The US is making a major investment in ramping up domestic production of rare earth magnets to reduce its reliance on China. But in a reminder of how entrenched China is in the global rare earth supply chains, the company that Washington has tapped for a new factory has a big China footprint.
The Department of Defense this week announced a $94.1 million investment in E-VAC Magnetics to fund its construction and operation of a major rare earth permanent magnet factory in the US. E-VAC is part of Vacuumschmelze, a century-old German company and the West`s largest producer of rare earth magnets.
A [historic" investment in rare earth magnet production
Rare earth permanent magnets power electric vehicle motors, wind turbines, and iPhones. They are so called because they contain rare earths-mostly neodymium and praseodymium-and have permanent magnetic fields. These magnets are critical for both military and industrial uses. Yet the US is heavily reliant on Chinese imports, a dependency is seen as a threat to national security.
[This move by the Department of Defense is historic," Jack Lifton, the executive chairman of the Critical Minerals Institute, wrote of the Pentagon`s investment in E-VAC. [It represents the first significant announcement of a large scale commercial rare earth permanent magnet factory in North America, since Magnequench was sold and moved to China nearly 25 years ago."
Magnequench, a maker of advanced magnets, previously had US production facilities, but they were shut down after the company was acquired by Chinese buyers.
De-risking from China is a knotty problem
But if Washington is betting on E-VAC to temper Beijing`s sway over a critical industry, E-VAC`s parent Vacuumschmelze itself has significant exposure to China.
Roughly one-in-four Vacuumschmelze employees are China-based, and the company has production facilities there as well. Further, it is a minority owner of a China-based joint venture with Zhongke Sanhuan, China`s largest producer of rare earth magnets.
Zhongke Sanhuan has close Chinese government ties: its controlling shareholder (link in Chinese) is the Chinese Academy of Sciences, a public institution that sits directly under the State Council, China`s cabinet. Its joint venture with Vacuumschmelze, dubbed Sanvac, was established in 2005, and is seen by Chinese industry analysts (link in Chinese) as an opportunity to learn from the German veteran and propel Zhongke Sanhuan into an internationally competitive position.
Rare earth magnets are a tough business
E-VAC`s China exposure aside, there`s also the challenge of economic viability. Vacuumschmelze, as the industry newsletter The Rare Earth Observer noted this week, has [a long history of operating losses."
In part, this is due to China`s structural advantages: Beijing has designed tax rules around its rare earth monopoly such that magnet makers outside China are at an automatic cost disadvantage. Then there`s the fact that Chinese magnet-making equipment is estimated to be one-third to one-half the cost of Western machinery. Plus, as a recent industry report (pdf) prepared for the US government warned, Vacuumschmelze and other European magnet producers will face ever greater competition and diminishing margins as non-Chinese companies ramp up production.
