Rare earths magnet firms turn to Vietnam in China hedge

Hyundai BNG Steel Co

22/08/2023 06:59

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      Korean firm plans factory that alone could meet half U.S.
demand
    

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      Chinese Apple supplier to open magnet plant this year
-sources
    

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      Vietnam's rare earths deposits second only to China's
    

        * 
      China dominates world's magnet supply
    

  
    By Francesco Guarascio and Ju-min Park
       HANOI/SEOUL, Aug 22 (Reuters) - Korean and Chinese
magnet firms, including an Apple supplier, are set to open
factories in Vietnam, according to documents and people familiar
with the plans, amid a push to diversify supply chains away from
China and defend against Sino-U.S. tension.
    South Korea's Star Group Industrial (SGI) and China's Baotou
INST Magnetic would join companies in sectors as varied as
electronics and automobiles in shifting assembly lines against a
backdrop of increasing trade restrictions, with clients even
requesting the move, the people said.
    China is dominant in magnets and the rare earth metals they
are made from. The magnets are central to the manufacturing of
such products as electric vehicles, wind turbines, weapons and
smartphones, making the sector strategically important. Even so,
there has been only limited effort to challenge China's lead.
    Neighbouring Vietnam, however, has untapped rare earth
deposits second only to China's, as well as a fledgling
processing industry, giving the country the potential to be a
much bigger competitor, industry insiders said.
        SGI's Vietnam project, for instance, targets 2025 output
of 5,000 tons of high-end neodymium (NdFeB) magnets per year,
enough for 2 million electric vehicles (EVs).
    Still, Vietnam produces just 1% of the world's magnets,
showed Adamas Intelligence data cited in a U.S. Department of
Energy report, compared with China's 92%.
    Moreover, some Chinese factories can produce 10 times as
many magnets as SGI's project, and China dominates the mining
and processing of the ores.
    Nevertheless, Vietnam's rise is significant.
        SGI's plant at full capacity would produce nearly 3% of
the 2022 global output estimated by Project Blue, a critical
materials consultancy. That equates to nearly half of U.S.
imports of neodymium magnets last year, U.S. trade data showed.
    Moreover, U.S. officials have signalled growing interest in
Vietnam's rare earths potential amid discussion to upgrade
bilateral ties this year, and South Korea signed a deal with
Vietnam in June to boost its supply chain of critical minerals.
    Magnet makers are also drawn to Vietnam by low labour costs
and market access afforded by multiple free-trade deals. They
also want to move closer to Vietnam-based clients, such as
automakers and electronics firms, which are increasingly wary of
over-reliance on Chinese supplies as relations worsen between
Washington and Beijing, industry insiders said.
    Vietnam is the only country beyond China with all stages of
the magnet supply chain, from mining rare earths to downstream
production, said a Vietnam-based industry consultant, who was
not authorised to speak to media so declined to be identified.
    The government plans a vast expansion of rare earths
production by the end of the decade and is boosting refining
capacity, which the U.S. energy department estimated accounts
for 3% of the global share.
    However, "anyone who is trying to build from scratch a
mine-to-magnet supply chain is going to face a lot of
challenges," said David Merriman of Project Blue.
    
    
    DOUBLING OUTPUT
    SGI, which supplies magnets to Vietnamese EV maker VinFast
 VFS.O  and Korea's Hyundai Motor  005380.KS , told Reuters it
is investing $80 million in its new Vietnam factory with
production starting in 2024.
    The plant would nearly double the company's current output
of 3,000 tons a year from factories in South Korea and China.
    SGI described the investment as part of "countermeasures"
against possible Chinese trade restrictions.
        "China's policy on control of rare earths-related raw
materials and technology is being strengthened, resulting in
supply uncertainty," SGI said.
    It said it sources most of its rare earths from China but is
seeking alternative sources in Vietnam and Australia and plans
to develop a processing facility in Vietnam.
       
    APPLE SUPPLIER
    China's INST is set to begin operations as early as next
month at a leased plant in northern Vietnam after gaining local
approval in June, two people familiar with the plans said.
    INST, a large magnet firm specialising in circuit design,
was added to Apple's  AAPL.O  supplier list in 2021. Its
expansion into Vietnam follows requests from clients to
diversify away from China amid growing trade tension, the two
people said, declining to identify the clients.
    China's Luxshare  002475.SZ  and Taiwan's Foxconn  2317.TW 
are among major Apple suppliers who manufacture magnet-equipped
products in Vietnam such as iPad tablets and MacBook laptops.
    INST's initial investment is limited to a few million
dollars, with a possible second phase involving more spending
for the building of its own plant, the people said, declining to
be named as they did not have clearance to discuss the matter.
    INST did not respond to Reuters when seeking comment. 
    A similar request from clients prompted another Chinese
magnet maker, Magsound, to decide to open a factory in Vietnam
in the first half of next year, the two people said.
    However, after winning approval in June, Magsound withdrew
plans this month, registry documents showed, which the people
said followed the collapse of supply deal talks with Luxshare.
    Luxshare and Magsound did not reply to requests for comment.
    Among magnet makers in Vietnam, Japan's Shin-Etsu Chemical
 4063.T  has been expanding facilities this year after deciding
in 2017 to double annual capacity there to 2,200 tons, showed
company statements and details on consultancy Obayashi's
website.
    Shin-Etsu and Obayashi did not reply to requests for
comment.
    In April, Australia's Strategic Materials  ASM.AX  signed a
deal with a Vietnamese refiner that committed to supplying rare
earths for export to South Korea.

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China's rare earths might    https://tmsnrt.rs/3E6egkq
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 (Reporting by Francesco Guarascio and Ju-min Park; Additional
reporting by Khanh Vu and Mai Nguyen in Hanoi; Editing by
Christopher Cushing)
 ((Francesco.Guarascio@thomsonreuters.com;))