Cleantech Investor

First published in Cleantech magazine 2011 Issue 5. Copyright Cleantech Investor Ltd

By Euan Sadden

Rare earth metals (REMs) are classified as those chemical elements with atomic numbers between 57 and 71. These include 15 metals from within the chemical group called the lanthanides. In addition, scandium (Sc, 21) and yttrium (Y, 39) are grouped within the lanthanide family because of their similar properties, resulting in a total number of 17 rare earth metals.

Despite the name, REMs are not actually considered rare. In fact, some, such as cerium (the most abundant of the REMs), are found in greater abundance than several of the major industrial metals, including copper and lead. However, although they may be abundant in the Earth’s crust, discoveries of rare earth deposits in economically viable concentrations are much less common than for most ores. Furthermore, the process for extracting these metals and isolating the ores in which they are found is highly technical, extremely difficult and environmentally hazardous.  Given the chemical similarities of REMs, developers and producers often face challenges in processing these elements economically.

The Rare Earth Metals

Source: Pike Research

Rare earth metals and oxides possess many desirable properties, including the ability to form unusually strong, lightweight magnetic metals when alloyed with other metals. They also offer distinctive and valuable optical properties, including fluorescence and emission of coherent light, which is important for lasers. Many of these properties result from the presence of an unfilled inner electron shell in their atomic structure.  Combined with other elements, they can help maintain or alter physical and structural characteristics under changing conditions.  Although rare earths have a relatively high unit value, their cost has little if any impact on the selling price of the final product because they are present in such minute concentrations.

China - a Near Monopoly

Securing access to critical REMs represents an important strategic objective for large scale manufacturers across a wide range of high-tech and cleantech industries. Since the mid 1980s, China has progressively acquired a near monopoly on the mining and separation of these metals down to their oxide forms. In fact, the country currently supplies approximately 97% of the world’s REMs market, and has achieved this largely because other resource holders have scaled down their activities or failed to make the necessary investments.

This market dominance represents a serious strategic and economic weakness with the potential to adversely impact a large number of global industries operating outside of China.  This is highlighted by China’s recent reform measures aimed at strengthening control over its fragmented REMs industry.  Beijing has articulated several reasons for this sudden policy shift.  Illegal mining and smuggling have remained dominant features of the Chinese REMs industry in recent years. In 2008, for example, illegal mining practices and smuggling were estimated to account for 20,000 tons, or one-third, of China’s total REMs exports for the year.

Unregulated and excessive production above the legal quota is also believed to have contributed to a global REMs market that fails to reflect the true commercial value of these metals. In addition, Chinese officials have invoked concerns surrounding China’s burgeoning domestic REMs demand in addition to the history of environmental damage that results from unregulated industry practices.

Despite its relative wealth in REMs deposits, China’s industry experts are increasingly worried about the sustainability of the current production trends. Since 2005, China’s Ministry of Commerce (MOC) has imposed ever stricter quotas on REMs exports. In September 2009, it announced the sharpest decrease to date, dropping the quota by 12% from 2008 levels. At the same time the Ministry of Industry and Information Technology (MIIT) floated a proposal to ban unprocessed heavy REMs exports by 2015. After an almost immediate international outcry, the proposal was withdrawn, but the quotas remained. In early July 2010, the MOC announced that REMs export quotas for the second half of the year would be slashed by 72% compared to the same period in 2009, and 40% year-to-year. 

China’s annual export quotas are depicted in the table below, which shows the year-on-year changes in the quotas.

China's Rare Earth Metals Export Quotas: 2005-2010

Source: Pike Research

The impact of quotas and demand has led to steep price hikes in all REMs, including neodymium and lanthanum - both critical to the cleantech industry.

Prices

Rare earth prices have continued to climb on the back of expanding efforts on the part of the Chinese government aimed at consolidating the country’s domestic rare earth industry. Recent price increases have been nothing short of incredible and have forced companies to address their procurement and pricing policies with respect to rare earths. For example, Japanese magnet maker Shin-Esu recently announced that it would revise its prices monthly rather than twice a year because rare earth prices were rising so rapidly. Similarly, some Chinese magnet manufacturers are now offering quotes that expire after only 72 hours, although specifying the final price is to be set on delivery. 

This behaviour is easily explained by examining recent prices for rare earths, which have skyrocketed since the beginning of the year.

At this point, there is very little activity in REMs recycling or re-use, with the exception of Japan. There the uptake of hybrid and electric vehicles is high, and the recent restrictions on REMs could  potentially have  a significant  impact, not only in  cleantech, but also in the electronics industry.  However, even there the development of recycling options for REMs remains in its infancy.

REM Applications in the Cleantech Industry

REMs are used in a number of high-growth, or potentially high-growth, cleantech markets, critically including magnets for wind turbines and electric vehicles.

Materials in Clean Energy Technologies and Components

Source: Pike Research

Permanent Magnet Wind Generators

The application of permanent magnet generators (PMGs) in wind turbines is a relatively new but growing trend in the wind energy industry. Offering key advantages in areas such as efficiency, reliability and design flexibility, direct drive permanent magnet (DDPM) generators are now being employed by leading manufacturers in the industry.

Earlier versions of wind turbine technology, such as doubly fed induction generators (DFIGs), rely on electromagnets and large gearboxes to drive electrical generation. Although effective, the performance of DFIGs is constrained by excess weight.  Major wind turbine manufacturers, including Siemens and General Electric (GE), have developed new turbines that use direct drive generators with permanent magnets. Replacing the gear-driven DFIG with a DDPM generator increases the availability and reliability of each turbine, resulting in fewer breakdowns and requiring less routine maintenance. These qualities are particularly important in offshore applications, where the servicing of turbines is both problematic and expensive.

Although the rotors of a unit deploying DDPM technology must be significantly larger to develop the same power, the overall weight of the larger unit is substantially less. By using neodymium in the magnets, the weight of the generator can be further reduced. According to experts at Holland’s Delft University of Technology, a 15 millimetre thick segment of permanent magnets can generate the same magnetic field as a 10-15 centimetre section of copper coils. GE’s newest direct drive wind turbine boasts a 25% efficiency rating over turbines using gearboxes.

Electric Vehicles

Although small today, the market for electrified vehicles, including electric vehicles (EVs), hybrid electric vehicles (HEVs) and plug-in hybrid electric vehicles (PHEVs), is expected to grow dramatically over the next decade. These vehicles are heavily dependent on the chemical and physical properties of REMs across several key components, and the electrified vehicles markets therefore potentially  face a significant risk in terms of their associated costs and potential supply shortfalls.

Phosphors and Lighting

Rare earth elements are used extensively as phosphors in the electronics and high-efficiency lighting industries. The global lamp market and industry is currently undergoing a major transition: long-established lighting technologies are making way for more efficient and advanced options, and regulatory activity is becoming increasingly proactive in accelerating these changes. Since early 2007, many governments and institutions, including the United States and the European Union, have announced policies aimed at phasing out standard incandescent lamps within their jurisdictions. The intention of these regulations is to encourage the adoption of higher efficiency lamps, and most notably compact fluorescent lamps (CFLs), in place of standard general lighting service (GLS) lamps.

China has passed a number of laws, including phase out legislation stipulating that buildings must convert to ultra-high-efficiency lighting within the next few years. The country currently dominates the global CFL industry, producing more than 80% of global sales. Importantly, it is also the largest single market for CFLs, accounting for 34% of demand by volume.

Solid Oxide Fuel Cells

Solid oxide fuel cells (SOFCs) are high temperature fuel cells that operate in the range of 800-1,000^oC. Like many other fuel cell technologies, SOFCs are composed of an anode and a cathode separated by an electrolyte. In the case of the SOFC unit, this electrolyte is a solid ceramic, such as zirconium oxide stabilised with yttrium oxide.

REM Forecast from the Cleantech Industry

Forecast Share of Rare Earth Metals Demand by Region - World Markets 2017

 Source: Pike Research

Pike Research forecasts anticipate that 2011 will see demand of some 9,000 tons of REMs in cleantech industry segments, rising to 13,000 tons by just 2017. This increase in demand of 4,000 tons is being driven by the planned global roll-out of battery EVs and the continued interest and diffusion of wind turbines.   It is therefore clear that the clean technology industry is particularly susceptible to any potential shortfall in REMs supply.

As demand for REMs across each of these applications is forecast to increase significantly by 2017, Pike Research anticipates that the industry sectors which are heavily reliant on REMs  will face varying degrees of risk.

Source: Pike Research

Of the cleantech applications profiled, all face the risk of potential supply shortfalls and the increased financial costs associated with procuring REMs. While demand varies across the industry, critical metals such as dysprosium and neodymium are important in a host of cleantech applications and are therefore likely to emerge as the subjects of increased competition between various sectors of the cleantech industry. Additionally, a constricted REMs market translates into varying degrees of potential risk for regional cleantech sectors. Asia Pacific is expected to face the greatest supply risks, given Pike Research’s regional demand forecasts for the year 2017 for battery EV penetration and wind turbine deployment.

If the Asia Pacific forecast is broken down, it can be seen that nickel metal hydride (NiMH) batteries represents the largest segment of total demand for REMs from the region, accounting for 1,400 tons by 2017.

The Chinese government is likely to continue consolidating the rare earth mining industry. Just recently we have witnessed the creation of a new trading system which will combine up to 80% of the rare earth production market. The new exchange mechanism, the product of an alliance between Batou Steel and Jiangxi Copper, will further strengthen China’s already burgeoning influence over the global light rare earths market. The move represents part of a larger attempt to consolidate China’s fragmented rare earth industry and is likely to contribute to further (albeit limited) price increases for selected light REMs outside of China. Further measures to consolidate the Chinese rare earth industry include a significant reduction in the number of rare earth mines currently in operation. How these closures will impact rare earth prices is still unclear: however, we can expect the current climate of high market prices to continue in the near term.

Many clean technology industries are looking to move away from a dependence on REMs and the last few months have also seen several developments suggesting a greater emphasis on rare earth recovery and recycling technologies. Pike Research expects this investment to continue and expand as companies begin to feel the heat from high market prices.