The geopolitics of rare earth elements

Latitude Media Podcast. of climate technology. I'm Shell Khan and this is Catalyst.

So for 30 years, China has been building strength on the supply chain of her sediment. And they became absolutely the dominant force in the market for manufacturing magnets. Coming up, we're talking rare earths. Catalyst is supported by Fishtank PR, an award-winning PR firm focused on climate and energy tech, renewables, and sustainability. Fishtank is known for generating prominent and effective media coverage for the brands they work with.

If you want a PR partner that's thoughtful, shoots straight, and gets results, you'll like Fishtank PR. To learn more about Fishtank's approach, visit fishtankpr.com. That's f-i-s-c-h fishtankpr.com. When utilities need flexible capacity they can count on, they turn to energy hubs. Energy Hub works with more than 170 utilities, coordinating over 2.5 million devices to manage 3.4 gigawatts of flexibility built for the moments when utilities can't afford uncertainty.

Energy Hub builds and operates virtual power plants that utilities actually stake their grid planning on, coordinating EVs, batteries, thermostats, and more through a single platform built for utility scale, predictive, verifiable, and designed to perform when it counts. Learn more at energyhub.com. I'm Shail Khan. I lead the Frontier Strategy and Energy Impact Partners. Welcome. All right, so we have talked about rare earth elements on this show before.

And even then we focused a fair bit on the geopolitics of their supply chain because China dominates rare earths more than basically any other area of critical minerals, which is saying something because China is pretty dominant in a bunch of areas. And that probably also explains why rare earth elements have emerged as maybe the epicenter of the current trade war between the United States and China. It's a big deal because rare earths are very, very important.

Yes, for the magnets that go into the motors and electric vehicles, but also for defense and a variety of other applications too. And China has made some significant moves in the past few weeks. But I have found the media reporting on this to be severely lacking. At worst, the media sometimes doesn't seem to understand the difference between rare earth elements and other critical minerals.

But even at best, they seem to understand the basket of rare earth elements, but not the nuances of the different types of rare earths and what the export controls that China has introduced actually mean. And who better to bring back than Ahmad Gariman? Ahmad is the CEO and founder of Cyclic Materials, which is building a local rare earth element recycling supply chain. I should note as well that we at Energy Impact Partners are proud investors in cyclic materials.

But regardless of that, uh Ahmad knows this category and this market and the supply chain for both recycled and virgin rare earth elements better than basically anybody. So let's talk through it. Here's Ahmad. Ahmad, welcome back. Thank you very much. Great to be back. All right, let's start with a bit of a I guess a deeper version of a rare earth one oh one because I think it's important. I've seen too many headlines that

Don't seem to catch it. Remind me what rare earths actually are, rare earth elements. What are they? What are they used for? So Shail, uh I was on the uh program about a year ago. Lots have happened, so great to be back here. Rare earth elements, uh those are the metals that sit at the bottom of periodic table. We have 17 of those uh on periodic table uh that usually when you mine four rare earth elements, they come all in one basket, all together.

But only few of them are absolutely critical for us, and those are rare earth elements that we use in magnets. More specifically, light rare earths such as neodymium and presodymium, and heavy ones such as dysprosium and terbium. And also samarium, which we use them in specific kinds of magnets. Those are the magnet rare earth elements, which are the most critical ones.

Uh now very briefly when we use rare earth elements and magnets, we end up with the most strong magnets that we are aware of or we can produce on our planet. And when we use very strong magnets in electric motors, we end up with highest efficiency in those electric motors. That's why it's uh those electric motors and rear earth magnet because of the supply chain is critical for electrification and and those applications.

Right. So w so worth noting that, you know, there's a basket of seventeen. They come in a basket when you extract them, at least from virgin. mining, uh, but then you have to separate them out because we actually really only care about up to five of them. In some cases less than that. Well, I think we'll come back to those five, but that's the first nuance I wanted to make sure that we get across.

Um, obviously what's going on in the world right now is lots of geopolitical turmoil in general, but particularly geopolitical turmoil that directly relates to rare earths. And so what I want to talk about is. what's actually happening there. But before we get to what's happening today,

It's been kind of a journey with rare earth elements where China, I think more so than other critical minerals and area areas of critical minerals where China has done an extraordinary job of getting a stranglehold on many of those supply chains. I think it's particularly true. in rare earths. So can you walk me through the history of China and its role in dominance in in the rare earth supply chain.

So absolutely. So China some thirty years ago, uh twenty five years ago, they they came to the conclusion that they want to be uh the uh the the the country that controls or processes majority of rare earth magnets Uh in the world. So with that planning they they basically pushed forward, they started the mining operations in China. They broadened the supply chain of magnets into China. They started mining, separation, metallization, magnet manufacturing.

Now, availability of magnets in China helped China to bring in the balance of the supply chain, the rest of the supply chain into China. Now, why this is important, rare earth elements may be a few billion dollar market, 20, 25 billion dollar market, but rare earth magnets unlock multi-trillion dollar market for companies.

So with that mindset, Chinese wanted to hold the rare Earth's magnet supply chain in their country and they did the planning and they actually did implement that. But I will give you a few numbers here. Sixty three percent of rare earth mining happens in China.

Which by the way, I w can I just draw a distinction there? This is one thing that I think is important to understand, as a distinction from some other areas of critical minerals where China has an important role to play. So take lithium, take copper, whatever it might be. There, the vast majority of the mining takes place outside China, right? In lithium, it's in Australia or South America. In copper, it's in Chile or whatever. Um, where China has built

strength in those markets is just in the refining step. So stuff gets mined elsewhere, it gets sent to China, gets refined in China and then shipped out. But that is different in rare earth where China actually is the majority of the mining in addition to the refining. Correct. So they they basically started with mining, they created the supply chain and then they acted like vacuum cleaner. So they go outside and bring in most of the other

mined rare earth's minerals and concentrates into China, that number becomes ninety percent. So ninety percent of rare earth elements now are processed and refined in China. And then they go one step ahead again and they bring in even more material to China and they manufacture 93% of magnets in China. So but Uh so basically they control and hold a majority of supply chain for magnets in the world.

But one thing that sometimes we we we don't really look into is ninety-nine percent of heavy river sediments, more specifically terbium and dysprosium. comes from China, within China, and goes into magnets. So those are not available in mines outside China. And that's really one of the challenging pieces in the supply chain of her sediments because When you use dysprosium, now your magnet is capable of tolerating higher temperature. And when you use that magnet and electric motor for a

For an electric vehicle, for instance, or other applications, you do need that electric motor to be able to tolerate high temperature. And that's where heavy rare earth elements play a really significant role. 99% of those metals. are many produced and used and implemented in products within China. So that's that's one of the biggest distinctions there.

Is that because you know, I guess what you're what you're saying is that China's dominant in all of rare earth production, it's especially dominant, almost a complete monopoly in heavy rare earths. Is that because The resources that we've got where there are mines outside of China just don't have as much heavy rare earths. It's a it's a geological thing or is it something else? Is a geological thing. So it happens that majority of heavy rivers that come in the deposit.

are concentrated in Chinese deposits rather than Australia or the US. For instance, MP materials in k in in the US basically has almost no heavy rivers in in in the deposit, but they have a lot of light NDPR. Now, neodymium dyspro uh neodymium praseodymium NDPR are used in magnets as well to a really substantial amount. Uh but that high temperature uh control thing only comes with heavy rear elements on magnets. Let's talk a little bit more about the geology just for a second.

You know, obviously the US is finding itself in a in a tricky situation. But particularly the US, because we're in such a tense geopolitical moment with China and rare earths are, you know, I think China has correctly identified an area of significant leverage because they've got they've got such a stranglehold in that market.

I in the interest of standing up a supply chain outside of China, one way to do it, of course, is what you're doing at cyclic materials, which is to make sure that we're actually recycling rare earths, which we generally don't do. But aside from that, if we wanna stand up a a virgin supply chain, um, do we have the geology? Do we have the resources? To do so in the West? Or would it be difficult just because there aren't sufficient resources?

So there are resources that carries heavy rare earth elements. We just simply haven't advanced those projects significantly just yet. And the key reason for that is. Because the supply chain is heavily tied up to China, it just it just makes sense to make the rare sediments uh uh uh to be processed within China and and used in China.

And the market price for rare sediments often is artificially controlled by Chinese governments. So makes the projects, mining projects outside China, less attractive time to time. levers that China has basically helps them to have better control on the market as we go through. But But uh some of the deposits in, let's say, Brazil and other countries do carry uh a good amount of heavy rare earth elements, but none of those deposits are being mined today.

Okay, so it's one thing for China to have built up this dominant market position, but it's it's another thing for China to start exerting that leverage in a geopolitical context and making it difficult for other countries to to compete w uh with production of whatever you need to produce using permanent magnets. So

We obviously have some recent announcements in the past few weeks, but I don't think that's the first of it, right? There's been China has been using rare earths as leverage for some number of years. Oh, that's absolutely true. So I and and I've been very vocal about this: that this day is coming. Uh uh and I don't have a crystal ball, I I just connect the dots really. So for 30 years. China has been building strength on the supply chain of her settlements.

and and and they became absolutely the dominant force in the market for manufacturing magnets. Now back in December of two thousand twenty three, uh they enforced uh ban on the export of equipment and technology related to rare earth elements. So this was really a significant event happening back in December of 2023. I don't think it got enough attention in this space.

To clarify what that means, that is not a ban on the export of rare earth elements or magnets for that matter. That is a ban on the export of technology to refine rare earth elements, right? So in the value chain of of mining, separation, metalization, magnet production. It's it's those middle two steps. Is that right?

And also magnet manufacturing, correct. So that was the ban on two things export of technology and equipment related to processing of rare earth elements as well as making magnets. So that happens in happened in two thousand twenty three.

Do we know is is that technology is whatever technology China has developed, whatever process processes I suppose China has developed for for separation, metalization, magnet production, are they so distinct and so much better because they've been so dominant that it would be difficult to replicate outside China, or if not replicate, then develop our own process technology.

I believe we can develop our own technology outside China, but those technologies readily available in China are not for for for free for other parts of the world to be uh to be bought and imported to those countries anymore. So we can't really rely on those Chinese technologies anymore and we can't have them. in in for instance in the US. In fact I am aware of companies that they really relied on those Chinese technologies and now they are having

challenges with bringing those uh equipment into the US and Europe. Uh so they their projects have been suffering from that. So uh one thing that happens in mining, uh sorry, on processing and magnet manufacturing side is Those uh industries are heavily dependent on IPs, patents, on how to make, for instance, very strong magnets, very efficient magnets with minimum consumption of heavy rare earth settlements.

And Chinese magnet manufacturers in the past many years have been investing a lot of dollars on that and now they own a good portfolio of patents and IPs that Uh helps them to basically quarter the market on how to make those magnets within the borders of China and not export the technology outside. Are you tired of overpaying for big name PR firms but not really knowing what they're delivering? Is your comms team wasting time reviewing lengthy messaging briefs and decks?

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Did it deliver? Easy enrollment creates momentum. Proven performance builds trust. That's why more than 170 utilities rely on Energy Hub to manage over 2.5 million devices, delivering 3.4 gigawatts of flexible capacity. See what that looks like at energyhub.com. Okay, so twenty twenty three, China says we're banning export of both technology and equipment for refining and magnet production. So that basically says, you know.

Either you need to do if you're outside China and you're trying to develop that part of the supply chain, everything past mining, you need to come up with your own process and equipment and that is going to be harder than than leveraging what's existed in China for thirty years. So that that's the first salvo.

But but not the last one. Oh, not the last one. So then comes summer of last year. China basically nationalized. rare earth industry within the borders of China. What does that mean? It consolidated the companies, it made it fewer companies to have better control on the supply chain. Uh and and every single step in the process was controlled by the government.

uh from pricing of rare earth elements all the way to products and what happens to products. China has been controlling how much of those rare earth elements they were exporting since 10, 15 years ago. So that was a new thing. But consolidating those companies and having more power on them was a new development. And then the last step was taken only three weeks ago when they uh implemented export control on rare earth elements. Just to be clear.

The export control actually does apply to uh a few different varieties of materials and products. Those would be rare earth oxides. Which is basically the raw materials or ingredients that you would need for your uh magnet manufacturing outside China. Just to be clear, that's the that comes post separation. Correct. Correct.

Right. Yeah. So you do you do mining, you do separation, uh, then you get your rare earth oxides. And so it that basically that export control says we're gonna make it very difficult for you to produce magnets outside China. One hundred percent, yes. And the next step was the next item on the list is the metal. So you take the oxides and you make the metal that is Pretty much the same composition or chemistry as your magnet composition. And that metals export also is now controlled.

And the third one is basically heavy rare earth elements. We use them in different applications, but any alloy or metal that has heavy rare earth elements. probably will be heavily controlled for export. And the last piece is magnets. And I can tell you why magnets have immediate impact on some companies versus metals and oxides.

Because a lot of companies in Detroit and other jurisdictions relied on those supply of magnets every day to put those into electric motors and make their EVs, make their e-bikes, e-scooters, and many other products. And now those magnets shipment to other countries in in Europe, in in in the US, are significantly delayed and that's what causes a lot of stress out there in the market today.

So just to repeat, as we said before, there's four steps in the value chain, the high level, right? There's there's mining, separation, metalization, magnet production. And what China did three weeks ago is instituted export controls on all four steps. Effective. Basically. Basically, yes. What do we know about what export controls means? Right. It's a it could be nothing and it could be a strangle. It's it's it's going to be really a step that China is gonna use it.

So usually when I want to explain this, I say when you create a process for something, it's only with the intention that you want to do that thing. So process makes it easier for you to to have a control on it. Now, China has been signaling that rare earth elements are absolutely important for them. They want to maintain their dominance and they are not shy to utilize their dominance in the market whenever they need to to enforce something. Now they

controlled the export of or banned export of technology and equipment. So the world is really connected and in need of the banknuts that come from China. Then they nationalize the companies. So now they have better control on the products that are being exported from China. And the last step is export control. This is where there is a specific paperwork needed for every batch of exported material from China that contains any of those rare earth elements.

that you have to do the paperwork. My understanding and my conversations uh with uh with companies, different companies in the space is that uh it's been a

two months now that companies are waiting for some of those export control documentations to be implemented. And it's communicated with them that they should wait for a few more months of Work before the export control process is fully in place for Chinese government to see which of those materials end up in which country and who's the end buyer of the product.

So as of today, it's more uncertainty than anything else. Like the flow of magnets and earlier steps in the value chain that the flow has continued unabated to date, but the expectation is that the these export controls will take hold at some point in the next few months and then it's sort of uncertain exactly how problematic that's gonna be. Uh uh fair to say it's a bit more than that.

So today the the shipment uh of the magnets is really disrupted. It's it's not being shipped today. Magnets, oxides, metals, alloys, all of them, all the above are delayed in shipments. Uh but one critical signal here, two things I will I will I will point uh uh point out here. The first one is the emphasis on heavy rear earth elements. China knows ninety nine percent of those heavy rear elements come from China.

And any alloy or magnet material that has heavy rare elements in them have been sign uh singled out in those documentations. And again, those are the stronger the magnets to be used in stronger motors. That's the short way to think about it.

Uh or the uh heavy duty uh uh or higher performance electric motors. For instance, electric motor of EVs, because when they b because when those cars drive at say uh uh seventy, eighty miles an hour, the electric motor heats up a little bit and and and those heavy rear elements makes them uh capable of tolerating higher temperature in the electric motor.

Uh so basically singling out heavy rares elements in in in the export is is unique. So they they are not shy of using their power that they control 99% of those metals. And my uh strong belief is

the the the the process for export control will be utilized a bit more in the future. And and this will basically uh signal again that China is not really reliable on sourcing of rear's magnets in the future as we go forward because they will use it as a as a uh tool to to to change behavior outside China.

Okay, so obviously it would be in our collective best interest to have a rarest supply chain that is not entirely reliant on China as it is today, effectively. Uh and lots of folks are thinking about that. I'm curious your perspective on how hard that's gonna be and how long it's gonna take for us to build it out. And when I say us, I guess I mean the West in general, but maybe you could tell me specifically North America or the US.

So I'm an optimistic person, so I will give you an optimistic perspective. Uh sixty-three percent of mining of for rare earths is happening in China. That immediately tells you 37% is happening outside China. So Uh realistically, we do have the raw material outside China to process and produce magnets. It won't happen within twenty-four hours, but if we really want it to happen and we spend money on it. it it will eventually it will eventually happen. Now

Few strong steps have been taken in the past couple of years or so, three years or so. For instance, uh magnet manufacturing companies are building up capacity in the US and within Europe. Vacuum Schmitz is building a large magnet manufacturing and facility in in South Carolina, MP Materials in Texas, and few other companies are building capacity.

Uh separation of rare earth elements. There are a few projects. Just last week our own partners Alvay started their their their their plant in France again to separate rare earth elements.

And uh Linus, a uh an Australian company, is building capacity in Texas, I believe. So there are pieces and parts happening in different different states or countries. Uh uh so I'm optimistic that eventually because the feedstock is available to a good extent outside China and also that supply chain is building up in other countries, so we likely will have access to magnets and rare earth elements in the future.

But one large piece of supply chain will always be circularity and recycling of end of life products. What I mean by that is that in the past ten, twenty years, we have imported products into US, Europe, other countries. that do carry magnets in them, do have magnets in them. And uh with that we have actually built the largest overground deposit of rare earth elements in our countries.

And and it just happens that we don't recycle those, we don't use those, we don't mine those urban mining operations basically. And and uh the beauty of those and the flife products is because those were produced ten, fifteen years ago, they do carry quite a bit of rare heavy rare earth elements.

Ten years ago, we were a bit more generous in using those heavy reverse elements and the products we manufactured then. And because of their cost and availability, we the engineering departments work very hard on cutting the consumption of those rare earth elements, reducing the consumption of those heavy rare earth elements.

We do still consume a little bit, but much less than what we used to consume in say 2000s. And those products are available for recycling. So that's our immediate source of rare earth elements in the market, but heavy in it. Yeah, you basically have at least two benefits if you're recycling rather than virgin, right? One one is that the initial separation already occurred, right, before the initial magnet was produced.

That separation of just the rare earth elements that are actually valuable out of the basket of 17, that already occurred. You're taking something where that that separation has already been done. And then the second, as you said, is that you might actually get something that is heavier in rare earth and sorry.

that is heavier in heavy rare earths, I should say, than the equivalent product would be today if it were produced, meaning you're getting a higher proportion of the stuff that is most challenging to to develop outside China. Um, so you have kind of a double whammy of a benefit if you can actually recycle. Agreed. So the product we produce today and ship to our customer, uh mixed rare oxide that we produce actually does have only five rare sediments in it.

rather than seventeen that usually comes from mining industry. That makes separation of those rare elements much, much simpler than what it is from mining industry. Uh and and yes, our our heavy rare elements oftentimes is closer to ten percent of our product, which is Uh I'm gonna say really unique and and and uh one of the highest quality rare earths elements out there in the market in respect to heavy rare earlements.

All right. So I guess final question for you is is there another level of escalation that we could see here? You know, you mentioned that there's been sort of increasing escalations from twenty twenty three, then twenty twenty four, then this year. Things don't seem to be calming down between the US and China at the moment. I'm not one to predict the future, but let's assume things generally escalate and China continues to want to use the leverage it's gotten in rare earth.

You could imagine a full export ban, I suppose, which would I imagine, you know, short of those who can use the the to the extent that we have a tiny, tiny bit of ex China Midstream industry, you'd imagine that freezing a bunch of supply chains basically overnight. Is that like the next level of ex escalation that you could imagine here? Well, Sheil, unfortunately I believe it is. So this is not going to be a new thing in our in our

uh critical minerals space overall. For instance, Germanium uh gallium uh exports uh uh a few years ago, couple of years ago were banned. And and those are another level of critical metals that we need in in in in different applications in the Western countries. Now various elements, my understanding and my belief is the next So the whole process of putting export control and creating the capability to control the export of these elimin these metals and alloys.

basically is the tool that the government of China will need to implement that if and when they want to. We'll add that the relationship between US and China are are are not the warmest that has it has been in the past. Yeah. Uh so my expectation is China will be uh more willing to use this tool in the future if they wanted to to to basically uh enforce the control that they have on rivers on the broader market.

All right, Ahmad. Informative as always, somewhat terrifying. I want you to get up to scale as fast as humanly possible. So get back to it. Absolutely, Shail. We are working the fastest we can. And in fact, I will tell you in the past three weeks we have spoken to more uh car companies and others. Then we have spoken, we had spoken in the past one and a half year or so. So uh things are really uh going fast and and we are also scaling up pretty fast in the next couple of years.

Ahmad Garaman is the CEO and co-founder of Cyclic Materials. This show is a production of Latitude Media. You can head over to latitudemedia.com for links to today's topics. Latitude is supported by Prelude Ventures. Prelude backs visionaries accelerating climate innovation that will reshape the global economy for the betterment of people and planet. Learn more at PreludeVentures.com.

This episode is produced by Daniel Waldorf. Mixing and theme song by Sean Marquon. Stephen Lacey is our executive editor. I'm Shale Khan, and this is Catalyst.