Neodymium: Toyota's pain and China's gain
For years China has been looked down upon by global manufacturers in US, Japan and Europe as merely "Low-cost" source. The global manufacturers had looked at China to supply something that is non-strategic and only valued by the price tag of the item. There was no emphasis on the uniqueness of China in terms of its source. It was felt that something that is easy to develop, but is price sensitive, can be transported to China and get developed there. This way the transportation changes and additional inventory costs due to longer lead times, would be offset by China's low cost of production. But Neodymium and a host of other Rare Earth Elements (REE) are going to complete change how the world views China. These REEs, the essential "protozoa" of 21st Century products, has China in the driver's seat to fuel growth. From Hybrid cars, Electric Vehicles, Mobile phones, Laptops, portable x-ray units to missiles.... all depend on REEs. And China has a 97% monopoly in production of these elements.
Toyota, with its vision of 1 million Hybrid Electric Vehicles (like Prius) by end of 2011 has a very strong dependency on REE to sustain its growth. Every Prius has about 1 Kg of Neodymium in its components and about 10~15 Kg of Lanthanum in its batteries. Some of the applications of REEs in the electric vehicles are Ignition coils, HVAC Compressors, Distance sensors (anti-collision sensors), Electric pump motors (multiple applications), Electric brakes, EPS, Seat belt sensors, Drive-traction motors, Car navigation system HDD, Starter-generator system etc. Over 95% of world Neodymium is being supplied by China. With the average demand of 29,000 metric tons per annum and an estimated growth of 13% annually, this material is going to be a very critical component for electric vehicles development across the world.
Neodymium is mainly used as a substitute material for permanent magnets. From ferrous permanent magnets (PM) with low magnetic strength to Cobalt based PM, the magnet material has evolved over the century. Neodymium was developed as a PM material in early 1980's, after Zaire, which produces 65% of world Cobalt had political unrest. Neodymium alone is not very strong, and needs another REE Dysprosium (added 5% by weight) to increase demagnetization at high temperature. Now Jiangxi Province of China is the sole producer of Dysprosium in the world. With so much dependency on single source China, for the basic raw material for REE, poses serious supply chain risk. But this risk to the rest-of-world poses the greatest opportunity for China to develop Hybrid Electric vehicle technology. BYD Co. is coming out with the first Hybrid Electric vehicle which is China's local development.
The risk is higher as Permanent magnet Electric vehicle components are not manufactured by the OEMs like Toyota, but by their Tier-1 and Tier-2 suppliers. The manufacturer of Neodymium magnets are further down in the supply chain tiers. These manufacturers do not yield so much clout and influence to ensure regular supply of REE raw material. This risk has been further heightened with China's restriction of REE raw material exports by around 72%. Though this measure has been taken to establish unified price mechanism and prevent indiscriminate mining and safeguarding environment, the raw material supply of REE to these low-tier suppliers looms large. To ensure supply security, Toyota through one of its subsidiary Toyota Tsusho Corp is setting up a JV with Sojitz Corp of Vietnam, to develop the Dong Po deposits of REE. But this will again serve only about a quarter of Japan's demand for Lanthanum, Cerium and Neodymium.
To develop the green technology in automotive industry, the quest for further diversified sources of substitute material is on. Will the Green fuel technology survive the monopoly of China in REE? This is a question which has ironic importance. While the world plans to shift from Oil to greener technology, it entails a shift from unstable set of sources (Middle East) to a monopolistic source (China). Also the bargain is between greenhouse-gases polluting the atmosphere to Thorium-radiation-hazards during mining of monazite ores for REE.