Rarer still? Supply risks of rare earth elements

17th March 2011

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With access to some important natural resources becoming harder, businesses need to improve efficiency, reports Paul Suff

Natural resources vital for the production of mobile phones, computer monitors, lasers and other electronic devices, as well as clean-energy technologies such as wind turbines, low-energy light bulbs and electric cars, are getting scarcer, placing resource efficiency and developing alternatives high on the agendas of both business and policymakers.

A number of rare earth elements (REEs), including terbium, used in low-energy light bulbs, and neodymium, used in direct-drive wind turbines and in drive motors for hybrid and electric vehicles, appear on a list of critical raw materials in a 2010 EU study. Supply risk is highest for REEs, says the study, although some other strategically important metals, including lithium, indium and rhenium, are also becoming more expensive and harder to source as demand rises.

Supply and demand

The term “rare earth” is actually a misnomer: they are not rare at all, and are found in low concentrations throughout the Earth’s crust, and in higher concentrations in numerous minerals. However, demand is at risk of outstripping current accessible supply. “REEs are not absolutely scarce. We’re not going to run out. It’s a question of access,” explains Nick Morley, director at research and consulting company Oakdene Hollins.

Emerging technologies are driving demand for such raw materials. Take neodymium, for example. The electric motors in each Toyota Prius, the world’s most popular hybrid car, require around 1kg of neodymium.

Toyota has sold about two million Prius cars since the model went on sale in 1997. However, the number of hybrid/electric vehicles will soar as governments seek to decarbonise surface transport. In the UK alone, 60% of new cars and vans in 2030 – that’s around 1.5 million vehicles a year – will be electric models, reports the Committee on Climate Change. Production of neodymium in 2006 was 16,800 tonnes, but the EU estimates that demand from emerging technologies, notably hybrid and electric vehicles, will rise by 2030 to 27,900 tonnes.

Another example is indium. A by-product of zinc and other base metals, indium is commonly now used in touch screens and also in the synthesis of the semiconductor copper indium gallium selenide, which is increasingly used in the manufacture of thin-film solar cells. The EU study reports that 581 tonnes of indium was extracted in 2006, but that annual demand from emerging technologies will reach 1,911 tonnes in 2030. A recent study for Defra by AEA included REEs and indium on its list of important resources at risk.

Global demand for REEs is forecast to grow at up to 11% a year between now and 2014, driven largely by the rate of growth of low-carbon technology markets, but while demand is soaring, there is increasing uncertainty over future accessibility. Worldwide consumption of REEs in 2008 was 130,000 tonnes. Up until the 1970s the Mountain Pass mine in California was the largest rare earth mine. It closed in 2002. China currently has a monopoly of low-cost production of both REEs and indium. It now supplies at least 95% of all REEs.

According to Morley, China expanded speciality mining in the 1980s, undercutting producers in the West and elsewhere because of its relatively cheap labour, few environmental controls (see panel, p.20) and the high purity of its raw materials. “That picture is now changing,” he says. “China wants to conserve resources for itself.” The strategy of the Chinese government is shifting from being an exporter of commodities and ores to supplying the market with high-value-added products. To support its own economic development, Chinese export quotas of REEs fell 40% in 2010, which is pushing up prices.

Over the past century, improvements in extraction and refining technologies saw real prices for commodities, such as metals, fall, even though ore grades declined and accessibility became more difficult. “Now REE prices are being driven up by quota-induced shortages and by strong global demand for these metals so, at least for now, the previous trend to lower prices looks to be reversed,” says Morley.

Suppliers of REEs other than China are emerging. The current high price for commodities makes it viable to revive former mines – including resuming mining REEs at the Mountain Pass mine – and explore possible new mining operations, although these can take up to 10 years to develop. The UK does not have any deposits of REEs, but several rare metal mines are reopening, including the Hemerdon mine in Devon, which is operated by Wolf Minerals and has one of the largest tungsten and tin resources in the western world, and the South Crofty mine in Cornwall, where indium has recently been discovered.

Business strategies

Raw material scarcity is increasingly regarded in many boardrooms as a key risk. AEA spoke to a number of industry representatives for the Defra report. “What is clear is that the issues concerning material supply is driving business to act,” says Phil Dolley, resource efficiency director at AEA Group and one of the authors of the report.

There are four main responses to material scarcity: negotiate privilege access, stockpile, substitution, or resource efficiency. Businesses are generally adopting a combination of these strategies.

The response of aero-engine business Rolls-Royce, for example, includes metal recycling, product redesign and raw material purchases (see below). Toyota’s reply is also multifaceted. Dolley at AEA explains that a sister company of Toyota (called Toyota Tusho) is securing supplies of lithium used in the batteries for electric vehicles through a partnership with the Australian-listed company Orocobre. The deal will see Orocobre develop resources of lithium-potash in Argentina. The automotive manufacturer is reportedly also developing electric motors that are no longer dependent on REEs. And, as a Japanese company, Toyota would also have access to its government’s stockpile of strategically important metals.

In the low-carbon sector, some companies are either resisting using REEs altogether or reducing their product’s reliance on such materials. Tesla, the US electric vehicle manufacturer, does not use REEs in its cars. Currently, around 4% of new offshore wind turbines use a magnetic drive system containing REEs such as neodymium. This figure is anticipated to rise to 15–25% by 2015. However, not all wind turbine manufacturers have replaced conventional high-speed generators with low-speed ones, which eliminates the need for a gearbox but uses more REEs.

Unlike some of its competitors, Vestas, the Danish company that is the largest turbine manufacturer in the world by market share, does not produce direct-drive turbines. Although he did not rule out Vestas adopting direct-drive technology at some point in the future, the company’s director of communications, Michael Holm, says: “A direct-drive turbine uses 10 times more rare earths per MW of energy generated than a turbine with a standard generator. A permanent magnetic generator uses around 20kg of rare earths per MW of energy produced, so a 3MW turbine contains 60kg.” He also confirms that Vestas has no short-term supply issues.

Reuse and recycling have a significant role to play in improving resource efficiency as they reduce the demand for virgin materials, something that will also limit the environmental damage associated with extraction. Redundant electronic equipment, for example, contains very high proportions of rare earths in relation to those found in naturally occurring deposits.

As environment commissioner Janez PotoCnik said recently when calling for EU member states to improve recycling rates for waste electrical and electronic equipment (WEEE): “My old mobile phone contains gold, platinum, palladium and copper – all resources that we have too little of in Europe. A tonne of these handsets would contain about 280 grams of gold, 140 grams of platinum and palladium and 140 pounds of copper. This is not waste that we should bury or burn; it is a resource that we should respect.”

Morley at Oakdene Hollins highlights another resource efficiency measure. He says that although resource efficiency must include minimising use and recycling, product-life extension is also necessary. “Things like smartphones need to go into the secondary market for reuse and remanufacture, even if that is eventually followed by recycling,” he says.

The way forward

While scarce raw materials pose risks to business continuity, alternative strategies are not without their own difficulties. Substitutes based on more secure metals are being developed, increasingly facilitated by nanotechnology, says a 2008 report by the Resource Efficiency Knowledge Transfer Network (REKTN – now the Environmental Sustainability KTN).

But substitution of a rare material is only a solution where an abundant one can replace it. There is no benefit if the substitute is also hard to source. The REKTN report found, for instance, that automotive manufacturers are increasingly substituting palladium for platinum in catalytic converters even though the former is itself among the world’s most insecure materials. Also, developing suitable substitutes can take time, and, at present, many of the alternatives to rare earths that are available are not as good. There is no substitute for the neodymium in rare earth magnets that give a similar level of performance, for example.

Recycling, too, is not without its problems. “REEs are only ever used in very small quantities and can be difficult to recover. Specialist recovery is required and that is expensive,” says Morley. He believes that designing products for easy disassembly would help, suggesting that amending producer responsibility legislation by introducing more sophisticated targets could support more recycling by encouraging better design.

Europe should be well positioned to recover such materials because of the WEEE Directive (2002/96/EC), but only 20% of the WEEE generated in the EU is currently recycled. There are plans to strengthen the Directive, however. MEPs recently voted for new targets, including a 50–75% recycling target (depending on category) and support a new 5% reuse goal with the aim of reclaiming valuable raw materials for e-waste. Like Morley, MEPs also want manufacturers to create products that are easier to recycle.

Despite potential difficulties, resource efficiency is the way forward. The EU’s raw materials initiative, which was launched in 2008, and the European Commission’s recent communication on tackling the challenges in commodity markets and on raw materials both urge resource efficiency. In the UK, Defra estimates firms could save more than
£6.4 billion a year by making simple changes to use resources more efficiently and help protect the natural environment. “Businesses that don’t use resources more efficiently will miss out on potential commercial opportunities and will lose out as prices for scarce commodities rise,” says the environment department.

The UK is currently a relatively small importer of REEs, but the manufacture of low-carbon technologies is seen as a key area of future growth for the UK and will lead to higher demand. Several wind turbine manufacturers have announced plans to establish facilities in the UK, while Nissan has made Sunderland its base for European production of its electric car, the Leaf, and the lithium-iron batteries to power the vehicle, and Toyota started producing a petrol/electric hybrid version of its Auris hatchback in 2010 at its Burnaston factory in Derbyshire.

Environmental impacts

Improving resource efficiency also has environmental benefits, as the environmental impact of mining rare earth materials is considerable. As Cindy Hurst points out in her 2010 report on the rare earth elements (REEs) industry in China, the mining and processing of REEs, if not carefully controlled, can create significant environmental hazards.

She cites an article published by the Chinese Society of Rare Earths, which claims: “Every tonne of rare earth produced generates approximately 8.5kg of fluorine and 13kg of dust; and using concentrated sulphuric acid high-temperature calcination techniques to produce approximately one tonne of calcined rare earth ore generates 9,600 to 12,000 cubic metres of waste gas containing dust concentrate, hydrofluoric acid, sulphur dioxide, and sulphuric acid, approximately 75 cubic meters of acidic wastewater, and about one tonne of radioactive waste residue (containing water).”

Furthermore, according to research conducted within Baotou, in Inner Mongolia, where China’s primary rare earth production occurs: “All the rare earth enterprises in the region produce approximately 10 million tonnes of all varieties of wastewater every year”, and that most of that wastewater is “discharged without being effectively treated, which not only contaminates potable water for daily living, but also contaminates the surrounding water environment and irrigated farmlands”.

Case study: Rolls-Royce

Rolls-Royce, the global power systems company, is one firm that is determined to make an effective response to environmental concerns by reducing the impacts of both its business activities and its products as well as by developing entirely new low-emission and renewable-energy products. It is tackling the issues of resource scarcity and efficiency through metal recycling, product redesign and raw material purchases. These measures all feature in the Derby-based company’s strategy to manage supplies of key raw materials, with a focus on improving sustainability.

Each year, Rolls-Royce deals with thousands of tonnes of metallic by-product or revert, which is no longer termed scrap metal. “We recognise that recycling will help the sustainability of limited resources,” says Paul Nash, global commodity leader for revert at Rolls-Royce. The company has established a Global Revert Consortium, involving its own manufacturing facilities, overhaul shops, suppliers and partners in recycling metal turnings, foundry waste and unserviceable engine parts, which contain rare metals. Agreements with key suppliers also require them to recover revert from machining and forging processes to retain the metal within their supply chain.

“We’re seeking to maximise the recovery of rare and expensive metals. The more we can recover, the less virgin material we have to buy,” explains Nash. He describes the process as a “closed-loop” one. “We employ a specialist third party to securely segregate, collect and process revert from our facilities and suppliers around the world. Material undergoes several specialist processes to recover precious metals, and by investing the time and effort we not only recover rare metals, but we clean up the parent metal so it is suitable for re-melting into the same alloy.”

Recovery also means that Rolls-Royce pays less for raw materials. “We require thousands of tonnes of mill products each year and as part of the purchasing strategy we pledge to return revert to the mill, say 20% of the purchased weight. By doing this, mills can rely on us as a source of their raw material and we are not exposed to as much market price volatility and metal scarcity,” says Nash.

The revert programme has been operating for about 10 years, but has become a core strategy for Rolls-Royce over the past five years, as the global demand for raw materials has grown and metal prices have increased. “It began with recycling a few hundred tonnes of titanium, but now comprises several thousand tonnes and a significant number of alloys and closed-loop arrangements,” comments Nash.

In addition, designers at Rolls-Royce are working on reducing the use of rare and expensive elements. For example, the company’s designers have developed alloys that halve the amount of rare earth elements required in some of the company’s jet engine parts.

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