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China dominates the global
supply of several critical
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minerals, and for some years
the country has been
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restricting exports slowly
at first.
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Then quickly,
in April 2024,
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the problem came to a head.
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China all but completely cut
off access to several
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crucial materials in its
trade dispute with the
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United States. At the center
of it is a class of minerals
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called rare earth elements.
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They're used in a wide array
of products, anything from
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airplanes to electronics,
even sports equipment.
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It is hitting our defense
industry,
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our semiconductor industry,
our automotive industry,
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our medical industry.
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There's really no major
industry that is being
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spared the impact of it.
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Within three weeks of China
cutting off access,
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prices of rare earths shot
up 40%.
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The auto industry was hit
especially hard.
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It's just the latest in a
series of supply shortages.
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Several vehicle plants in
Europe shut down.
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Ford stopped making the
explorer at its Chicago
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factory in May.
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Car companies panicked.
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You are not going to
manufacture a car without
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rears.
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They're all over the car.
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On June 13th,
Beijing signaled a
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willingness to ease its
restrictions.
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That'll buy some time,
but insiders say it's a
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patch.
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We're not out of the woods
yet. There is a lot of
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volatility in the US-China
relationship in between
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tariffs and mineral
restrictions.
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We've seen China ramp up
restrictions over two years.
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Rare earths are just the
newest one.
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The fact is, the frequency.
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And severity of these crises
is is rapidly increased.
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So how can the car industry
or any industry adjust to
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this new reality?
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Cnbc dove in to find out.
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First, let's talk about what
rare earths even are.
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They're a class of 17
elements found throughout
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the Earth's crust. Located
in many places around the
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world, they're called rare.
Not because they are rare.
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Rather, because the process
to separate them from other
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minerals is very complicated
and requires highly
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specialized equipment.
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This is what China
dominates.
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Rare earth elements are used
in so many things,
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among them wind turbines,
wireless technology,
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microwaves, smartphones,
submarines,
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military aircraft,
and yes,
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cars. They're especially
useful for making high
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strength, durable magnets,
which are essential to
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motors.
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What they do is they make
the magnets that are in
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those motors more resistant
to heat and vibration,
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right? Heat and vibration
kind of magnetized things
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over time. And there's not
many things on Earth better
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than a car at creating heat
vibration,
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right? For these vehicles to
last a long time and be
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reliable. You need these
materials.
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The amount of rare earth
elements needed in a vehicle
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only totals about 50 to
$200,
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which is not that much
compared with the cost of
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other materials,
and about 4 pounds of rare
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earths. Seems like nothing
compared to the 920 pounds
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found in an F-35.
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The issue is if you don't
have rare earths,
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you have no car,
even in a gas car,
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you need them for all kinds
of things like filtering,
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pollution from exhaust
sensors,
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small electric motors,
even speakers.
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Hybrids need all that and
even more.
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And EVs need the most.
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Up until about the mid
1990s,
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the US led the world in rare
earth production.
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However, there was a turning
point when the Clinton
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administration closed the
Bureau of Mines in 1996.
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We began seeing a lot of
advantages in everything
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from uranium to rare earth
to other countries.
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First among those countries
was China.
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The Asian giant leads the
world in refining a host of
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critical minerals,
including rare earths.
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While it controls most of
the worlds rare earth mines.
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Where it really dominates is
processing that is actually
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separating the elements from
each other and other
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minerals. It has a monopoly
on processing heavy rare
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earths, which are the ones
the country has cut off
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access to.
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The real concern,
of course, is that this is a
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material that has been
artificially concentrated in
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one region. One country.
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Similarly to semiconductors.
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Here's one reason why.
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In 2010, a Chinese fishing
boat crashed into two
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Japanese Coast Guard
vessels.
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Japanese authorities
arrested the captain.
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China cut off Japan's rare
earths supply.
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That was the first case of
modern weaponization of
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these minerals.
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China's ongoing trade
tensions with other
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countries only exacerbated
the issue.
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Since 2023, it's
increasingly restricted its
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critical minerals exports.
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These minerals were used for
an array of things,
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including chipmaking,
defense and a lot of high
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tech products. China even
banned the export of rare
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earth refining equipment,
technology and IP.
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We actually didn't even have
the technical know how on
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how to do it.
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There's a concern that
they're going to support
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other countries military
defense,
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but it's this slow building
of leverage.
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It's not a limited supply,
and China wants to make sure
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it can hold on to what it
needs,
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what it already Has.
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Still the news on full
export restrictions
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announced on April 4th came
as a shock.
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Automakers panicked.
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Some reported their
factories could be idle
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within a month.
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Nobody had any time to react
to it,
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right? I mean,
within a matter of weeks,
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all of the material in the
pipeline is out and nobody
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could see this coming. There
was only so much available
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at any price.
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In June, reports said the
Chinese government began
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granting licenses to some
suppliers that serve the
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Detroit automakers.
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President Trump said the
shortage was over a done
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deal.
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So right now,
it looks like we might be
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getting some easing in the
export controls.
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So there'll be more
licenses,
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but it's likely going to be
a one off.
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The export licenses the
Chinese government is
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issuing expire in six
months.
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So for a lot of automotive
firms,
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the immediate pain point is
addressed.
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But whether this solution
holds six months,
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a year, year and a half from
now is totally unclear.
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The restrictions have also
created a supply bottleneck.
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We're expecting those to
resume,
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but they're not going to
they're not going to improve
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overnight. We're expecting
that it's going to take
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months for this,
for the flow of those
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magnets to really resume,
because there are thousands
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of license applications that
are still waiting to be
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granted.
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Dan Hirsh says the auto
industry is facing a
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pattern. The last several
decades have been punctuated
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by periods of intense
disruption.
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They are getting more
frequent and more intense,
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and are increasingly due to
shortages of critical parts
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or materials produced in
just one region of the
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world. In the 20 tens,
it was a tsunami that hit
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Japan. A few years ago,
it was the Covid 19
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pandemic, the chip shortage
and the war in Ukraine.
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Now it's rare earths.
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A couple of years or
possibly sooner.
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It'll be something else that
that will be in shortage and
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we will or will have not
learned our lessons from
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this. They really do need to
take seriously,
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map their supply chains,
really know or have the
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systems to rapidly collect
and understand this
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information about where
things are coming from,
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who's supplying them.
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The challenge is companies
guard sourcing information
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tightly, considering it a
trade secret.
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And as a result,
you know, it's hard to know
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whether or not you will have
a problem when whether it's
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this type of shortage or a
volcano goes off or an
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earthquake or some other
type of political disaster.
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To reduce reliance on China,
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one obvious option is to
build up supply chains in
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other countries,
including in the US,
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which once led the world in
rare earths production.
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The US is actually the
second biggest producer of
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rare earths after China.
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The difficulty is,
is that we never developed
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processing capabilities.
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When tariffs went into
effect in February 2020,
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five, companies began
stockpiling heavy rare
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earths. The US government
has also given over $400
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million to companies with
operations here in America,
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primarily EMP materials and
Lyness to build separation
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capabilities for both light
and heavy rare earths,
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and for a permanent magnet
manufacturing facility in
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Texas. These assets are
designed to build the
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domestic mine to magnet
supply chain for rare
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earths.
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Here, the hope is that if
China is restricting these
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minerals, these exports so
much,
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then maybe the price will
get to a point where there's
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more political incentive and
there's more companies and
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investors that are actually
willing to make everything
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come together more quickly
for Western production of
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these rare earths. But,
you know,
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some people are still quite
skeptical.
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To start, the global average
time frame for getting a
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mine up and running is 18
years and it's 29in the US.
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The business case for such
an operation is harder to
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make when a single country
can flood the world market
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with cheap product.
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And DPR oxide is below $60 a
kilogram if it stays at this
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price point by 2030.
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There are only eight
projects in the world
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outside of China that will
break even on direct
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production costs.
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So by doing it,
by flooding the market and
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for them, often backed by
the government,
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they are able to put Western
producers who have a
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fiduciary responsibility to
their shareholders out of
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business.
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That said, there are other
sources of rare earths
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around the world. Australia,
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Vietnam and Saudi Arabia.
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Australia is a really big
one.
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Not only do they have rare
earths,
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they're building their own
separation capabilities.
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The second country we're
looking at is Saudi Arabia.
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One of Saudi Arabia's key
advantages are they actually
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have a big deposit of heavy
rare earths,
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which are much rarer,
and which we have a lower
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concentration of here in the
United States.
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Companies outside China can
also try innovating their
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way out. One path is
recycling.
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There is an abundance of
scrap that contains still
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usable material.
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In September 2024,
the US Department of Defense
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invested $4.2 million in
Rare Earth Salts,
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a startup that aims to
extract the oxides from
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domestic recycled products
such as fluorescent light
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bulbs. But extracting
materials from something as
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complex as a smartphone is
difficult to do,
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and once it is done,
if it can be done
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economically, a lot of those
materials could be corroded
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or unusable.
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I think the concern is,
is that supply enough to
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offset the overall shortage?
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And generally,
I think the answer is no.
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Another path is to rely less
on rare earths altogether.
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Tesla has reduced its use of
rare earths in its EVs by
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25%. Toyota has magnet
motors with less rare earths
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content, and supplier ZF has
entirely magnet free ones.
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That's the wonder of
technology.
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And science is there's lots
of different ways to make
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some of these things.
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Minnesota based nylon is
making magnets that use no
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rare earths. Investors
include GM,
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Stellantis, and Volvo.
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We already had very good
demand from customers for
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our technology after the
export controls were put in
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place by China,
we saw a step change in
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interest both from customers
and investors in Iran.
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Rountree says Nippon magnets
aren't beholden to the same
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kinds of shortages.
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Magnets have made out of
iron and nitrogen,
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which you can basically mean
you can stand up a plant
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anywhere in the world.
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The company is building a
plant in Minnesota,
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scheduled to open sometime
between 2026 and 2027.
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A second large scale
facility is scheduled for
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2029.
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That 10,000 ton factory will
be able to supply,
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you know, magnets that will
build millions of EVs here
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in North America.
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And we need to. We're happy
to build plants beyond that.
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But in the next five years,
again,
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it's going to be one of
those situations where we'll
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have allied supply. We're
going to leverage innovation
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to need less rare earths.
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And that's, you know,
one of America's great
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strong points.
