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The West is rebuilding its rare earth supply chain, but China is still big

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Slowly, Western companies and governments are reconfiguring their rare earth supply chains, trying to erase decades of fracking, outsourcing and offshoring vital industries to China.

Nobody said it would be easy.

This month brought a promising development: new investment in a Norwegian company that processes rare earths. this is an important swamp Final establishment of a transatlantic supply chain spanning Canada, Sweden and Norway.

If successful, the initiative will help West Chip move away from its complete dependence on China for rare earths, a group of 17 metals critical to the production of high-tech products. China currently accounts for 60% and 87% of global rare earth mining and processing, respectively – a degree of dominance over a vital sector that Western governments see as a serious threat to their national security.

“A … Nordic Rare Earth Value Chain”.

Swedish state-owned iron ore mining company LKAB announced this month that it has become the main investor and owner of REEtec, a Norwegian company. Since its founding in 2008, Retek has developed technology to separate rare earths from impurities and refine them into high-quality, high-purity materials, Known as rare earth oxides for use in products such as electric vehicle engines and wind turbines.

LKAB’s 400 million kroner ($40.3 million) investment will help REEtec finance a large portion of the rare earth separation plant on Norway’s Heroya industrial peninsula, with production scheduled to start in 2024 go.

“Together with Retek, we will lay the foundations for a strong and sustainable Scandinavian rare earth value chain,” LKAB CEO Jan Moström said in a statement.

This is not the first such transatlantic supply chain to take shape. Last year, two North American companies announced a partnership to establish a US-Europe supply chain stretching from the desert plateaus of Utah in the US to the small coastal town of Sillamäe in Estonia.

To run its plant, REEtec will source its raw material, known as rare earth carbonates, from Canada’s Northwest Territories. There, a company called Vital Metals mines rare earth ores at its Nechalacho project and then does some preliminary processing at a nearby facility. Under what is known as an off-take agreement, REtek will purchase rare earth carbonates from Vital Metals to be taken to the upcoming REtek separation plant for further refining.

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LKAB, Europe’s largest iron ore producer, will also supply REEtec with raw materials from 2027. That feedstock will be extracted as a by-product of LKAB’s iron ore mining in Sweden – a business model that China has used with great success.

“I really like this by-product approach because you don’t have to set up a new mine,” says Per Kalvig, a senior researcher at the Geological Survey of Denmark and the Center for Minerals and Materials of Greenland. “And second, with a lower cost of capital, you’re less vulnerable to competition from China, because it’s additional production.”

LKAB did not respond to a request for comment.

Removing China from a segment of the supply chain

The Canada-Sweden-Norway initial supply chain is also important for a more strategic Reason: Vital Metals’ Nechlacho mine will not depend on Chinese buyers.

This sets it apart from the only other commercially active rare earth mine in North America – MP Materials’ Mountain Pass Mine in California – which leases nearly all of its mined rare earths to its Chinese minority shareholder, the partly state-owned Shenghe Resources. sales to Shenghe accounted for more than 94% of MP’s total revenue in the first three quarters of 2022, according to MP’s latest filing (pdf).

,[Nechalacho] The only rare earth mine in North America that does not supply China,” David Connelly, vice president of strategy and corporate affairs at Vital Metals and its mining subsidiary Cheetah Resources, told The Canadian Press in May.

Graphic: Amanda Shendruk

This is also the story of the comeback of the Neclacho mine. The mine lay undeveloped for years after the rare earth bubble burst in 2011, leaving Canadian-listed owner Avalon Advanced Materials without the necessary funding for the project. It wasn’t until 2019 that Cheetah Resources closed a deal to buy the near surface portion of Avalon’s Neclacho mine. Vital Metals eventually restarted mining operations in Nechalacho in 2021.

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“This deal is important because you now see in Canada a prospect for minerals that was seen as an orphan for many years and is now being commissioned,” said Kingsley Jones, CIO and Founding Partner of Jevons Global, as he oversees the supply chain in Europe. start up. Australia.

Challenge: China’s monopoly and monopoly power

Even if a non-Chinese company buys the raw rare earths of vital metals, the next step in the supply chain—companies that will buy refined rare earths to use in production—is still entangled with and dependent on China.

This is because China has established itself as both a major seller and buyer of rare earths, giving it a huge influence over the entire global rare earth industry. Simply extracting more rare earths outside of China is not enough to reduce China’s overall dependence on metals.

What is unique about the rare earth industry is China’s “presence at every level as both a monopoly and a monopoly… which makes it very difficult [for other countries] To significantly penetrate the supply chain,” said Andy Mok, a senior researcher at the Beijing-based Think Tank Center for China and Globalization.

In its statement, LKAB said that 80% of RETEC’s planned production of rare earths has already been sold. One of REEtec’s customers is the Schaeffler Group, a German automotive supplier. Schaeffler makes, among other things, motors for electric vehicles, which require permanent magnets made of rare earth metals. But manufacturing such magnets requires highly specialized expertise, and Schaeffler has no history of making them.

In an April statement announcing its deal with Reetec, Schaeffler said the partnership would “secure our supply of magnets for electric motors,” without specifying who the suppliers would be. “Given the strong connection between Scheffler and China, he is probably Chinese,” Kalvig said. Also, China produces 93% of the world’s powerful permanent magnets. As a result, the downstream segments of the new transatlantic supply chain are still dependent on China, although the upstream and midstream segments are not.

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Schaeffler did not respond to a request for comment.

Less dependence on China, more transparency in the supply chain

Building a new Earth rare supply chain requires a degree of transparency from companies about who their suppliers are — corporate information that companies are often reluctant to disclose.

“If you’re competing with Volkswagen BMW, you don’t want BMW to know where you’re getting a special part for a special specification,” said Jones. “However, you both have a common interest in not being held to a ransom by a foreign supplier. It’s inherently complex and you won’t get straight answers.

The United States has taken steps to answer some of these questions.

Last September, the US Department of Commerce launched an investigation to determine whether imports of rare-earth permanent magnets pose a national security threat. The investigation ended in September, with the White House deciding against the tariffs and opting to increase investment in the domestic magnet industry. The research also helped Washington collect useful information from industry players — details that can help inform broader policies and strategies.

Jones believes Europe should now conduct similar investigations to extract critical information from companies. He said the question of where European companies source their magnets is “very opaque”. “Because of the very close supply chain ties between China and Germany and France… it’s hard to tell what’s happening on the boat, and I don’t think anyone really knows.”

Source: qz.com

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