend to raw material, particularly that of so-called heavy rare earths such as neodymium. It imports around half of its feedstock needs from neighbouring Myanmar, which has closed key border crossings several times this year due to the coronavirus, most recently in August.
It’s a long way from Myanmar’s mines to an electric vehicle sitting in a forecourt in Europe but that’s the direct route of travel for the global rare earth magnet supply chain.
The United States and Europe know that’s not a sustainable supply chain in any sense of the word.
As ERMA terms it, “a disruptive change is required now”.
Emphasis on that last word.
Source: Reuters (Reporting by Andy Home; Editing by Kirsten Donovan)