It is fuel-cell-vehicle (FCV) season again as many of the world’s premier car makers make their annual ritual announcement that they are ‘studying’ or putting into ‘limited production’ passenger-carrying vehicles for personal use (i.e. cars), propelled by electricity generated by ‘fuel cells.’

Once again, the perception of greeniosity is meant to trick us into thinking that the fundamental laws of economics have been suspended.

As far as I can determine, the electricity for FCVs will be generated when diatomic hydrogen molecules are split into hydrogen ions and free electrons, by the action of passing the hydrogen over a catalyst. This previous sentence is totally intelligible to a chemical engineer with the only undefined word in it being ‘catalyst.’

As far as I know the only such ‘practical’ catalysts known for such a reaction are the platinum-group metals (PGMs), primarily the metal palladium (Pd). There has been a lot of research over the last 20 years on trying to produce a fuel-cell chemistry based on a more readily available catalyst than a PGM but the results have not been economical. One such program backed by no less than Kleiner Perkins is for a Solid Oxide Fuel Cell (SOFC), which uses the extremely scarce rare-earth-element (REE) related metal scandium (Sc) in its catalyst.

The thing that all current fuel-cell technologies have in common, is that they rely for their operation on large amounts of very scarce materials such as PGMs or Sc, as in the discussion above.

There is another problem, the relative value to achieving the goal of reducing carbon emissions of a FCVm versus an internal combustion engine (ICE) vehicle, using a catalytic converter. This is the real issue of the most efficient use of strategic metals. Let’s say that a Pd-based fuel cell would use at least one ounce of Pd in order to be able to produce enough electricity to power a four-passenger car. That same amount of Pd could be used to manufacture 100 exhaust-emission catalytic converters, for hydrocarbon-fueled ICE-powered vehicles! Note well, that new global production of Pd is in the 200 tons per year range. This is twice what it was 10 years ago, but nearly impossible to increase as most of the world’s new Pd comes from its production as a byproduct of nickel mining in Russia and Canada, with a little more coming from South African platinum mining. North America produces some 10% in total of the world’s annual new Pd. It is difficult to see how green technologists could ask us to depend on either Russia or South Africa for an ‘assured supply’ of anything much less for an increased supply.

So, the best solution for constructing fuel cells is not to use environmentally precious Pd or any other PGM in such a horribly wasteful way. Unfortunately, the best SOFC, based on Sc, is an even worse solution. There simply is not enough Sc produced in the world. Currently just a few tons a year are produced, so it is believed, in the former Soviet Union.

So we can either rob Peter or mine an empty bank vault.

There is a real analogy here to the REE supply issue now facing the world, and even an interface, since Sc is only likely ever to be produced as a byproduct of REE production (which itself is ironically usually produced as a byproduct of iron mining).

PGMs used in automotive-exhaust emission control devices (catalytic converters) are so scarce as to be among the most recycled materials on the planet. In relative-percentage-recycled terms they are right up there with iron, copper, aluminum, lead, and gold. But it is in absolute terms that the comparison fails. An excellent example of this is the PGM rhodium (Rh), used to eliminate acid-forming nitrogen oxides from automotive ICE exhaust. The world production of new Rh as a byproduct of South African platinum production is 30 tons a year. Yet the apparent demand from the global OEM automotive industry is nearly 50 tons per year. This additional material must come from the extensive recycling of catalytic converters.

It is the same type of thing with the REEs with a notable exception geographically. In China extensive recycling of REE industrial process waste as well as of end-of-life waste, is one of three things that keeps the supply of the key heavy REEs terbium and dysprosium, nearly equal to the demand. The others are illegal production within China and purchase of heavy REE ore concentrates from outside of China. The three processes together provide a doubling of ‘official’ production of these key REEs.

Only now in 2014 is there even the beginning of a non-Chinese REE recycling industry. This is because with just one exception, there is no REE separation plant outside of China with the capability/capacity to separate the heavy REEs from ore concentrates or scrap; there are 38 such facilities in China.

What little Sc is produced in the world may be augmented by the three processes above, but officially there is no verifiable Sc production anywhere. So, if there is to be a fuel-cell-powered OEM automotive power-train revolution, it will have to be itself driven by a fuel-cell technology that as of now is unproven, and does not involve a need for large quantities of either PGMs or Sc.

At the moment, supplies of PGMs and Sc globally are either insufficient or unavailable. Thus fuel-cell-powered vehicles will be curiosities, or the toys of the elites, for the foreseeable future.

A couple of weeks ago the US Department of Energy (DOE) announced a Request for Information (RFI) on rare-earth metals and other materials used in the energy sector. This follows on from a similar solicitation made last year, that culminated in the publication of the DOE’s Critical Materials Strategy in December 2010.

The DOE says that this second RFI will be used to update the Critical Materials Strategy, and will also cover areas not considered in the original document, such as fluid-cracking catalyst materials for the petroleum refining industry.

The DOE is soliciting information in eight categories:

1. Critical Material Content
2. Supply Chain and Market Projections
3. Financing and Purchasing Transactions
4. Research, Education and Training
5. Energy Technology Transitions and Emerging Technologies
6. Recycling Opportunities
7. Mine and Processing Plant Permitting
8. Additional Information

The deadline for RFI submissions is May 24, 2011 and submissions from the public are welcomed. You can get more information from the DOE Web site.

By Emma Davies – Chemistry World – Published January 2011

Last October, China started building the world’s biggest off-shore wind farm in Bohai Bay, a few hours from Beijing. The country is constructing wind farms on an unprecedented scale – surely good news given its insatiable appetite for coal. But each megawatt of power a wind turbine generates requires up to one tonne of rare earth permanent magnets. The elements used in the magnets – neodymium, dysprosium and terbium – are in short supply and the west is in danger of losing access to them as China’s domestic needs soar.

Read the rest of the article….

By Katharine Comisso – New Scientist – Published: October 29, 2010

For decades, the world has been busy incorporating the so-called rare earth elements into all manner of high-tech devices, including disc drives, wind turbines and hybrid cars. The messy business of mining the ore and extracting the elements was left to China, and few people in the west cared that the nation controlled 97 per cent of world supply.

“Rare earth” is an alternative name for the lanthanides – elements 57 to 71 – plus yttrium and scandium, and despite the name most of them were not considered rare at all. The elements hit the headlines a few weeks ago, when China appeared to be blocking exports to Japan and the US. The Chinese government, which has also been tightening its export quotas, claims that it needs to clean up mining procedures and support its own growing demand for rare earths.

So what can the rest of the world do about it? The most obvious course of action is to open mines elsewhere, since China accounts for little more than a third of known reserves. The biggest importer, Japan, is hoping to open a mine in Vietnam. And in the US, Molycorp Minerals plans to reopen its Mountain Pass mine in California, which has not been active since radioactive waste leaked from a pipe there in 2002.

However, facilities to refine rare earths cannot be created overnight, and few US scientists know how to do it anyway. “Even if Molycorp can get material mined and concentrated right now… it would have to send that material to China to get it refined,” says Gareth Hatch of Technology Metals Research, a consultancy firm in Carpentersville, Illinois.

Recycling is another option, but impurities sneak in during the process, so recycled materials are not always as good as the freshly refined equivalent. The neodymium magnets used in hybrid cars, for example, work less well at high temperatures when recycled neodymium is used.

Some items containing rare earths are reusable. The neodymium magnets in computer disc drives, for example, usually outlast the computer they are in, but disc drive manufacturers have till now found it cheaper to use new magnets than to reuse old ones.

The scarcity issue is being tackled in a different way by Kazuhiro Hono of Japan’s National Institute for Materials Science in Tsukuba. Dysprosium is one of the rarer rare earth elements, so Hono is reducing the amount of the element in the permanent magnets used in hybrid cars.

Hono hopes the crisis will encourage more scientists into the field. “The important thing is to recognise the importance worldwide,” he says. With efforts focused on innovation, he adds, “the solution to this problem will come out in the future”.

by Tom Heap – BBC – Published: May 19, 2010

From electric cars to wind turbines, environmentally-friendly technology around the world needs rare earth metals. But China – where over 90% of these minerals are mined – is saying it now wants to keep more for its own industry.

The leafy banks of the Birmingham and Worcester canal may be an unlikely place to discuss a looming industrial crisis but it was here that Professor Rex Harris of Birmingham University took me on his hydrogen-powered electric barge.

The super efficient motor, like most electric vehicle motors, uses rare earth magnets.

Rex gave me two matchbox sized neodymium-boron magnets, offering me £50 to push them together.

His money was safe, the magnetic field was too strong. Such power is vital to green technology, so much of which is based on the efficient generation, use and storage of electricity.

So we need to be sure of good supply of rare earth magnets.

“We worry about peak oil,” he says, “we should worry about peak magnets as well.”

Dangers of dependence

Most came form the United States in the 1960s but tightening environmental regulations and a price war closed the last Californian mine, handing China a virtual monopoly.

American strategic metal consultant, Jack Lifton has been warning the US government of the dangers of dependence.

“Last year the Chinese announced their regular five year plan, looking ahead to 2010 to 2015.

“They said they would continue to reduce the export of these materials to the West and that they were considering stopping the export of certain of them.”

The Chinese motives are pretty clear. They want Western users to do their manufacturing in China and they need supplies for their own ambitious wind energy programme.

They plan to build 120 GW of wind generated electricity by 2020, more than Britain’s entire electricity production.

That alone demands a full year’s supply of rare earth metals.

The former Chinese leader Deng Xiaoping once remarked “There is oil in the Middle East, there is rare earth in China.”

Environmental concerns

Japan has already woken up to the implications of this by building up stockpiles.

Toyota, who make the rare earth guzzling Prius hybrid car, is considering opening its own mine in Vietnam.

The United States is worried about supplies for the military while the UK government has examined the risks for our own plans for more electric cars.

The search is now on for alternative sources of rare earths, with mines planned for California, Australia, Arctic Canada and even Greenland.

But they are delayed by environmental concerns stoked by the Chinese experience.

Their principal source is Baotou in Chinese Inner Mongolia where enormous open-cast mines scar the landscape whilst refineries leak vast quantities of polluted water into the landscape.

Independent expert, Jack Lifton says we can’t demand zero impact. If we want green technology then we need to mine, he says. “The green road always starts with black earth.”

Cleaner alternative

However, Professor Animesh Jha at Leeds University thinks he may have a cleaner alternative.

He has discovered that titanium dioxide ore could be an important source.

The purification of this chemical, commonly used in paints, leaves a residue of rare earths. He believes this could by-pass the Chinese and the environmental problems of mining.

“There are very nice deposits of titanium oxide all over the world… Norway, India, Brazil, US. They all have rare earths in them.”

Combine Professor Jha’s technique with the fruits of new mines and the careful recycling of rare earth metals currently in use in our laptops and mobile phones and we may be able to provide sufficient supplies in the future.

But new processes take time to perfect and new mines take years to come on-stream.

That still leaves a long gap when the green revolution will rely on the economic and political judgement of China’s exporters.

[ The BBC Radio 4 audio program on which the above article is based, part of the Costing the Earth series, can be heard here].

Yesterday at the Seeking Alpha Web site, John Petersen published an excellent article on the new Electrification Coalition, titled “Rapid Transition to Grid Enabled Vehicles Not Possible or Desirable.” I suggest you read this article right now, if you haven’t done so already.

To paraphrase John Milton, “logical analysis is a dangerous thing, drink deep or drink naught of the logical spring.”

I want everyone to print the following paragraph by John in his article, and to read and to understand it:

“Batteries are commodities, as are all of the raw materials that are used to make the batteries, motors and other components required for a [Grid Enabled Vehicle]. The roadmap assumes away critical issues of raw materials availability by proving that the elements exist in nature and then ignoring fundamental natural resource development issues like location, economics, environmental impacts and the difference between known mineral resources and developed mineral reserves. It also assumes that recycling issues will resolve themselves despite the fact that the only class of ARRA battery manufacturing grants that went begging was battery recycling.”

As usual, John has zeroed in on the two key points of logical absurdity in this latest set of directions on how governments should spend taxpayer money for private interest:

1. This group does not understand the difference between “present in the earth’s crust” and “available for use by mankind,” and
2. There is no safe, economical, recycling method for recovering the lithium from lithium-ion batteries.

Unelected, poorly educated bureaucrats, throw money at nice presentations such as the outlined in John’s article. The money has been allocated to their use by elected, poorly educated, politicians whose advisors are agenda ridden interest groups. In government speak this process is called “investing in science and technology.”

We’re watching just another lobby being born. This will be the infrastructure spending for electrification lobby. It’s an interest group not an agenda.

I wrote the following commentary as the first part of an educational forum to be delivered this coming Thursday in Hong Kong, to a group of institutional investors who want to learn what rare metals are and why they are a different asset class from commodity metals in general.

Outlook for the Strategic and Critical Rare Metals for Technology

A “strategic metal” can be defined, economically, as one that is necessary to or important in the start up, operation, or completion of a long term plan (i.e., a strategic plan) to mass produce or manufacture items, collectively or individually, which require large amounts of metal.

For example, the plan by a private business to construct an office building must consider the cost and availability of structural steel as a strategic necessity; this seems trivial at first glance, but it becomes very important when the strategic metals are or include even one rare “critical metal”, defined as one for which there is no substitute (in performance or economics) so that without it the project cannot be implemented or continued without guaranteeing the security of the supply of the particular specific metal.

For example, advanced jet engines that burn less fuel and are more efficient usually operate at higher temperatures than the ones they replace; such engines all require alloys that use the extremely rare metal rhenium and the very rare metal yttrium. If the engine cannot be produced or sold without meeting specifications that can only be assured by making some of its components from rhenium and yttrium alloys then without insuring the security of supply of these two metals beforehand the project may, in reality, be too risky to even start. Yet until now such considerations of insuring the security of supply have commonly been either overlooked or ignored.

This is because until the twenty-first century’s global explosion of demand for high technology goods procurement officials at private companies assumed that the market forces of demand and price would always combine to make supplies of all metals available competitively. It was commonly believed that these forces applied equally to all metals including the rare ones, which, like gold, it was assumed, would and could always be available, given enough time to accumulate them, in any desired quantity if one was willing to meet the market price. Thus all metals were viewed as commodity metals subject to and reacting in the same way to market forces.

Thus the rarity of a metal was assumed, if any thought was given to its procurement as a special project, to be caused by a production rate limitation; some metal ores were harder to find, but, given enough time and money, it was assumed, any metal could be obtained. This assumption is wrong; it is based on a fundamental misunderstanding by business and government economists of geology and mining and refining engineering.

In order to educate ourselves and understand the fundamental error we need to ask:

1. How are metals produced, which is to say, where do the metals we can use actually come from?
2. What quantities of new metals are produced each year, and can the production rates of any or all of them now be increased beyond 2008 levels, or can or will the production rates for some of them actually decrease?, and
3. How does the location of the production sites for any and all metals factor into their availability, if at all?

Q1. How are metals produced?

This is not a trivial question. In fact there are two and only two possible sources for the production of any metal.

First of all, and primarily, the metal can be mined from an accessible and large enough ore deposit of high enough grade (percentage of desired material in the whole) so that currently available technology can economically:

1. Extract the ore from the substrate, such as rock or sand, in which it is contained;
2. Separate the ore from the lower (or no ) value materials in which it is embedded;
3. Separate and refine the natural chemical compound, which make up the “ores,” into individual metals, or individual metallic compounds;
4. Purify the metals or compounds to whatever degree of quality is desired;
5. Fabricate the metals into useful physical, metallurgical, or chemical forms, and
6. Manufacture the devices and products which are dependent on the metals for their strength, shape, or purpose.

If any one of these steps is not possible or uneconomical then the metal will have no commercial use until such time as that step in the chain becomes economical.

Second, if a sufficient quantity of either the industrial scrap left over from the fabrication of the desired products or if the end products themselves have a high enough content of the desired metals or metals then the industrial process scrap or the worn out products may be inserted into the above enumerated processes at an appropriate place and then processed until the metal once again has been through step 5 above. At this point the metal is indistinguishable from the metal produced from ore and is said to have been “recycled.”

Logic applied to the above metric tells us that mining exploration is always the first step; this process is commonly known as exploration and is a meticulous operation characterized as much by luck and “experience” as by geological knowledge. Exploration is mostly the provenance of “junior” miners defined as those who mostly explore for valuable minerals in the hope that they will be able to find and characterize deposits the intrinsic value of which will lead to their sale to larger mining companies that will develop and mine the minerals, a very, very expensive and time-consuming process.

Junior mining companies frequently announce “discoveries” of desirable minerals and metals and those discoveries most often are of small amounts of material, which the junior miner hopes will be the precursor of an accessible, minable, large, high-grade ore body.

Institutional investors normally are very conservative with regard to committing to the large investments necessary to bring an ore discovery into final production, which we will define as the completion of step 3 above-this is usually as far as the “mine” goes. The main reasons for such reticence are the considerable sums necessary prior to any evaluation of the deposit just to see if the ore body is large enough and rich enough so that if it is accessible and the chemical processes exist or can be developed to recover the desired metals or minerals the mine’s final product can be sold at a profit at the end of step 3 above. The volatility of commodity metal prices over the last century and a half have made mining finance into a high risk game that is difficult to hedge against loss.

However a change has now occurred in the world of metals that is only now being perceived by institutional investors. The recent recession caused the commodity metals, which I call the structural metals, to drop precipitously in demand and price after nearly a decade of record increases in their production. Rare metals prices mimicked structural metals prices during most of the recession, but now the rare metals are described as “leading the recovery.” Actually this is not entirely correct. What is happening is that the rare metals are in fact qualitatively different in their uses from the structural metals; they are the “technology metals,” and the market for them is now standing on its own.

The main issue surrounding the supply of the rare metals that are the new strategic and critical metals of the age of technology is that both their availability in nature and their rates of production and recycling are limited.

Institutional investors have up until now confused the economics of widely available structural metals with those of the technology metals. An increased demand for structural metals can and will cause an increase in their supply. Also price can and will drive supplies of structural metals to the highest bidder. These simple rules do not apply to the procurement of the technology metals, because the most important factor for them is their availability in large enough and rich enough ore bodies (or, as we will discuss, as byproducts of structural metals) to be produced economically at all. Even where such ore bodies occur the rate of production (of any metal) is determined by its accessibility to logistics, water, and energy. Mines of any type also take a very long time to be brought into production.

The most common error made by institutional investors in assessing the net present value of a rare metal ore body is the misconception that the relative amount of a metal in the earth’s crust or in the ocean is a measure of the availability and accessibility of that metal for use. The distribution of a metal in the earth’s crust or ocean has absolutely nothing to do with its availability or accessibility. Both of these issues are measured only by the availability and accessibility of large high grade deposits of the ores of these metals in regions of the earth where the infrastructure of logistics, electricity, water, and labor are economically available, or when any or all of the elements of the infrastructure have to be created in order to mine the metal the cost of such infrastructure creation when amortized and placed as a liability of the mine still result in a selling price for the metal that is competitive. Of course for a critical metal for the military or for health is involved the calculation of price may become secondary to availability.

Q2. What quantities of new metals are produced each year, and can the production rates of any or all of them be increased or will the production rates for some of them actually decrease?

[NOTE: This table was updated on 11/08/09 to reflect amended data for chromium and boron].

Just a note here about recycling: Our civilization has wasted many rare metals by either not simply recovering them when it would have been most economical and most practical or by using them in dissipative ways thus creating “grades’ of scrap too poor in rare metals content to be economically or even practically recoverable with current technology.The above list details the global production for 2008 of the most important metals of all types for our civilization; the totals represent the production rate achieved after a decade of the most available finance ever proffered to the global mining industry. Some of the resources and reserves of even the most common metals are now nearing the exhaustion of high grade (high percentage content of the desired metal) and new technologies for recovering them from lower grades must now be developed. Such recovery technology is time consuming, expensive, and frequently leads to dead-ends. Such “improved’ technological development therefore cannot be predicted to simply just happen even over a long time frame.

Spaceship Earth has finite recoverable resources, and so the questions become can we significantly increase the global production of new metal or are increases from now on going to be only marginal, if at all, and when, not if, will new metal production rates decline?There may be some quantitative errors in the list above; but there are no qualitative errors. The production ratios of the listed metals are accurate. As an example of an extreme, the production of raw steel in 2008 was equal to one million pounds of raw steel for each one pound of zirconium produced! For each nine hundred thousand pounds of aluminum produced in 2008 there was produced less than 15 ounces of the metal critical for the manufacturing of efficient and high temperature operation jet and rocket engines, rhenium.

This waste cannot continue if there is to be widespread use of green technologies for producing and using energy without the burning of fossil fuels. There is no green path to the future without mining and using rare metals.

Q3. How does the location of the production sites for any and all metals factor into their availability, if at all?

For the US economy, currently the world’s largest economy, and the location, according to the National Mining Association of the most diversified natural resource base of any country in the world the reliance upon imports for 100% of strategic and critical natural resources , as calculated by the United States Geological Service, had grown by the end of 2008 to more than 25 metals. This figure has tripled in the first decade of the twenty-first century, but the incredible part of this growing reliance by the USA on imported metals is that in almost every case, for each metal, the USA has accessible and available domestic resources of the metals upon which it has become resource reliant. Unlike any other industrialized or industrializing country on earth the USA has stopped creating wealth producing its own strategic and critical resources even those required critically by its own military and non-fossil fuel energy producing and using industries!

China, Japan, Korea, and the European Union all have strategic stockpile programs in place to inventory a growing list of strategic and critical metals to safe guard their security of supply for both their civilian and military industries. The EU, for example, has identified 40 metals as being qualified to be considered strategic and critical for the economic preservation of its industrial base.

The USA has not amended its Defense Strategic Stockpile Act since 1979, and therefore the USA does not even consider any of the technology metals to be critical much less strategic.

It is only a matter of time before a general technology metals supply crisis erupts in the USA and the time during which the USA can become a participant in the global race to produce and stockpile strategic and critical metals both physically and through ownership and operation of their sources is running out.

Unless American bankers recognize that availability and production rate are just as important market drivers as demand and price the US will soon fall behind permanently in its ability to support high technology industries and any green revolution will be dependent on imported natural resources and technologies. See the chart put out by the USGS listing the import reliance of the USA in 2008 for selected metals and minerals.

A great deal has been written in the last month about China reducing its export allocation of the rare earths, of which it today is the world’s sole supplier. The global investment community has responded to China’s determination to be self sufficient in supplying and developing its domestic high and green technology base by running up the share prices of the few rare earth mines in development outside of China

I call on institutional investors to underwrite the development of natural resources by assigning a risk of future production factor to selected mining opportunities and securitizing off-take agreements negotiated with the best of the mines to be developed, so that such securities may be traded and priced to develop a basis for planning by industry and government for security of supply of the rare metals critical for the future of green technology.

I offer to assemble a committee of mining experts and economists to create a new metric for assigning risk to such securities, and to start the process with a study of the world’s rare earth mining opportunities. Are there any interested parties out there?

There is no way to set the USA “On The Green Road” without secure access to the raw materials critical for green technologies to be manufactured in such quantities so as to be pervasive.

It is certain that the prices of the critical technology metals, which are required for the manufacturing of the nickel metal hydride batteries for Toyota’s current Hybrid Synergy Drive, will be going up by 2011, as demand for them is predicted to exceed supply sometime in, or soon after, 2011. Toyota can perhaps reduce its cost of these metals by using less in smaller batteries, but with increasing prices that may not work. Perhaps Toyota is going to use its own version of what I am going to now name “Rare Metals Auditing and Conservation” or RAMAC, which in a way will allow a company to lease its own metals from itself. This can stabilize a supply while allowing it to increase whenever possible.

I think that Toyota is in the process of creating an internal revolution in the way it manages its supply and value chains, with regard to sourcing and valuing critical metals, by which I mean those metals without which a component cannot be built.

I am going to explain what I think is Toyota’s version of the RAMAC system as it pertains to the manufacturing of batteries for the electrification of motor vehicles intended for private use and primarily for the carriage of passengers not freight.

Let me, as a preliminary to that give you some background as to how Toyota manages its sourcing and valuing of the platinum group metals necessary for manufacturing its exhaust emission control catalytic converters and its oxygen sensors.

Unlike the United States, Japan has almost no metallic natural resources; it certainly has no domestic supplies of platinum, palladium, or rhodium, which are today produced almost entirely in Southern Africa (platinum, rhodium, and palladium), Russia (palladium and platinum), Canada (palladium), and the USA (palladium).

Unlike the US government, the Japanese government encourages its domestic industries to source and recycle critical raw materials. The Japanese government has a long range plan, itself, to stockpile critical materials for both civilian and military production, so that the situation of 1939 can never repeat itself. At that time, the Japanese war machine was facing a massive interruption in its supplies of steel, oil, and rubber and it informed the (military dominated) government that if it didn’t “acquire” secure supplies of those materials then its ability to make war would begin to decline sharply by late 1941 or early 1942. We all know what types of decisions were motivated by this simple looming shortage.

Today, Japan is again acutely aware of the fact that it must conserve critical resources and stockpile them to maintain the viability of its industrial base, or it could lose the economic struggle now accelerating between Japan and China, Korea, Malaysia, and, soon, India, because those nations are better supplied with critical raw materials. Japan’s industrial innovation is currently world class and certainly at least equal to that of the US, in technologies such as battery development, and production, for the electrification of private passenger carrying vehicles.

The great Japanese trading houses work in conjunction with Japanese industry and with the diplomatic, and soon, stockpile buying, support of the Japanese government to seek out, buy, and process critical materials for industry and the military.

In the case of the platinum group metals the Japanese trading houses such as Sumitomo, Mitsui, and Mitsubishi officially compete with each other internally for ultimate customers, but would never, for only the sake of competitive advantage with regard to one another, prevent one another from acquiring a raw material critical to Japan’s industrial survival.

In the case of the platinum group metals, as a good example, not only are the Japanese trading houses long term buyers of very large quantities, but they are willing to enter into binding offtake agreements to buy large quantities at prices that can be calculated exactly for the long term. This means that the producers can borrow against such contracts as collateral. In the free market this creates a strong incentive for miners to make deals with Japanese trading houses at good prices for both parties, even if they are below market!

Additionally, Japanese trading houses also hedge platinum and palladium and create virtual hedges for non-exchange traded rhodium, for example, by methods such as the offtake agreements discussed above.

Finally the Japanese trading houses own or contract with Japanese and European mining and refining companies to recycle platinum group metals from automotive scrap. The global Japanese car makers such as Toyota, will marshall selected automotive scrap containing critical metals from their own dealers, and consign it to a Japanese full-service trading company such as Sumitomo, which will have the scrap picked up and shipped to Japan for recovery of the critical metals for reprocessing into the appropriate forms for re-use. Typically, companies like Sumitomo offer to do every step of the process, from picking up the scrap to delivering finished components utilizing the recovered critical metals, back to a customer such as Toyota.

In light of the long term and sophisticated planning by Japanese industry, it should not be surprising that Toyota is aggressively fighting back against Honda’s Insight hybrid, which Honda has identified as a Prius fighter, by offering a smaller hybrid to compete directly with the Insight. This has allowed Toyota to create the impression that the Insight is not competing in the Prius market segment, but rather in a segment that Toyota overlooked, very small hybrids. In the meantime before the new Yaris size hybrid can be brought to market, Toyota will continue to make and sell the current generation of Prius even as it introduces a new larger size next generation Prius, which was intended originally as a replacement for the current generation Prius.

I believe that this means that Toyota will continue, not only to extend, but to expand the Prius brand and volumes, while adding a new entry into the hybrid space, a small, purposely designed, hybrid Yaris-size car.

This means that Toyota would need more of the rare earth metals, lanthanum and neodymium, than even Toyota itself thought it would need as well as additional supplies of cobalt and nickel

Let me tell you briefly what Toyota has done up until now to minimize the risk of interruption of its supply of rare earths, cobalt, and nickel for making its nickel-metal hydride batteries for the Hybrid Synergy drive:

First, as with platinum group metals, it has commissioned some of the Japanese trading houses to seek out additional supplies of the required metals.

Nickel today is, and cobalt later in the year will be traded on the London Metal Exchange, which means that contracts guaranteeing the delivery of both metals can be bought with at least two years’ duration.

Japanese trading companies, acting on behalf of clients such as Toyota, seek out spot buys of nickel and cobalt in markets such as today’s, and negotiate and execute offtake when and where feasible taking advantage of and locking in low prices. Copper for wiring harnesses and motor winding is also sourced aggressively and all three metals, nickel, cobalt, and copper are recycled from auto company generated and owned scrap, for the benefit of the car companies as much as possible.

There is no exchange trading of the rare earth metals and there is little if any publicly acknowledged recycling of them. Additionally there is not yet today any reliable volume production of the rare earth metals outside of the People’s Republic of China (PRC), and the PRC is not a good place to enter into an offtake agreement as any such agreement will always be modifiable by decisions of the PRC government with regard to export allocations and taxes.

It is rumored that both Toyota and Honda had or have offtake agreements with the promising non-Chinese rare earth mining and refining operator Lynas, but Lynas is at the moment in limbo, as it has had to suspend operations due to the withdrawal of funding. This has stopped the construction, not only of Lynas mining operations, but also of the very large rare earth refinery Lynas was about to build in Malaysia, which would have been the first constructed, or operating, outside of China since the late 1990s.

The other Australian rare earth mining opportunity was Arafura, but a Chinese miner has just bought into Arafura with the probable intention of taking any ore concentrates produced there to China for refining, where they will be subject to Chinese export allocations and restrictions.

Toyota has a backup plan, which is very aggressive for a car maker. Toyota’s own in-house trading company has bought a smaller Japanese trading company, which has an interest in a rare earth mine being developed in Viet Nam with the participation of the Viet Namese government.

This could make Toyota the first ever car company to be vertically integrated as a producer of batteries of any type. It would have the mine and the refinery for rare earth metals and its own in-house battery and powertrain manufacturing.

This would allow Toyota to be the first car company to acquire critical metals such as rare earths, cobalt, and nickel for perpetual use. This would mean that since Toyota would produce and refine rare earth metals it would have the facilities also to recycle them. These expensive and technology-intensive operations would not have to be duplicated or built only to be used occasionally, since they would be processing ore to extract, separate, and refine rare earth and associated metals continuously anyway recycling would simply add a feed stock stream to an existing one.

Toyota in this scenario would know exactly how much of the critical rare earths it could obtain at any given moment, and any additional feed of ore or scrap would only serve to increase the total.

The batteries, wiring, and motors of cars on the road could be viewed as critical metals long term inventory , and market data would allow Toyota to calculate how much rare earth, nickel, and cobalt metal it could recover for reuse in any given time period.

In such a system scrap purchased from outside of the company would simply be a permanent addition of metals in or for use in the master inventory.

I believe that Toyota and, most likely, Honda are now watching Australian politics to see if China is allowed in fact to effectively take over Arafura, which will add jobs and create wealth in Australia, but ultimately place Arafura’s output under the control of the Chinese government.

I suspect that Toyota and Honda, having both, probably, made now moribund offtake agreements with Lynas would both like to buy Lynas and go forward with its plan to build a refinery in Malaysia. Perhaps the two of them can strike a bargain or can make a deal through an independent trading house such as Sumitomo.

In any case, if a Japanese car company or a Chinese mining company gets control of one of or both of the Australian deposits, the rare earth metals produced there will either go into a RAMAC type system operated by Toyota or Honda or into China’s domestic supply. In either case those metals will be taken off the world market.

The Japanese car companies are moving towards an end game for acquiring and holding forever as much rare earth metal as they can. Otherwise, they will wind up with a technology, the production of which has been severely limited by the inability of the mining industry to increase production enough to satisfy demand.

I think that Toyota’s announced increases in its production of nickel metal hydride battery, using hybrid power trains, indicates that it has adopted the closed loop use of rare earths.

If I am right, then open market rare earth pricing will go through the roof as the available supply diminishes through Chinese and Japanese sequestration for their own use. However, at the same time, companies like Toyota will have some flexibility in determing their costs, due to the fact that only they will know their true internal cost of critical rare metals in their closed loop value chain.

Perhaps this is one of the reasons that Toyota has been dropping the replacement cost of nickel metal hydride battery packs over the last few years, even as prices in the open market for the key rare earths were going up.

I urge you to read the new article from Mr. John Petersen called “Why Long Range EVs Can Never Be Cost Effective“, a thorough and comprehensive survey of the current state of lithium-ion battery technology development as it relates to the electrification of motor vehicles for private passenger-carrying use. When you are done with that, I urge you to read the associated article by the same author, entitled “Li-ion Battery Manufacturers: The Bleeding Edge of Energy Storage Technology”.

After reading both articles please tell me why there is any argument supporting the use of tax dollars to develop lithium-ion batteries, or engineering methods to mass produce them, if the sole purpose of that development is to power electrified vehicles, such as plug-in hybrids or battery only propelled motor cars for private passenger-carrying use?

I believe that the future of the electrification of motor vehicles for private use will be a mix of battery and internal combustion technologies for a very long time to come. I believe that whether or not privately owned passenger-carrying motor vehicles are mostly entirely battery powered, mostly hybrids powered by batteries and internal combustion engines (ICEs), or mostly powered only by ICEs, depends exclusively on the progress of the world in replacing the fossil fuel burning generation of electricity, with nuclear reactor-based generation of electricity.

Until such replacement has occurred. the cost of electricity will simply continue to go up until there is a critical shortage of electricity to produce and recycle base metals. and the mass production of technology metals has become prohibitively expensive.

If the nuclear replacement of fossil fuels occurs, then the generation of hydrogen by the electrolysis of seawater could make hydrogen universally and economically available enough to be used to fuel ICEs with only water as an exhaust.

In the meantime the critical driver for the electrification of private passenger-carrying motor vehicles will be COST. The political issue of reliance on foreign oil is after all ultimately one of cost and the risk of supply interruption. The so-called greenhouse gas emission reduction issue will shortly fade away, in the face of the increased COST it brings to our society without any obvious near term benefit.

As Mr. Petersen points out so well, we have already reached the bleeding edge of energy storage technology – the point at which increased spending brings decreasing or no valuable results.

In the near term, we will produce as many hybrids powered by nickel metal hydride batteries, as the rate of production of their critical raw materials and its percentage allocation to battery production allows. This I think cannot exceed 5,000,000 Toyota Prius-sized vehicles per annum.

A small number of small, limited range plug-in hybrids using lithium-ion batteries will be built, but I think that they will be supplanted rapidly by modern lead/carbon -acid battery powered vehicles, which are far more economical for short range, limited load and limited performance vehicles than expensive lithium-ion batteries.

Ultimately I think that the far more economical lead-acid batteries will be widely used for short range vehicles, and longer ranges will be obtained with nickel metal hydride hybrid systems.

There can be no shortage of lead based on currently known resources and reserves of that metal. If there is a serious need for longer range hybrids, then nickel metal hydride will be joined by lead-acid using systems.

As soon as this future trend is realized there will be a massive interest in recycling minor metals, such as the rare earths, so as to try and completely eliminate their waste.

Ideally a future driving world would be one where hydrogen-fueled ICEs are allied with hydrogen-using fuel cells, lead-acid batteries, and nickel metal hydride batteries in various combinations, and every component is made with recycling and rebuilding in mind from the start.

As a mass-produced energy storage system for private passenger-carrying motor vehicles, I think that lithium-ion batteries are a dead end.

I do agree with Mr. Petersen, however, that the wealthy and adolescent (wealthy ones only) may always drive foolish toys such as the Tesla, to show off their wealth by demonstrating that they can afford private vehicles powered by hugely expensive, hand-built lithium-ion batteries.

Let the braying begin as the era of interest in lithium peaks and begins to subside.

Those who follow my articles, know that my main theme is the effect of natural resource production limits on the implementation of new technology. In 2007 the global mining industry reached a maximum production level for many critical minor metals, in particular for those I call the technology metals. The human race has effectively exhausted the highest-grade accessible ores for base, precious and minor metals. The main reason global production of metals and minerals is at the level it reached in 2007, is due to innovative mining of lower grade ores.

The mining of accessible lower-grade ores has been successful due to massive investments in exploration and process technology and so the lessening of demand may well deal a crippling blow to future production expansion. Most of the recent innovation was facilitated by the incredible ramp up of revenues by the mining industry during the so-called super commodity cycle that may have just ended or slowed. This revenue stream has now been reduced dramatically in the case of the global miners, and has vanished in the case of the junior (exploration) mining companies.

When demand returns, there will be a hesitation period during which base metal mining resumes and a longer period of waiting for prices to return to levels high enough to encourage renewed exploration, process innovation development and investment in producing from low-grade ore bodies.

In other words, we have now seen a peak in production of metals and non-energy minerals that we may not see again for some time, if ever. Yet China’s growth, for example, has declined to more than 7% per annum. This means that the flow of newly-mined raw materials will naturally flow to China.

So, I now want to shine light on a second theme: the recycling of metals as a critical source of raw materials for American industry and to offer some background on the wasteful practices of the American OEM automotive industry, my favorite whipping boy.

I accuse the OEM American automotive companies of covering up the fact that they do not know what it will cost to service the electrified cars that they are touting.

Today’s internal combustion, hydrocarbon fueled, cars, like today’s television sets, do not lend themselves to functional repairs. It is now most common for automotive dealers and repair shops to simply replace common modular systems, rather than repair or even replace individual components. A contemporary dealer shop mechanic invoice more than $60 per hour and repairs nothing; he replaces it. Higher priced components and modular systems that can be salvaged are increasingly collected as scrap, sent overseas to low-skilled-labor-cost countries and then brought back, or sold into the country that imported them, whichever most profitable. Incredibly it is now commonplace for American OEM automotive component manufacturers, even the American OEM assemblers themselves, to sell surplus or defective new components and systems into the scrap market. From there, they reappear as service parts at specialist shops, especially those of the regional and national chains that advertise as muffler or transmission repair experts.

In the early 21st century, as an example, Ford Motor Company found that it had 18,000 transmissions for the Lincoln Navigator SUV, which were, or were possibly, defective. UAW labor is so expensive that all of the 18,000 transmissions associated with the potential defect were placed in outside railcars at Ford’s Michigan Truck Assembly Plant, in Wayne, Michigan, where a team of workers and engineers was assigned to “look them over” to see if any were salvageable.

Note well, that some of them had been removed from already assembled Lincoln Navigators and that even those that had been so removed, if they were found to be OK, could not be put back! Under the Byzantine rules, those transmissions were identified and classified as “used’ and so could not be placed in a vehicle labeled as ‘new.’ Ultimately, the transmissions were sold off for a fraction of their original cost and they reappeared in transmission repair shops as “reconditioned,” if the shops were honest and as ‘new’ otherwise. Like many service parts, they were thus sold twice and the consumer paid for them each time. Once in the increased price of the vehicle they were intended for, and again as a repair part.

It is not clear how many of these used transmissions were used as new warranty replacement parts by Ford. If you read the very fine print on your warranty agreement, you will see that Ford and every other carmaker reserves the right to use reconditioned parts as warranty replacements.

The above situation is a common occurrence as is repairing an electric motor, in the form of a vehicle starter motor, or the motor from a forklift truck, or a golf cart. In fact this electric motor repair was a long established business in the USA, up until the end of the twentieth century. In Detroit, for example, many small shops provided this service to the OEM automotive industry, which was loathe constantly to replace very expensive electric motors in factory floor use. The most common repair was the replacement of worn out bearings, but it was also common to rewind the internal coils or replace a shaft.

The propulsion (traction) motors being used today in electrified cars such as the Toyota Prius, and which will be used in battery-powered cars, are large and expensive and frequently contain, or are connected to, computer controls and regulators. Toyota does not want them to go out of the hands of its authorized dealers even for a major mechanical repair such as a bearing replacement. Also, whereas carmakers employ hundreds of engine designers, manufacturing specialists and line workers, today there are no American OEM automotive assemblers that produce electric motors for propulsion purposes in-house.

Where are the dealer shop motor repair specialists going to receive their training? From where are the electric motors going to come? I don’t know the answers, but I do know that the neodymium-iron-boron permanent magnets in those motors use the rare earth neodymium that comes only from China today. I also know that the scrap electric motors generated in America almost entirely go back to China for disassembly and removal of the neodymium-iron-boron permanent magnets. I also know that the scrap motors are sold for steel, or aluminum and copper values and that nothing is paid here for the neodymium. This means that every time a scrap electric motor is exported to China, the neodymium, even if it is returned (It may go into the Chinese domestic market) to us in the form of permanent magnets for a starter, alternator, propulsion, servo, or computer hard drive motors, is billed to us for a second, third, or fourth time with no offset for its scrap value.

Perhaps for the billions of dollars of taxpayer money being “loaned” to the American OEM car makers there should be a condition that every ounce of strategic metal be accounted for, that every part scrapped be accounted for, and that both should be paid for at fair market price by any person buying them.

Perhaps the strategic and critical metals used in the USA should be recycled here in the USA, and perhaps it should be a law that such recycled material must be utilized first, to manufacture new or repair parts for any manufactured goods made in the USA by any company receiving federal assistance.

No one has ever had a business repairing individual batteries. Lead-acid batteries, universally used up to and including the present time, are too cheap to contemplate repairing.

But if we are entering a new era of electrified vehicle power trains and battery packs that cost thousands of dollars each, what can we expect to see in the way of the development of a service industry for this type of vehicle component? Let’s be clear there is no vehicle power train battery repair or maintenance industry in the USA today, with the possible exception of Toyota and Honda authorized car dealer shops. I’m leaving out Ford, because although Ford has sold 100,000 hybrids equipped with nickel-metal hydride batteries in the last five years, it is still asking dealers to ship the cars or the batteries to a central location for any but the simplest repairs. Ford does not have enough training supervisors or equipment so that every dealer can be certain of obtaining the training or the testing equipment. In addition it must be noted that such training and equipment are very expensive and must be subsidized by the company, which in these economic times is not a priority.

The biggest problem with servicing propulsion battery packs is that they are systems; they have built-in computers and they are connected to the vehicle cooling and engine management systems (in the case of a hybrid). Even if a dealer mechanic using a diagnostic machine were to find a computer problem in, or in connection with, the battery pack the battery packs are not built for ease of repair.

Not only that, but for lithium batteries the chemistry has only just now been chosen by General Motors. The rush to market is going to preclude careful study of what breakdowns might occur, in what period, and what the repair or replacement protocol is to be. Clearly companies embarking on the use of lithium-ion batteries can have almost no clue how to repair failures, much less on how to train and equip their dealers to do so.

The information to build a repair system will come from irate customers. The money will supposedly come from the same place.

No one knows what education the repairmen of the future will need. Undoubtedly sometime after the complaints pile up, the wise solons of Washington will allocate funding for educating repairpersons. Undoubtedly they will overlook the fact that education in basic mechanical and electrical skills must start in the second grade and even that only after the necessary teachers have been trained first. I predict it will be more than 10 years before an electrified car can be routinely repaired anywhere in the USA.

In the meantime your tax dollars will be used to outsource the manufacturing of replacement components and systems, such as assembled battery cells, to foreign countries. The practice of repeatedly buying the same strategic and critical metals will continue until the Federal government forces it to stop by making it uneconomical.

The good news is that this poorly conceived and even more poorly executed program, the electrification of the vehicle, probably won’t happen or will happen only as fast as the repair and maintenance infrastructure can be built. Get your shovels ready.