Rare earth magnet users jolted into paying premium prices for ex-China supply

New Straits Times

8 hours ago

FOR years, Rahim Suleman had reached out repeatedly to carmakers and other potential clients to market the rare earth magnets from the plant his company was building in Estonia, one of just a handful outside dominant producer China.
But after April 4, when Beijing imposed new restrictions on the super-strong magnets used in electric vehicles (EVs) and wind turbines, Suleman retired his sales pitch. He didn't need it any more.
Ever since China's export controls tightened some rare earth exports to a trickle in the midst of a trade war with the United States, causing chaos in supply chains and some auto plant shutdowns, "the phone is ringing off the hook", said Suleman.
Companies starting new plants in Europe, the US and Asia had previously reported difficult talks on deals that embedded the higher costs to make magnets outside China, which benefits from cheaper labour costs and economies of scale as well as government support via tax refunds.
But the crisis has led many customers to soften or drop objections about paying those premiums as they scramble to hammer out deals, according to a dozen industry participants, including carmakers, magnet makers, rare earth producers, consultants and government officials interviewed by Reuters.
While rare earths magnets from China are flowing again, customers remain on edge about the threat of future shortages.
Suleman's company, Neo Performance Materials, launched output of permanent magnets at its Estonia plant in May. Now, he said, "everybody wants to talk about how (they can) satisfy their demand out of our facility".
He said he had no worries about lining up enough customers who would pay a premium — US$10 to US$30 per kg, with EVs typically holding 2kg to 4kg of magnets per vehicle — over the price they usually pay for Chinese magnets.
Output at Neo's factory in Estonia is starting small, providing samples to its first customer, which Suleman declined to identify. German auto parts supplier Schaeffler said it was a customer of the plant, but declined to comment on how much it is paying.
In South Korea, customers of NovaTech, which produced magnets in China, were prepared to pay 15 to 20 per cent more for magnets made in Vietnam, said a company source, adding that there was "a growing sense of crisis among customers".
The company, which sells China-made magnets used in Samsung's phones and tablets, is investing at least 10 billion won in a plant in Vietnam launching early next year to make magnets using locally processed rare earths from a partner, said the person and another company official.
Britain's Less Common Metals (LCM), one of the few firms outside China involved in a key step of rare earths processing — making rare earth metals and alloys — says it is battling to cope with new enquiries.
"Now, post-April 4, it's like someone stuck a cattle prod into the whole industry," said Grant Smith, its chairman.
He said LCM had held discussions with numerous companies that used magnets as they sought alternative supply sources, though he declined to name them.
Despite the new willingness to pay a premium, it would take many years or even decades to build up production outside of China, which accounted for 90 per cent of global permanent magnet supply, said industry participants.
And the question of how much more should be paid for rare earths and magnets outside of China is a tricky one.
Too high a premium for mined rare earths could see consumers cutting down their use, while premiums that are too low would not be enough to allow construction of ex-China projects, say analysts and consultants.
Carmakers are willing to pay more to guarantee ex-China supplies, but they are also in the midst of an EV price war that has left them with thin margins.
One executive at a rare earths company said the firm had held discussions with carmakers that were prepared to pay US$80 per kg for neodymium-praseodymium oxide, a rare earth needed for magnets used in motors and generators — a figure Reuters has not independently verified.
That is already a significant — near 30 per cent — premium over the Chinese price of US$62 based on data from price reporting agency Fastmarkets.