China’s new export controls on rare earth elements (REEs) are a problem for EVs, renewables, and other industries that rely on the minerals, especially the permanent magnets they’re used in. The vast majority of the global supply chain is in China. Plus, Chinese companies control supply chain operations around the world.
So is it possible to stand up a rare earth supply chain outside of China’s control?
In this episode, Shayle talks to Ahmad Ghahreman, co-founder and CEO of REE recycler Cyclic Materials. (Energy Impact Partners, where Shayle is a partner, invests in Cyclic.) They cover topics like:
- REE 101: the basket of 17 minerals, how they’re mined and processed, and the most important five
- Why an REE supply chain hasn’t been built outside of China, even though the raw materials exist outside the country
- The timeline of Chinese export controls leading up to the April escalation and what could come next
- The specifics of what’s limited, including oxides, alloys, and magnets
- Why Ahmad is optimistic about building an ex-China supply chain
- Other potential pathways, like recycling and designing more REEs-efficient products
Recommended resources:
- The New York Times: The Mine Is American. The Minerals Are China’s.
- The New York Times: How China Took Over the World’s Rare Earths Industry
- Axios: China trade war risks stifling America’s electric car movement
- Heatmap: China’s Minerals Pause All Pain, No Gain for U.S
- Latitude Media: Building a supply chain for rare earth elements
Credits: Hosted by Shayle Kann. Produced and edited by Daniel Woldorff. Original music and engineering by Sean Marquand. Stephen Lacey is our executive editor.
Catalyst is brought to you by Anza, a platform enabling solar and storage developers and buyers to save time, reduce risk, & increase profits in their equipment selection process. Anza gives clients access to pricing, technical, and risk data and tools that they’ve never had access to before. Learn more at go.anzarenewables.com/latitude.
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Transcript
Tag: Latitude Media: podcasts at the frontier of climate technology.
Shayle Kann: I’m Shayle Kann, and this is Catalyst.
Ahmad Ghahreman: So for 30 years, China has been building strength on the supply chain of earth elements and they became absolutely the dominant force in the market for manufacturing magnets.
Shayle Kann: Coming up, we’re talking rare earths and geopolitics.
I’m Shayle Khan. I lead the frontier strategy at Energy Impact Partners. Welcome. Alright, 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? Garman. 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, 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.
Ahmad Ghahreman: Thank you very much. Great to be back.
Shayle Kann: Alright, let’s start with a bit of, I guess a deeper version of a rare Earth 1 0 1. 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 used for?
Ahmad Ghahreman: So I was on the program about a year ago, lots have happened, so great to be back here. Rare earth elements, those are the middles that sit at the bottom of periodic table. We have 17 of those on periodic table that usually when you mine for 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 earth such as neodymium and praseodymium and heavy ones such as dysprosium and terbium and also cerium, which we use them in specific kind of magnets. Those are the magnet rare earth elements, which are the most critical ones. Now, very briefly, when we use rare earth elements in 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 those electric motors. And rare earth magnet, because of the supply chain is critical for electrification and those applications,
Shayle Kann: Right? So worth noting that there’s a basket of 17. They come in a basket when you extract them at least from virgin mining, 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. 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 areas of critical minerals where China has done an extraordinary job of getting a stranglehold on many of those supply chains. And it’s particularly true in rare earth. So can you walk me through the history of China and its role in dominance in the rare earth supply chain?
Ahmad Ghahreman: So absolutely. So China, some 30 years ago, 25 years ago, they came to the conclusion that they want to be the country that controls or processes the majority of rare earth magnets in the world. So with that planning, they basically pushed forward, they started the mining operations in China, they broadened the supply chain of magnets into China. They started mining separation, metalization magnet manufacturing. Now availability of magnets in China, help China to bring in the balance of the supply chain, the risk 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 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: 63% of rare earth mining happens in China-
Shayle Kann: Which by the way, 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. 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,
Ahmad Ghahreman: Correct. So they basically started with mining, they created the supply chain and then they acted like a vacuum cleaner. So they go outside and bring in most of the other mined rare earth minerals and concentrates into China. That number becomes 90%. So 90% 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 basically they control and hold a majority of supply chain for magnets in the world. But one thing that sometimes we don’t really look into is 99% of heavy rare earth elements, 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 sediments because when you use dysprosium, now your magnet is capable of tolerating higher temperature and when you use that magnet in electric motor 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 really significant role. 99% of those metals are produced and used and implemented in products within China. So that’s one of the biggest distinctions there.
Shayle Kann: Is that because I guess 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 earth, it’s a geological thing or is it something else?
Ahmad Ghahreman: It’s a geological thing. So it happens that the majority of heavy rare earth that comes into deposits are concentrated in Chinese deposits rather than Australia or the us for instance. MP Materials in the US basically has almost no heavy rare earths in the deposit, but they have a lot of lights, NdPr. Now neodymium-praseodymium, NdPr are used in magnets as well to a really substantial amount. But that high temperature control thing only comes with heavy rare earth elements on magnets.
Shayle Kann: Let’s talk a little bit more about the geology just for a second. Obviously the US is finding itself in a tricky situation, or not even just the US, right? The rest of the world, but particularly the US because we’re in such a tense geopolitical moment with China and rare earth are, I think China has correctly identified an area of significant leverage because they’ve got such a stranglehold in that market 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 just to make sure that we’re actually recycling rare earths, which we generally don’t do. But aside from that, if we want to stand up a virgin supply chain, 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?
Ahmad Ghahreman: 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 makes sense to make the rare earth elements to be processed within China and used in China. And the market price for earth element often is artificially controlled by Chinese governments. So makes the projects, mining projects outside China less attractive time to time. And those levers that China has basically helps them to have better control on the market as we go through. But some of the deposits in let’s say Brazil and other countries do carry a good amount of heavy rare earth elements, but none of those deposits are being mined today.
Shayle Kann: So it’s one thing for China to have built up this dominant market position, but it’s another thing for China to start exerting that leverage in a geopolitical context and making it difficult for other countries to compete 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? China has been using rare earths as leverage for some number of years.
Ahmad Ghahreman: Oh, that’s absolutely true. And I’ve been very vocal about this that this day is coming and I don’t have a crystal ball, I just connect the dots really. So for 30 years China has been building strength on the supply chain of earth elements and they became absolutely the dominant force in the market for manufacturing magnets. Now back in December of 2023, they enforced a ban on the export of equipment and technology related to rare earth elements. This was really a significant event happening back in December of 2023. I don’t think it got enough attention in this space
Shayle Kann: 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 mining separation, metalization magnet production, it’s those middle two steps. Is that right?
Ahmad Ghahreman: And also magnet manufacturing. Correct. So that was the ban on two things, export of technology and equipment related to processing of where elements as well as making magnets. So that happened in 2023.
Shayle Kann: Do we know- is that technology is whatever technology China has developed, whatever processes I suppose China has developed 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?
Ahmad Ghahreman: I believe we can develop our own technology outside China, but those technologies readily available in China are not for free for other parts of the world 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, for instance, in the US. In fact, I am aware of companies that they really relied on those Chinese technologies and now they’re having challenges with bringing those equipment into the US and Europe. So their projects have been suffering from that. So one thing that happens in mining, sorry, on processing and magnet manufacturing side is those 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 elements 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 helps them to basically quarter the market on how to make those magnets within the borders of China and not export the technology outside.
Shayle Kann: Okay, so 2023 China says we’re banning export of both technology and equipment for refining and magnet production. So that basically says either if you’re outside China and you’re trying to develop that part of the supply chain, everything passed mining, you need to come up with your own process and equipment and that is going to be harder than leveraging what’s existed in China for 30 years. So that’s the first salvo, but not the last one.
Ahmad Ghahreman: 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 that made it fewer companies to have better control on the supply chain. And every single step in the process was controlled by the government from pricing of various elements all the way to products and what happens to products. China has been controlling how much of those rare 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 implemented export control on rare earth elements. Just to be clear, the export control actually does apply to a few different variety of materials and products. Those would be rare earth oxides, which is basically the raw materials or ingredients that you would need for your magnet manufacturing outside China.
Shayle Kann: Just to be clear, that comes post separation.
Ahmad Ghahreman: Correct.
Shayle Kann: Right?
Ahmad Ghahreman: Yes.
Shayle Kann: So you do mining, you do separation, then you get your rare earth oxides. And so basically that export control says we’re going to make it very difficult for you to produce magnets outside China.
Ahmad Ghahreman: 100%, 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 elements. We use them in different applications, but any alloy or metal that has heavy rare 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, in 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’ shipments to other countries in Europe in the US are significantly delayed. And that’s what causes a lot of stress out there in the market today.
Shayle Kann: So just to repeat, as we said before, there’s four steps in the value chain, the high level, right? There’s mining, separation, metalization magnet production, and what China did three weeks ago is instituted export controls on all four steps effectively,
Ahmad Ghahreman: Basically. Basically yes.
Shayle Kann: What do we know about what export controls means, right? It could be nothing and it could be a strangle.
Ahmad Ghahreman: It’s going to be really a step that China is going to 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 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’re not shy to utilize their dominance in the market whenever they need to enforce something. Now they control the export of or banned export of technology and equipment. So the world is really connected and in need of the magnets 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 with companies, different companies in this space is that it’s been 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 products.
Shayle Kann: So as of today, it’s more uncertainty than anything else, like the flow of magnets and earlier steps in the value chain. The flow has continued unabated to date, but the expectation is that 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 going to be.
Ahmad Ghahreman: Fair to say it’s a bit more than that. So today the shipment of the magnets is really disrupted. It’s not being shipped today. Magnets, oxides, metals, alloys, all of them, all the above are delayed in shipments. But one critical signal here, two things I will point out here. The first one is the emphasize on heavy rare earth elements. China knows 99%, those heavy rare elements come from China and any alloy or magnet material that has heavy rare elements in them have been singled out in those documentations.
Shayle Kann: And again, those are the stronger the magnets to be used in stronger motors. That’s the short way to think about it
Ahmad Ghahreman: Or the heavy duty or higher performance electric motors, for instance, electric motor of EVs. Because when those cars drive at say 70, 80 miles an hour, the electric motor heats up a little bit and those heavy rarer elements makes them capable of tolerating higher temperature in the electric motor. So basically singling out heavy rarer elements in the export is unique. So they are not shy of using their power that they control 99% of those metals. And my strong belief is that the process for export control will be utilized a bit more in the future. And this will basically signal again that China is not really reliable on sourcing of earth magnets in the future as we go forward because they will use it as a tool to change behavior outside China.
Shayle Kann: 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, and lots of folks are thinking about that. I’m curious your perspective on how hard that’s going to be and how long it’s going to 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.
Ahmad Ghahreman: So I’m an optimistic person, so I will give you an optimistic perspective: 63% of mining for rare earth is happening in China. That immediately tells you 37% is happening outside China. So realistically, we do have the raw material outside China to process and produce magnets. It won’t happen within 24 hours, but if we really want it to happen and we spend money on it, it’ll eventually happen. Now a few strong steps have been taken in the past couple of years or so, three years or so. For instance, magnet manufacturing companies are building up capacity in the US and within Europe, Vacuumschmelze is building a large magnet manufacturing facility in South Carolina. MP materials and Texas and few other companies are building capacity on separation of earths. There are a few projects, just last week our own partners started their plant in France again to separate earth elements.
And Lynas, an Australian company is building capacity in Texas, I believe. So there are pieces and parts happening in different states or countries. So I’m optimistic that eventually because the feedstock is available to 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 10, 20 years we have imported products into US, Europe, other countries that do carry magnets in them do have magnets in them. And with that we have actually built the largest overground deposit of rare earth elements in our countries. 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 the beauty of those in the life products is because those were produced 10, 15 years ago, they do carry quite a bit of heavy rare elements. 10 years ago we were a bit more generous in using those heavier elements in the products we manufactured then. And because of their costs and availability, the engineering departments work very hard on cutting the consumption of those rare elements, reducing the consumption of those heavy rare elements. We do still consume little bit, but much less than what we use to consume in say two thousands. And those products are available for recycling. So that’s our immediate source of rare sediments in the market with heavy in it.
Shayle Kann: Yeah, you basically have at least two benefits if you’re recycling rather than virgin, right? 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 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, sorry, that is heavier in heavy rare earth 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 develop outside China. So you have kind of a double whammy of a benefit if you can actually recycle.
Ahmad Ghahreman: Agreed. So the product we produce today and shipped to our customer, mixed rare earth oxide that we produce actually does have only five rare earth elements in it rather than 17. That usually comes from mining industry that makes separation of those R elements much, much simpler than what it is from mining industry. And yes, our heavy rare elements oftentimes is closer to 10% of our product, which is, I’m going to say really unique and one of the highest quality rare elements out there in the market in respect to heavy rare elements.
Shayle Kann: Alright, so I guess final question for you is, is there another level of escalation that we could see here? You mentioned that there’s been sort of increasing escalations from 2023, then 2024, 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 earths. You could imagine a full export ban I suppose, which would I imagine short of those who can use to the extent that we have a tiny, tiny bit of ex-China midstream industry, you can imagine that freezing a bunch of supply chains basically overnight. Is that the next level of escalation that you could imagine here?
Ahmad Ghahreman: Well, shale unfortunately I believe it is. So this is not going to be a new thing in our critical minerals space overall. For instance, germanium, gallium exports a few years ago, a couple of years ago were banned and those are another level of critical metals that we need 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 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 not the warmest that it has been in the past years. So my expectation is China will be more willing to use this tool in the future if they wanted to basically enforce the control that they have on rare earth, on the broader market.
Shayle Kann: Alright, Ahmad, informative as always, somewhat terrifying. I want you to get up to scale as fast as humanly possible, get back to it.
Ahmad Ghahreman: Absolutely Shayle. We are working the fastest we can and in fact, I will tell you in the past three weeks we have spoken to more car companies and others than we have spoken. We had spoken in the past one and a half years or so. So things are really going fast and we are also scaling up pretty fast in the next couple of years.
Shayle Kann: Ahmad Garman is the CEO and co-founder of Cyclic Materials. This show is a production of Latitude Media. You can head over to latitude media.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@preludeventures.com. This episode is produced by Daniel Woldorff, mixing a theme song by Sean Marquand. Stephen Lacey is our executive editor. I’m Shayle Kann and this is Catalyst.
