OEMs urged to get more involved in RE supply chain

Original equipment manufacturers (OEMs) need to get more involved in developing the rare earths supply chain outside China to help drive the huge capacity expansions needed to meet future demand and diversify sourcing options, delegates heard at last week's Rare Earths Industry Association (REIA) Annual Conference in Barcelona.

"OEMs have a massive role to play", especially those in the automotive industry but also those in power generation, said Constantine Karayannopoulos, chief executive of Canada-based Neo Performance Materials.

"We need everybody at the table. OEMs and governments will be crucial," said Andrea Cornwell, head of marketing at Perth-based Peak Rare Earths, encouraging fresh thinking about collaboration across all stakeholder platforms.

OEMs should be helping to "define the rules" and encourage a more competitive international landscape, with EIT Raw Materials' head of innovation Roland Gauss commenting that "we need to have OEMs committing to at least some diversification in their supply chains."

OEMs underpin a large portion of rare earth consumption — especially with regard to magnet applications — and their involvement could make a significant difference in the viability of new projects. These projects are typically fraught with risk — navigating complex geologies, very high costs, an unusually intricate value chain and volatile prices for the rare earths themselves.

The past two years have seen fob China prices for neodymium oxide swing within a range of almost $130/kg — peaking at $193.75/kg on 23 February 2022 before falling to a low of $64.70/kg on 5 May 2023, according to Argus data. Similarly, praseodymium oxide peaked at $175.50/kg fob China on 1-4 March 2022 before then sinking to a low of $64.80/kg on 4 May 2023.

"The big problem is bankability. And having an OEM secure long-term offtake makes [new] rare earth projects bankable," one attendee said on the sidelines of the conference.

Such agreements are not without precedent of course, such as German manufacturer Schaeffler's rare earth oxide purchase agreement with Norway's REEtec, which also placed an emphasis on sustainability and lifecycle analysis.

Perth-based Arafura Rare Earths' general manager Lloyd Kaiser noted that securing offtake agreements with major end-users has played a key part in enabling them to secure debt financing for the Nolans project in Australia's Northern Territory. He remarked that it is necessary for OEMs — sitting on larger balance sheets than emerging miners — to keep entering into such agreements to help emerging upstream projects move forward. "The bigger end of town needs to step up," he said.

That said, a balancing act may be needed to navigate the needs of the miner with the needs of the consumer — particularly when it comes to prices. A rare earth price that incentivises international project development is not likely to be a price that makes the most sense for the consumer — a nuance that makes government funding all the more necessary as an additional support, attendees said.

Furthermore, Jule Naffin, senior sustainability specialist for wind turbine manufacturer Siemens Gamesa Renewable Energy, cautioned that the timing is not always right for OEMs to enter into new agreements and commitments, given they are also navigating their own separate pressures.

Last week, Siemens Gamesa confirmed that it is facing high costs to address worse-than-expected quality problems in its turbine fleet. This comes amidst existing challenges faced by the wider turbine industry, which has been grappling with supply chain issues and increased raw material costs for some time now.

By Ellie Saklatvala