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Politically induced scarcity leading to innovation
Posted on October 25th, 2016 by Dr. Kai Pflug in Chemical R&D
Rare earth metals are needed to make many high-tech products, including smartphones, wind turbines, laptops and electric cars. Though 65% of the world’s reserves are located outside of China, currently China supplies more than 93% of the world’s rare earth elements, including neodymium and dysprosium. This situation is particularly troubling for Japanese users of rare earths as Japan and China have an ongoing disagreement about maritime boundaries, and in 2010 China briefly embargoed exports of rare earths to Japan after a particular incident.
This was a strong incentive for Honda to reduce its use of rare earth metals by developing an alternative to dysprosium-containing high-temperature magnets. The new neodymium magnet developed with Daido Electronics contains no heavy rare-earth metals. Instead of sintering, the magnet is produced at high temperatures from solid alloy, which gives the magnet smaller crystals and makes it more heat resistant. Although this magnet is not completely rare earth metal free as it still contains neodymium, this element is also mined in North America and Australia, reducing the dependency on China as a source for a vital component of hybrid-electric vehicles.
China´s government policy has already had a substantial impact on innovation as increased environmental regulation and stricter implementation have forced chemical and other companies to improve production processes. Another strong impact on innovation has come from China´s policy of promoting specific chemical areas such as photovoltaic or electric cars by means of massive subsidies. Interestingly, the example above shows how China´s policy can also force other countries to become more innovative. By threatening to use rare earths supplies as a political lever, China pushed Japanese companies to innovate in this area in order to create supply alternatives. It is somewhat ironic that the chemical area in which China currently arguably has the global lead – coal chemicals – first got established for similar reasons. An earlier forerunner of the technology was South Africa, as the country´s access to oil was restricted due to the anti-apartheid related oil embargo.
It is hard not to see some kind of lesson here – though, to be fair, China is by no means the only country using export restrictions as a political tool. The humanist in me feels it is only fair that sometimes these measures backfire, strengthening the other party rather than weakening it.
All opinions shared in this post are the author’s own.
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Dr. Kai Pflug
CEO, Management Consulting – Chemicals
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