PETALUMA, CA (The Critical Metals Report) - The Critical Metals Report: Bob, at the Asian Metal Conference in San Francisco, you spoke about rare earth elements (REE) usedin magnets. Are magnets the most important application driving REEdemand? Bob Wolf: No. If you look at total supply of all REEs, magnets make up about5% of the total usage by weight. If you mine 100,000 pounds (lbs)of REEs, 5% might be used in magnets. REE usage in magnets is avery small, but essential percentage of the total REE supply. Forexample, without lanthanum, there would be no flat-screen TVs.However, without the REEs in neodymium iron boron (NdFeB) magnets,your laptop would become the size of a small room, because REEmagnets are required for small disk drives. TCMR: Are REE magnets dramatically smaller and lighter thanalternatives? BW: Yes. The volume of an NdFeB magnet is about one-tenth the size ofa ferrite magnet. Wind power generation is a large user ofpermanent magnets. The typical permanent magnet windmill generatoruses approximately 600 lbs of REEs in magnets. The alternative is2,500 lbs of ferrite magnets. Without REEs in that application, theengineering is a headache. TCMR: Do REE magnets perform better than other magnet designs? BW: Yes, REE magnets have better performance than any of the others.However, magnet design can be complicated. Some older designs, likealnico 5, have some properties that are equivalent to REE magnets.But they have drawbacks, such as sensitivity to vibration anddemagnetization. Even with the drawbacks, they serve a veryspecific purpose in some applications involving extremetemperatures. TCMR: It sounds like there's a lot of design that goes into choosing theappropriate magnet for an application. BW: Oh yes. I'm starting to see more awareness of magnet choice by endusers. People ask, "Can I change back from REE magnets to somethingelse?" Sometimes the answer is no. One example is the very tinymicro-motors-I call them "roto rooters"-that are used in medicalapplications. These motors are used in medical devices insidearteries, where they clean out plaque. These devices wouldn't existwithout neodymium magnets. With a ferrite magnet, the motor sizeincreases by a factor of 10 and there is no way it's going to fitin an artery. That's an application where you can't possiblyswitch. TCMR: If the magnet is that small, is cost no object? BW: In many respects. People will look at the cost and compute thecost per pound (lb). It all depends on the material grade, size,shape, geometry and application. For example, those magnets maycost $3,000/lb. But you could put 100,000 of them in a coffee cup.Some individual magnets are priced to three decimal places. On acost/lb basis it's astronomical, but on a cost per unit basis it'snothing. TCMR: There is a wide variation in price between rare earth elements. Towhat extent can less-expensive REEs substitute for more expensiveREEs? BW: Substitution is possible in some circumstances, but it depends onthe application. Operating temperature is one of the more importantfactors. For example, a neodymium magnet is available in manygrades based on dysprosium and cobalt content. The more expensivemagnets perform better at higher temperatures. It is all about theapplication. An automotive sensor will usually not exceed a servicetemperature of 100 degrees Celsius. A hand tool will generally notexceed 60 degrees Celsius. The application determines the magnetmaterials and therefore the cost. TCMR: Is there ongoing research that examines new REE magnetformulations? BW: In the past, the Crucible Research Center in Pittsburgh, the GMResearch Center in Detroit and Bell Laboratories in New Jersey wereactively trying to find new materials. None of those organizationsexist anymore. Very few universities conduct research on permanentmagnets. Many Chinese companies have scientists looking into newmaterials. However, I haven't seen anything commercialized fromthat research. TCMR: In the past, how have new magnet technologies entered the market? BW: If a company developed a commercially viable new material, thatcompany would surely want to protect it. In the past, the industryhas licensed technology. When NdFeB magnets were invented inDecember 1983, several companies filed patents. However, now allthe licensed companies in the U.S. are gone and I am only aware ofone left in Europe, so China really owns the magnet fabricationindustry. That is just the manufacturers that take REEs or REE alloys andcreate magnets. There are a lot of processes between the mine andthe manufacturer. You've got to separate the material into themetals. Then you've got to alloy the metals. Eventually, you get tothe magnet manufacturer. TCMR: You just mentioned the mine-to-magnets integration concept. HaveChinese REE producers already accomplished this strategy? BW: Not totally. The Chinese government owns many mines, but there area large number of mines outside its control. There are also manycompanies in each of the refining, alloying and manufacturingbusinesses. It is not integrated into a single company. TCMR: Where does your company fit in? BW: We are similar to a distributor. Beyond that, we're alsoengineers. We have long-standing relationships in China withcompanies that are extremely reputable. We hold inventory inValparaiso, Indiana, so a customer is not dependent onmanufacturing and shipping across the world to get a part. We evenhold some parts in inventory because we know customer orderingpatterns and we'll hedge by a month or so just to make sure it'savailable. TCMR: What's your view on China's REE export quotas? BW: What's happened in China is common to all emerging economies.China's population wants new color TVs, cellphones, electric carsand windmills. China's government is using quotas to save resourcesfor domestic use. Lately, it hasn't been raising the quotas, whichonly apply to REEs shipped as raw materials. The quotas don'tnecessarily apply to a finished product, like a magnet. China'sgovernment is trying to protect its economy. However, the quotashad a side effect of rising prices. As the prices rose, smallmanufacturers couldn't get credit and their customers suffered.Larger manufacturers were protecting their existing customersbefore taking new customers, which created some stability. Allianceforesaw the upcoming crisis and used its resources to purchaseadequate inventory for its customers. In doing this, some customershad no or modest price increases. TCMR: Which REEs do you follow? Do you have any views on pricing for thelight rare earth elements (LREEs) versus the heavy rare earthelements (HREEs)? BW: I follow the REEs used in the magnet sector, which includespraseodymium, neodymium, samarium (LREES), gadolinium, terbium anddysprosium (HREEs). I also watch the aluminum and cobalt markets. Iam watching not so much for absolute price, but overall markettrends. TCMR: What are some current trends in REE markets? BW: Lately, the price is trending down. It may be stabilizing orperking up. I don't know yet whether that's going to be acontinuing trend or whether it was just a one-week perk. If itcontinues for more than two weeks in a consistent direction, I willlet my customers know. I could forewarn my customers and advisethat they put in a blanket order. TCMR: There's a lot of talk about potential production coming onlinefrom new North American sources of REEs. Are there companies thatyou keep your eye on? BW: I read the news releases. However, there is usually more to thestory. Consider what would happen if a vertically integrated rareearth producer was able to start producing NdFeB magnets tomorrow.That could be a problem, because they may not have a license fromthe patent holders. TCMR: Is Chinese patent infringement in the magnet space an issue? BW: Making magnets and shipping within China is not a problem.However, if they're shipping to the United States or Japan, thenthe magnets must be made with licensed material, which includes aroyalty. TCMR: Do you see that as a deal breaker for non-Chinese companiesentering the magnet manufacturing business, or just an added cost? BW: It will probably end up being an added cost. There are only fivelicensed sources for NdFeB magnets in China. Verification of theroyalty payment to the patent holder can be tough if you purchasemagnets from manufacturers outside the licensed sources. Evenlicensed Chinese producers are not permitted to export magnets toJapan. TCMR: Have you seen any new or underappreciated uses for REE magnets? BW: You never use magnets by themselves, but REE magnets are in thevibratory motor in your cellphone and in the hard drive of yourlaptop. There are over 100 applications for permanent magnets inyour car. Airbag triggers, loudspeakers, anti-lock brake sensors,windshield wiper motors, power window motors-they all use magnets.I can go on and on and on with all the applications. TCMR: What are your biggest customers right now? BW: Motors and generators make up the largest sector, because they'reso widely used. After that, the sensor market is probably the mostsignificant. Hall effect sensors [sensors that adjust wattage inresponse to a magnetic field] are a growth area. But the sensorsare a small component in any application. TCMR: What about investing in the mining companies for the minerals thatmake the magnets? BW: Keep in mind that REEs are quite plentiful. Permitting is more ofan issue than finding and mining REEs. One of the biggest REEdeposits in the United States is on the North Carolina coast. Nomine will be built because of hotel development. But the REEs arethere. Separating into oxides and metals is an intensive chemicalprocess. Permitting these types of plants in the U.S. will be verydifficult. Then you need to build an alloying plant. There are alot of parts of the business. TCMR: So, why didn't you start a magnet manufacturing company? BW: I suppose I could have. However, it is more fun to sell magnetsrather than make magnets. But the people who actually know how tomake a magnet fall into three categories: retired, senile and dead.Only about six chief application engineers are still around. A lotof research was not written down. China was able to copy many ofthose technologies, but many have not been duplicated well and somehave never been duplicated at all because they are lost. The lastU.S.-based REE magnet manufacturing plant closed in 1999. Ingeneral, the trade secrets from those manufacturing processes havebeen lost. New plants, whether in the U.S. or in China, will havequite a learning curve. TCMR: Thank you for taking the time to talk to us today. Bob Wolf has over 25 years of experience in the permanent magnet industry.He has served as product manager for rare earth magnets at CrucibleMaterials Corp., manager of North American marketing of permanentmagnets for Philips Corp. and vice president of neodymium ironboron sales for Ugimag Corp. He was on the board of directors ofthe Magnetic Materials Producers Association. Currently, he is thevice president of sales and marketing for Alliance LLC. He is alsoan instructor in mathematics at Purdue University North Central.Wolf is a graduate of Loyola University, where he earned a Bachelorof Science degree in physics. He earned a Master of Science inphysics at DePaul University. Wolf has authored over a dozenarticles. 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