The impact of China on the NdFeB permanent magnet market

The impact of China on the NdFeB permanent magnet market was predicted and foreseen for a number of years, Barry H. Rabin, manager of powder application engineering for Magnequench Inc., Anderson, Indiana, one of the two companies that at least for the time being hold patents on the production of these rare earth magnets. It only makes sense, he said, considering the vast amount of rare earth ore that is found in China and the fact that the Chinese government has made a concerted effort, through subsidies and other means, to ensure that the country becomes a major player in numerous downstream activities, including the production of rare earth magnets.

Port Wheeler, president of Wheeler Associates, Elizabethtown, Kentucky, which publishes the MagneTrends newsletter, agreed, noting that China has about 70 percent of the world¡¯s neodymium resources. "With that material and very low labor cost it gives them the opportunity to capitalize on the NdFeB magnets," he said, stating, "For a while they didn¡¯t have the technology to produce the magnets, but starting in the mid-1990s they began to have a grasp on the technology and began to improve upon it."

The Chinese themselves has also confirmed this trend. Wheeler noted a well-respected Chinese consultant, Yang Luo, who often comments on Chinese magnet output and production capacity, recently stated that in the next decade there would be an improvement in the quality and capacity of the NdFeB magnet industry in China. In summarizing a paper by Luo, Wheeler stated, "Based on the abundance of raw materials and manpower, under the support of technical expertise and a huge domestic market, the Chinese magnet industry will become a global giant compared to the past decade ¡­ and everyone who deals with magnets has to consider how to work with and treat the Chinese magnet industry fairly."

He went on to say, "With the further development of the Chinese magnet industry, the technical gap between the Chinese magnet industry and that in the West is reducing with time. It means that China can offer better products for its customers and that Chinese magnets have become even more competitive due to the improvement of their properties."

In fact, according to Luo, Chinese magnet production (all types of magnets) surged to 207,940 metric tons (mt) in 2001 from a mere 32,235 mt in 1990. This included a leap to 6,400 mt of sintered NdFeB magnets in 2001 from 180 mt in 1990. He predicted that this trend would continue, and that in 2003, 9,260 mt of sintered NdFeB magnets would be manufactured there

And that does not include their production of bonded NdFeB magnets. However, according to John Croat, president of the Advanced Magnetic Materials division of AMR Technologies Inc., Toronto, while over the past 10 to 15 years the Chinese have built up sizeable sintered capacity, they still remain a relatively small player in the bonded market. But that could change, he said, declaring that especially with Magnequench closing its Anderson, Ind., NdFeB powder production plant at the end of December, the Chinese will likely become a major producer in the bonded market as well as becoming bigger and bigger in sintered NdFeB magnets as well.

This has definitely been by design. "The Chinese government has made their mission to develop downstream aspects of the rare earths market, including magnets," Croat said. "Also they are underpricing everyone. At this point they are selling magnets almost at cost. It is driving everyone else out of the business until that changes."

Burley Semones, president of MTM Consulting, Roanoke, Va., concurred, noting, "Many non-Chinese producers have already either fallen out of the market or merged, particularly domestic producers. If companies do not link with a Chinese company they will be even less successful."

Rabin agreed, stating that companies have been forced to set up shop in China. "All the major players are there or will be there shortly. They have to be there to compete," he said, adding, that there are many advantages to doing so in this very competitive NdFeB magnet market. In addition to taking advantage of the ability to produce product at a lower cost, he noted, they can take advantage of the burgeoning Chinese domestic market. "With China entering the World Trade Organization, the domestic Chinese market is growing. Companies are trying to supply both the global market as well as the domestic Chinese market through joint ventures in China," he observed.

Expiring Patents Opening Doors
Chinese dominance in the market could escalate as the patents held on NdFeB by Magnequench and Japan¡¯s Sumitomo Special Metal Ltd. start expiring.

Patents have been central to battle for NdFeB magnet dominance, which began with their invention about 20 years ago simultaneously by Sumitomo and General Motors Corp. (which eventually spun off its magnet operation to Magnequench). Both companies, Wheeler said, were granted patents for their discovery, but at first there was much disagreement as to exactly what each covered. "Eventually they came to an agreement that Sumitomo¡¯s patents would cover the sintered product and that GM¡¯s (or Magnequench¡¯s) would cover the NdFeB powder and powder-based, or bonded, NdFeB magnets," he noted.

But even so, Wheeler observed, in recent years there have been a lot of infringements of these patents, including by companies in China, which, he said, have gotten away with making unlicensed product by labeling it as something different, such as metal bars. "It is a very cloudy situation. It is hard to pin down if it is NdFeB magnets or not," he declared.

Also, according to Susumu Hashimoto, president of Chicago-based Sumitomo Special Metal America Inc., as there are no patents by either company covering China, product produced there for domestic consumption do not have to be licensed "and there is a significantly large market in China," he noted. "Both through licensed and unlicensed material, the competition from China has increased and is fierce, contributing to keeping prices down," Archibald Cox Jr., president and chief executive officer of Magnequench, declared.

But the distinction between licensed and unlicensed magnets could become moot soon with the with Sumitomo¡¯s major patents in Japan, the USA, and Europe set to expire in 2003, and Magnequench¡¯s patents in Japan and Europe set to expire in the 2003-2004 time frame and its US patents expiring in 2006-2007 (Table 2). This, Yang stated in a recent paper, could lead to a period of fast development of further Chinese dominance of the global magnet industry.

Much Potential for Global Growth
Despite the growing Chinese influence market observers are very optimistic about the long-term outlook for NdFeB magnets, even considering the fact that demand growth has been virtually nonexistent during the past year or so.

"Demand has been growing. It is a very healthy business. The technology is sound and there is no immediate replacement in the near future," Rabin declared. He, however, admitted that recent demand has been somewhat lackluster. "Growth stalled during the past year with the economic downturn, especially with the decline in consumer electronics, but our business in now seeing a return to a reasonable growth rate," he said.

The slowdown, Rabin said, began late last year, but he is hopefully that the worst of it is over. "Inventories have been cleaned out and now I think the growth indicates true demand rather than inventory building. There had been some unrealistic growth in 1999, much of which was probably artificial demand."

Croat concurred. "Demand was good until 2001, which was a terrible year, with the market dropping in concert with personal computer sales. But prior to that, there had been 19 to 20 percent annual growth. Demand is starting to come back now. I think that we will soon see 19 to 20 percent annual growth rates again soon."

In fact, Cox said he would not be surprised if the US$5 billion NdFeB magnet market would double to $10 billion a year in as little as five years. "There is no question that there is a lot of potential for new markets. We are constantly improving the properties and the cost of NdFeB magnets. The technology continues to get better and better. Their performance continues to increase," he said, adding, "A real force for the use of rare earth permanent magnets is that they are so much more powerful; they provide better performance with less weight, and the trend toward miniaturization has helped out." However, he admitted, its cost has held it up somewhat.

Cost Key to New Market Penetration
"When NdFeB magnets were invented in the mid-1980s the first growth driver was the PC revolution," Rabin explained, "But that market is now pretty much saturated. That is not where the future growth is. Rather, it will be in consumer appliance and automotive applications. But the problem is that these are both much more cost sensitive than personal computers."

Currently, according to Croat, the main application for bonded NdFeB magnets is personal computers and other hard drive applications, such a video games. "The biggest application is for the spindles computer peripherals, hard drives, CD-ROMs and DVDs. They are also used for actuators for floppy drives," he said, adding, "About 50 percent of the market is for computer peripherals, 10 percent for consumer electronics, 10 percent for office automation and 10 to 12 percent for automotive."

Sintered magnets¡¯ largest use, Cox said, is also in disc drives, but also in voice coil motors as well as in MRI machines.

While the automotive industry is the biggest consumer of permanent magnets (with from 40 to 100 used in small motors found in cars), currently it uses far more ferrite magnets and not that many NdFeB magnets, Wheeler said, "but the consensus is that they will use them in larger quantities over time" as by switching to NdFeB magnets smaller motors could have the same amount of power as larger ones. "You can make fairly high energy products, which are more difficult to make with more conventional magnets."

However, according to Hashimoto, while NdFeB magnets have taken some market share in certain applications, such as auto steering, the conversion has not happened as quickly as was anticipated. "There is very limited use of such magnets in North American cars, although they are being used more in European and Japanese vehicles," he declared.

This, Croat said, is largely because of the cost of NdFeB magnets. "While they could result in reduced weight, which is advantageous to the automakers, NdFeB magnets would have to get pretty cheap before they could replace ferrite in major automotive applications," he maintained.

While due to increased Chinese influence, the price of rare earths have come down considerably in recent years, that is not sufficient to allow NdFeB to significantly penetrate the auto market. But certain new technologies being worked on might help it do just that.

Could FFC Process Help Lower NdFeB Manufacturing Cost?
In fact, a recent report by consulting firm Oakdene Hollins Ltd. Aylesbury, United Kingdom, entitled "The Implications for Electric Motors and Drives of Drives of Rare Earth Magnet Cost Reduction: Effects on Manufacturers, Raw Material Suppliers and Users of Rare Earth Magnets," indicates that the Cambridge FFC electrolytic process, developed by Cambridge University, England, could reduce the cost of the manufacture of NdFeB magnets by up to $15 per kilogram of finished unit.

The FFC process, David Parker, a consultant with Oakdene Hollins, explained, is a method for electrolytic ally producing metals and alloys from their oxides (of mixtures of). "It is similar to, for example, industrial processes used to produce aluminum but with some important enhancements," he said. "These are related to the choice of electrolyte, usually a molten salt such as calcium chloride, chosen for its thermodynamic stability with respect to the specific oxides used and the control of the voltage."

The original development work for this process, he stated, was motivated by searching for a cheaper, simpler and safer means of making titanium metal than through either the Kroll or Hunter processes (Figure 1). "Their process involved taking titanium dioxide powder (the ore rutile), forming a water slurry, casting this into shapes and sintering them for some hours at up to 900 degrees Celsius. These preforms are then placed in a conducting basket that forms one of the electrodes when placed in the bath of molten salt. Electrolysis takes place over about eight hours at this temperature. The resultant metal has low oxygen content (less than 2,000 parts per million) and forms a spongy sintered mass," Parker said, adding that its effectiveness has also been demonstrated for chromium and that thermodynamics suggest that this technique is applicable to about a third of the periodic table, including neodymium, as well as samarium, iron, cobalt, nickel, boron, carbon, nitrogen and numerous other metals and semi-metals.

As far as NdFeB magnets, Parker said, the FFC process would lower manufacture cost by replacing expensive raw materials that form a significant fraction of total materials cost with cheaper ones, explaining, "Although rare earth oxides are very expensive, they are nowhere near as costly as the exotic pre-alloys (FeB, FeNd) required to make NdFeB.

Parker did, however, admit that to date there has not been a sufficient push to develop this process by an industrial sponsor. "This is probably because of entrenchment by major operators in the alloying and magnet fields and a glut in the supply ¡­ from China, depressing the price of rare earth materials. However the long-term low cost is unsustainable due to the imbalance in the co-raw minerals
produced, environmental costs and likely future demand."

The FFC process, and its resultant cost savings, could increase NdFeB magnet usage in the intensely price competitive automotive industry, he said, stating, "This new technique offers potential for superior components to customers in the growing electric vehicle sector at little or no increase in price. The size of this market alone is estimated to be $10 million today, but could grow to at least $200 million by the end of the decade," he said.

Lower Price Could Spur Growth
Rabin concurred that should there be a large drop in the price of the magnets, that could open up a lot of potential new applications in the automotive industry, but in the meantime NdFeB magnets will be used for a lot of sensor applications and will go beyond the sensor applications as the auto industry moves more heavily into electric and hybrid vehicles. "As things are redesigned, there will be continued penetration," he said.

This will be particularly true, Cox said, once the automotive industry moves from 12 volt to 42 volt systems, which would require more power from motors. Also, he said, as automakers look for more efficiency from the motors and as systems in vehicles become more complicated, NdFeB magnets will replace ferrite magnets in a number of uses. The electric fuel pump is one possible area, he said, although throughout the automobile there are so many potential uses.

And that potential will grow, Semones said, with the acceptance of the use of fuel cells. "It would make electric vehicles better. It will be the end of the decade before we see any real volumes, but it will happen."

Automotive is not the only area where NdFeB magnets are likely to make inroads. Currently, Croat said, they are making headway in less conventional data storage applications, such as in video games, which use small hard discs. Also, he notes, there has been talk about putting hard discs into cars and certain appliances.

Another big potential use for NdFeB magnets, according to Hashimoto, is magnetic refrigeration, which, based on the magnetocaloric effect, involves using a magnetic field for cooling, or heating from that matter and has been said to be far more efficient than the conventional gas compression refrigerators now in operation. While the US Department of Energy¡¯s Ames Laboratory, Ames, Iowa, and Milwaukee, Wisconsin-based Astronautics Corp. of America announced earlier this year that they successfully demonstrated the world¡¯s first room temperature, permanent-magnet magnetic refrigerator, it will still be a few years before this process is commercialized, Hashimoto admitted, "But if it replaced current refrigerators this could be a huge market," he said. Wheeler agreed, stating that NdFeB magnets would have to be used to get the energy needed for such an application.

"There are also some medical applications for NdFeB magnets that are still some years away, Hashimoto said, including it use in use in an artificial heart. "With the availability of transplants limited, there is potential to pump blood using an electric motor instead of an actual heart and that motor would likely use NdFeB magnets because it would have to be dependable, small and durable."

In Conclusion. . .
Magnetism has never been an absolute. There will always be new applications," Wheeler said, "And when you take a look at all permanent magnets, the greatest growth is in bonded NdFeB magnets, which, due to improvements in power output, have grown by 25 to 30 percent, at least 15 percent per year. And I expect that this will continue."

Semones agreed, stating, "It will still be a few years before we see new markets significantly contributing to NdFeB magnet volumes¡ªabout two to three years¡ªbut overall I am optimistic that there will always be new applications and new markets.

Cox also concurred, maintaining, "I believe that NdFeB magnets have a very positive future. There is no question that the market will continue to experience significant growth, but there will also be significant competition."