While we were enjoying ourselves
The principle purpose of our visits home from the standpoint of Randy's employer is for Randy to visit existing customers and develop new business in the U.S. The activity with American customers has been steadily increasing since Randy joined this company, and that is not a coincidence. The past year, though, the market conditions have presented a bit of a challenge
In addition to the tightening of export quotas on rare earth materials leaving China (but not yet on finished goods), the prices have increased on the raw metals as well, in many cases doubling and tripling this calendar year alone! In mid-June I tweeted about the price of one of the elements used in manufacturing some grades of NdFeB magnets, that the difference in price before that weekend and after was the actual price of the same element at the beginning of 2011. While Randy's business should (theoretically, at least) be positively impacted by the export quotas, the constant price increases on the raw materials are preventing many Chinese magnet companies from exploiting fully this situation.
Randy went into these last few weeks of customer visits not sure what direction many of these programs would be going in light of the news coming out of China. In some ways he was pleasantly surprised. There were buyers who were willing to try to wait out this recent super-inflation, and instead worked on payment terms and inventory arrangements to try to limit the impact of the almost daily increases in raw material prices on existing projects. Engineers were still proceeding, albeit cautiously, on developing new products using NdFeB magnets.
One visit, though, was not a surprise and yet still a shock. Randy called on the chief engineer of one of the largest buyers of motor magnets in the US, if not the world. There was a recent corporate decree that all programs using rare earth magnets were to be halted, and all new programs would have to use either ferrite magnets or some other motor design that had no magnets. This particular company had been in the process for years of using NdFeB magnets in most of their new designs and redesigns because of the significant cost savings and improvements in efficiency. One motor that had been redesigned to use NdFeB magnets several years ago had been a raging success for the company. Even with the added expense of the NdFeB magnets over the much cheaper ferrite magnets, the overall cost of the motor decreased by $2 because of the much smaller size, resulting in much less steel and copper in the motor. Today, with the escalating prices of NdFeB magnets (and most of the other components in the motor increasing only slightly), that same motor is now $8-10 more than the older design. Is it any wonder this company has slammed on the breaks on rare earth magnets?
In the past few months, there has been news of companies outside of China pursuing ventures into rare earth mining/refining to get out from under the quotas and out-of-control pricing. I've blogged about some of these before (like Molycorp, and their new JV-in-America magnet partner Hitachi). There's been another announcement this week that bowled me over. Siemens has announced that in partnership with beleaguered Lynas plans to build a brand new factory to produce NdFeB magnets for Siemens' wind power generator business. What made this particularly interesting to me is that from 1933 until 1999, Siemens owned what was by the late 1990s one of the largest NdFeB manufacturers in the world. I was an employee of this company after the sale. That was then, and today Siemens has once again determined that they require a captive source of magnets for one of their business units. It is understandable that they intend to pursue this route; Siemens' magnet needs just for wind turbines likely exceeds any one supplier's available capacity, and a partnership with Lynas should give them a dedicated and stable supply. However, I could not help but be amused that a corporation that exited the rare earth magnet business wants to get back in at this time.
In the meantime, we watch the rare earth prices and wonder when they will come down.
In addition to the tightening of export quotas on rare earth materials leaving China (but not yet on finished goods), the prices have increased on the raw metals as well, in many cases doubling and tripling this calendar year alone! In mid-June I tweeted about the price of one of the elements used in manufacturing some grades of NdFeB magnets, that the difference in price before that weekend and after was the actual price of the same element at the beginning of 2011. While Randy's business should (theoretically, at least) be positively impacted by the export quotas, the constant price increases on the raw materials are preventing many Chinese magnet companies from exploiting fully this situation.
Randy went into these last few weeks of customer visits not sure what direction many of these programs would be going in light of the news coming out of China. In some ways he was pleasantly surprised. There were buyers who were willing to try to wait out this recent super-inflation, and instead worked on payment terms and inventory arrangements to try to limit the impact of the almost daily increases in raw material prices on existing projects. Engineers were still proceeding, albeit cautiously, on developing new products using NdFeB magnets.
One visit, though, was not a surprise and yet still a shock. Randy called on the chief engineer of one of the largest buyers of motor magnets in the US, if not the world. There was a recent corporate decree that all programs using rare earth magnets were to be halted, and all new programs would have to use either ferrite magnets or some other motor design that had no magnets. This particular company had been in the process for years of using NdFeB magnets in most of their new designs and redesigns because of the significant cost savings and improvements in efficiency. One motor that had been redesigned to use NdFeB magnets several years ago had been a raging success for the company. Even with the added expense of the NdFeB magnets over the much cheaper ferrite magnets, the overall cost of the motor decreased by $2 because of the much smaller size, resulting in much less steel and copper in the motor. Today, with the escalating prices of NdFeB magnets (and most of the other components in the motor increasing only slightly), that same motor is now $8-10 more than the older design. Is it any wonder this company has slammed on the breaks on rare earth magnets?
In the past few months, there has been news of companies outside of China pursuing ventures into rare earth mining/refining to get out from under the quotas and out-of-control pricing. I've blogged about some of these before (like Molycorp, and their new JV-in-America magnet partner Hitachi). There's been another announcement this week that bowled me over. Siemens has announced that in partnership with beleaguered Lynas plans to build a brand new factory to produce NdFeB magnets for Siemens' wind power generator business. What made this particularly interesting to me is that from 1933 until 1999, Siemens owned what was by the late 1990s one of the largest NdFeB manufacturers in the world. I was an employee of this company after the sale. That was then, and today Siemens has once again determined that they require a captive source of magnets for one of their business units. It is understandable that they intend to pursue this route; Siemens' magnet needs just for wind turbines likely exceeds any one supplier's available capacity, and a partnership with Lynas should give them a dedicated and stable supply. However, I could not help but be amused that a corporation that exited the rare earth magnet business wants to get back in at this time.
In the meantime, we watch the rare earth prices and wonder when they will come down.
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