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Nov 06, 2024

COMMENTARY: Sourcing Rare Earth Magnets Posing Challenges

COMMENTARY EMERGING TECHNOLOGIES Wiki commons image Rare earth element magnets enable a variety of dual-use technologies, including high-power motors in electric vehicles and flight control actuation

COMMENTARY EMERGING TECHNOLOGIES

Wiki commons image

Rare earth element magnets enable a variety of dual-use technologies, including high-power motors in electric vehicles and flight control actuation systems in military aerospace systems.

Yet, China’s market dominance across the supply chain has been a topic of concern. China has achieved dominance through low-cost labor, less stringent environmental policies, its own natural mineral resources and government policies that encourage production and capturing market control.

In light of this, more than 160 participants from across industry, academia and government recently participated in the National Defense Industrial Association’s Mine-to-Magnet Workshop, which focused on current and forthcoming regulations related to rare earth element magnets and explored international trade concerns, developing new capacity, innovations in processing and possible substitutes for the elements.

The workshop explored how commercial demand and emerging commercial technologies, not government requirements, are driving the direction of the market.

Most participants agreed that current laws and regulations are overly complicated. For example, three separate laws cover the sourcing and tracking of samarium cobalt magnets, and two cover neodymium magnets. The requirements in these statutes are inconsistent, adding confusion and complexity to the process. These requirements are unique to defense, meaning that companies must decide if they want to adopt unique processes for military sales.

The Defense Department generally requires neodymium iron boron and samarium cobalt alloys and magnets to be melted and produced outside of China, Russia, Iran and North Korea.

Regulations going into effect on Jan. 1, 2027, will extend the restrictions to include the mining tier of the supply chain and require the full provenance of the magnets to be disclosed.

Hence, the workshop focused on the entire “mine-to-magnet” supply chain and how to avoid relying on restricted foreign sources as well as provenance.

A key challenge identified during the workshop is the lack of a mature supply chain that can meet the coming 2027 requirements.

Halimah Najieb-Locke, deputy assistant secretary of defense for industrial base resilience, discussed the department’s investments in scaling up rare earth element capabilities.

While its investments have helped spur a fledgling domestic capability, existing gaps in capability include completing of heavy rare earth oxide projects and establishing economically viable metals production outside of China. Unfortunately, current economic realities bolster China’s dominance in the industry.

Incentivizing production outside China will require sustained effort by the U.S. government and likeminded nations to implement policies, dedicate resources and nurture market demand.

Private funding is critical to developing and maintaining a resilient supplier base of domestic and foreign partner facilities operating at the economies of scale required to support the commercial sector and the smaller defense market.

The government market alone is insufficient to support a financially healthy rare earth element industry. Consensus was that while the government is taking positive steps, more action in implementing coordinated policies and incentives is needed.

Another topic of discussion was the challenges primes and subcontractors face in complying with current regulations and those scheduled to begin in 2027.

Defense Federal Acquisition Regulation Supplement regulations are incorporated into prime contracts through clauses that flow down to subcontractors and extend to sub-tier components and materials. Defense primes generally do not procure significant quantities of high-end magnets. These magnets are designed into sub-components and procured by sub-tier vendors such as manufacturers of motors and actuators.

As a result, each tier of the supply chain is responsible for understanding and meeting compliance requirements. Workshop participants suggested that instead of prohibiting the use of certain rare earth element sources, the government should establish a whitelist of compliant suppliers.

Another highlighted challenge to diversifying the supply chain is qualifying new entrants. Workshop participants discussed the option of a centralized Defense Department approach to qualifying new rare earth producers and refiners. The department could take a leading role by driving policy or supporting a centralized funding strategy that could reduce costs and accelerate transition across industry.

The workshop also explored opportunities to streamline regulation. For example, currently when a magnet that is non-conforming or originates from a prohibited source is found in an end item, the military cannot accept delivery of the end item even when there is no security risk, the value of the non-conforming item lacks significance and the contractor implemented best practices to exclude such non-conforming items from the supply chain.

In such cases, delivery and payment can only occur when a senior Pentagon official issues a national security waiver. The current waiver process is time-consuming, unnecessarily delaying delivery of critical capabilities for months.

This is a strong disincentive for primes and major sub-tier contractors to proactively identify sourcing risks at the lower tiers of the supply chains.

One possible solution discussed was creating a “provisional waiver,” permitting conditional acceptance of an end item containing a non-conforming part when the Defense Department determines that there is no security or safety-of-flight risk. Provisional waivers would facilitate industry-government collaboration in qualifying compliant sources for future orders and would not overly penalize companies for self-reporting non-compliant items. NDMoshe Schwartz is senior fellow for acquisition policy at NDIA.

Topics: Global Defense Market, Defense Department

So, if we forbid all import of non-compliant"stuff", we solve the security problem, possibly improve the lot of mine and other workers, and the cost of commercial goods goes up a little. Sounds like a win-win with little cost.

So the US needs RE feedstock, processing to alloys and oxides plus magnet making, etc., done ex China ie., within US borders and/or within friendly. This has started re., processing moves with MP, Lynas, REEMF, Ucore, Noveon, Meteoric, ASM and VAC. Further, support re., OEMs has to arrive well beyond the most recent GM with MP and the Hyundia group and Seimens with Arafura, etc. RE prices will need support to withstand aggressive undercutting. The basis is there but more drive by gov' and confidence by mid and endline manufacturers is required (chicken and the egg?). Not a case of taking pole position here in the RE sector, but simply being competitive and facing and dealing with the market and value chain issues the article highlights. GLTA REI