Europe and US step up efforts to minimise reliance on Chinese rare earths

September 7, 2020

The US and Europe are stepping up their efforts to boost domestic production of raw materials used in electric vehicles and reduce the global dependence on China for the supply of rare earths, according to a report by Automotive News Europe.

The European Union recently increased its focus on becoming less dependent on imported raw materials, with the European Commission having promised to create a ‘raw-materials alliance’ by the end of the year. In the US, two Congressmen recently introduced bipartisan legislation aimed at reducing the country’s dependence on China for rare earths.

Rare earth materials are used to create permanent magnets used in electric motors and other applications. Electric and hybrid vehicles may contain large quantities of these magnets in applications such as drive motors, fans, generators, power steering, pumps, seat motors and loudspeakers. 

China currently dominates the global supply of rare-earth materials due to being home to the majority of the natural rare earth deposits in the world, and may raise material prices dramatically during periods of tension, meaning that the global supply of rare earths is unstable.

Concern about the influence of China has gained more prominence as trade tensions increased between the US and China in recent years. US President Donald Trump is said to have ordered the US Defense Department to spur production of rare-earth magnets, as the trade war between the two countries sparked concern that China will restrict their export.

However, costs, access to raw materials and environmental concerns pose significant challenges for creating an independent supply chain outside of China, according to analysts.

Jennifer Bisceglie, the CEO of Interos, a supply-chain risk management company, commented on these challenges; “It’s very difficult to sustain, it’s expensive to sustain. If you create an entire local supply chain, think about the expense in training the labour and getting the raw materials if they’re not in your country.”

The bills introduced in the US House and Senate do offer tax incentives which would make the domestic industry more competitive, but it would reportedly take significant take time for countries to build up technology and equipment locally to compete with China’s rare earth export industry, and there are significant environmental hurdles for rare earth mining and exploration.

Europe’s plan to boost domestic rare earth production has been criticised for focusing too heavily on mining and having only a limited focus on rare earth recycling. However, while the long-term goal is to end dependence on China for the raw materials, executives at rare earth mining companies have reported that they only need to gain a portion of the market to incubate successful domestic industries.

“It doesn’t need to be the entire industry, it just needs to be some significant part of the supply,” explained Jim Litinsky, CEO of MP Materials, the only company to mine rare earths in the US. “As long as there are one or a handful of major Western competitors, that keeps the entire supply chain honest and shields us from getting squeezed.”

Because China is currently the only nation with the facilities to refine rare earths from raw materials, MP Materials is forced to ship its raw materials to China for final processing. However, if the China’s share of the market were to be cut to 60% of the supply chain, this would no longer be the case, according to Litinsky.

Mikael Staffas, CEO and president of mining company Boliden, added, “In general discussions even about two years ago, people were saying ‘free trade is going to solve everything – what’s the big problem?’ There has always the world market, where we can buy whatever we want. I think that mindset has changed very quickly – I think we have become more and more aware that that might not always be true.”

However, moving supply chains poses significant difficulties, especially when another country can provide the materials at a much cheaper cost. Chinese companies are said to be very effective operators, with the ability to build up stockpiles without fearing inventory devaluation. For the majority of buyers, it is expected that the lower cost of Chinese rare earths will outweigh their location.

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