Can the West Build a Durable, Robust and Competitive Rare Earth Elements to Magnets Supply Chain?

Highlights

• Rare earth permanent magnets are critical for electric vehicles and wind turbines, with China dominating the global supply chain.
• Western countries face significant challenges in establishing their own mine-to-magnet value chains to compete with China’s dominance.
• A Finnish graduate study suggests that a fully integrated Western value chain, supported by government incentives and risk-sharing strategies, is crucial for success.

Playing a mission-critical role in both electric vehicles and wind turbines, rare earth permanent magnets are integral in the battle against climate change.  With ever growing demand, fueled largely by Western interests in reconfiguring a China-dominated value chain, access to these magnets—from production and ultimately the underlying mining sources — becomes the focus of a global hunt.  Now geographically strategic, rare-earth elements and related chains are ever more in focus in places like Washington DC, given China’s three-phased program to basically wipe out American competition in any meaningful way.  See “China’s Strategy of Complete Domination: Without Firing a Shot.”

Based on a mine-to-magnet value chain what kinds of challenges, obstacles and booby traps does the West face?    From offering upstream Western companies how to model in vertical integration to the best business models, a study, a systematic literature review and industry analysis, followed by a two-fold quantitative and qualitative research approach.  The author analyzes aspects of the value chain while industry challenges are addressed.

What does Finnish graduate student Lehtonen, Jaakko (opens in a new tab) learn from his Masters’ thesis (opens in a new tab) with the support of advisor Timo Seppälä, an expert on international chemicals conventions and hazardous chemicals and waste management in the Master’s Programme in Industrial Engineering and Management?

Study outcomes suggest that while in the West substantial ground has been covered given the urgency to recapture strategic supply chains from the East, both companies and public sector still face multiple problems involving everything from the launching of new projects  to mitigating the risks linked to the long-term overwhelming competitiveness of the Chinese value-driven supply chains captured over the past decades.

The graduate thesis argues the only viable pathway forward, while quite difficult given the known and not so well-known barriers involved, is a West-centric fully integrated mine-to-magnet value chain. In essence, copy, in a way, what the Chinese did for nearly three decades while governments in the West were asleep at the wheel. Of course, the model shall be different, given cultural socio-political and economic differences. 

But how to deal with the inevitable Chinese price manipulation in response to Western moves?  

The author suggests with governmental support where and when possible, companies must find ways to de-risk, by sharing collectively, risks in the value chain through pre-determined pricing enforced by integrated offtake agreements or cross-ownership across the value chain.

A message for governments of the West. Time to start seriously incentivizing local production only as a retaliation with clear and effective regulation and investment-support, while minimizing the disturbances to global trade.

The Finnish student does not give near enough credit to the essential topic of technological and process disruption. Rare Earth Exchanges suggest that if scientific firepower in the West cannot disrupt how the supply chains work today, there are few chances on the horizon to surpass the Chinese.