Magnetics Business & Technology - Winter 2015 - (Page 6)

FEATURE ARTICLE What the Heck Happened to the Magnet Industry? By Walter T. Benecki Thirty years ago, the US permanent magnet industry was flourishing and full of excitement. A new exciting magnet material had just been announced and everyone was energized with anticipated growth opportunities for the industry. Some magnet producers were lining up to pay millions of dollars for the rights to manufacture sintered NdFeB magnets! Dozens of magnet producers and distributors were enjoying a vibrant and profitable business environment. But today's permanent magnet industry has changed remarkably. China's Massive NdFeB Over-Capacity Remains a Big Issue During the past 20 years, the North American magnet industry has faced more than a dozen plant closures as the emergence of China's dominance quickly became a reality. Today, most observers believe the Chinese investment in rare earth magnets has been excessive. China's current NdFeB production capacity utilization is estimated to be less than 50 percent, while they enjoy a global market share in excess of 70 percent. That means hundreds of hungry, almost desperate magnet suppliers, all chasing the same business with one primary lever... price. In addition, the Chinese government's recent moves to manipulate their currency have certainly affected the overall complexity and uneasiness within the magnet industry. Magnet buyers relish the thought of a more competitive marketplace and lower magnet prices, and there is no doubt that the abundance of magnet producers will keep market prices in check. The aggressive buyers, eager to take advantage of alternate suppliers offering attractive cost reductions will try to take advantage of every opportunity. Some buyers will be successful. However, some will be disappointed, finding their new "low cost" supplier unable to consistently meet their quality or service requirements. The Pain of 2011 Continues in Everyone's Memory The magnet industry, as well as most magnet buyers, still remembers the pain of 2011, when rare earth prices spiked to unprecedented levels. Magnet suppliers had the unpleasant task of requesting massive price increases from their customers. Today, magnet users continue to be concerned about a potential repeat performance. Many maintain alternate technologies in their back pocket, prepared to move quickly to avoid being stung a second time. During the past three to four years, everyone has been encouraged about the prospect of rare earth oxides being mined in the US (Molycorp) and Australia (Lynas). However, Molycorp filed for bankruptcy in June, 2015 and each company's long-term viability remains in question. In fact, Molycorp announced the transition of its Mountain Pass operation to a 'Care and Maintenance' mode in late August. Chinese government shifting policies regarding rare earth mining, tariffs and other export regulations have not left the magnet community with a feeling of comfort or security. In addition, as long as China remains the dominant rare earth producer, unpredictable political rifts between governments always loom as a triggering event. The result is an ongoing concern about future prices of rare earth magnets. And in the worst case, the possibility of raw material shortages, which could once again ripple through the magnet industry. Recently, rare earth prices have experienced steady downward pressure, clearly suggesting "No supply problem today!" But who knows what the price trend will be 12 to 24 months from now? 6 Magnetics Business & Technology * Winter 2015 It Takes Forever to Resolve Patent Disputes! Since Hitachi Metals launched its legal assault with the US International Trade Commission in 2012, the permanent magnet community (producers, distributors and users) have been facing an extended period of uncertainty. The current phase of this international legal battle involves a consortium of Chinese companies who are challenging certain Hitachi patents. Although the US Patent Office claims to have a "Streamlined" process for resolving such disputes, this contest is now entering its third year with no resolution. At stake for Hitachi are millions of dollars of royalty income from their stable of licensees. Many in the magnet industry are concerned that a Hitachi loss would result in a period of confusion and chaos, as more than 200 Chinese NdFeB producers would be free to descend on the global marketplace. This concern is valid. Since 2013, when Hitachi increased their Chinese license list by three additional manufacturers, the three new Chinese licensees have been pursuing market share penetration with the primary tool they feel is available to them - attractive (low) prices. So the unknowns behind the current patent dispute are significant. Some observers anticipate an initial legal determination before year-end. But what responses, negotiations or appeals might occur afterward is difficult to predict. Who knows how long this cloud of uncertainty will continue to cloak the magnet industry? And what is in store for our us once the dispute is resolved? All we can say is: "stay tuned". The Global Permanent Magnet Industry is Not Really That Big Outsiders to the permanent magnet industry are often attracted to the lure and technology surrounding the permanent magnet industry. In fact, the global permanent magnet industry is estimated to be in the range of $20 billion. In the grand scheme of things, this is small. Keep in mind that, during the typical Christmas holiday period, US consumers spend more than $600 billion! US consumers also spend more than $50 billion each year for cosmetics and about $60 billion a year on weight loss products each year. So a $20 billion global spend on permanent magnets is really not very large. Then add in the fact that, worldwide, there are more than 1,500 magnet producers, distributors and magnetic assembly fabricators. The average "sales per company" calculates out to about $13 million per participant. The median magnet industry player is estimated to be well below $10 million. On any basis you choose, the permanent magnet industry is really "small potatoes". A High Percentage of Magnet Purchases Involve High Volume And Competitive Prices. Ah, the lure of large production volumes. This is the primary attraction when selling magnets for most computer, automotive, appliance and wind turbine applications. Unfortunately, the buyers in these industries do everything within their power to leverage their attractive volumes to achieve the lowest possible prices. A quality or service glitch can be extremely dangerous, both for the magnet seller as well as the purchasing agent attempting to explain to upper management why their production lines are shut down. Certainly, one of the current high-volume opportunities is the wind turbine industry. If direct-drive wind turbine production were to accelerate (and most producers prefer the direct-drive de-

Table of Contents for the Digital Edition of Magnetics Business & Technology - Winter 2015

Editor's Choice
What the Heck Happened to the Magnet Industry?
An Introduction to Resonant Inductive Power Transfer
Research & Development
Magnetics 2016: Preview
2016 Resource Guide
Industry News
Marketplace / Advertising Index
Spontaneous Thoughts: Small Ball

Magnetics Business & Technology - Winter 2015