Hitachi Leads Rare Earth Recycling Efforts as China Cuts Access to Supply

It takes two Hitachi Ltd. workers eight minutes to slice open the metal casing of the used air conditioner compressor. The prize inside: four wafer-thin magnets containing about 30 grams of rare earth metals.

Hitachi, Japan’s third-biggest company, uses as much as 600 tons of rare earth metals each year in products including motors like those in Toyota Motor Corp.’s Prius hybrid. Hitachi is one of hundreds of manufacturers depending on rare earth shipments from China, which controls 97 percent of world supply of the lightweight, malleable metals essential to hybrid cars, cell phones and hard disk drives.

China’s decision this year to slash exports of the metals has driven up prices and spurred a drive among Japanese companies, the world’s biggest users of rare earths, to find other supplies. While trading houses Sojitz Corp. and Sumitomo Corp. consider investing in mines outside China, Hitachi said it expects recycling to meet 10 percent of its needs by 2013 from almost zero now.

“We need to make sure we have a stable supply of these materials and recycling is part of that,” Kenji Baba, general manager of Hitachi’s resource recycling office, said this week at a test site north of Tokyo. “We have to work on bringing costs down.”

Ready for Harvest

Inside a warehouse in Matsudo City, Hitachi demonstrated the results of the one-year, $1.5 million research project partly funded by Japan’s government. Four refrigerator-sized devices use saws to open up compressors without damaging the rare earth magnets inside. A separate conveyor belt feeds disk drives into a machine about the size of a ship container. The drives come out the other end in pieces ready for rare earth harvesting.

Hitachi, whose shares have gained 49 percent this year, says the machines are the first of their kind. The shares rose to their highest since Dec. 2008 today, closing on the Tokyo Stock Exchange at 420 yen, up 1.7 percent.

Last year, China’s government clamped down on its rare earth industry, setting production quotas to bolster prices. China said in July this year it would reduce export quotas 72 percent in the second half to supply its own electronics industry and overhaul a mining sector blamed for causing widespread environmental damage.

Rising Demand

The drop in output and exports combined with rising demand caused the price of neodymium used in batteries for the Prius to surge fourfold to $80 a kilogram from $19.12 in 2009, according to Sydney-based rare-earth miner Lynas Corp. Lynas is building a A$550 million ($535 million) rare earths mine at Mount Weld in Western Australia.

Sojitz, one of Japan’s biggest importers of rare earths, last month agreed with Lynas to buy 8,000 tons to 9,000 tons annually from its Mount Weld mine over the next 10 years.

“China’s monopoly isn’t going to hold up because prices are high enough now to make it worthwhile for other people to get into the business,” said Mitsushige Akino, who oversees about $450 million in assets at Tokyo-based Ichiyoshi Investment Management Co.

Rare earths are a group of 17 metal elements used in batteries, permanent magnets in wind turbines and cell phones, and catalysts to reduce auto exhaust emissions.

Besides Hitachi’s project, Tokyo-based chemical maker Showa Denko KK in May opened a plant in Vietnam to begin recycling dysprosium and didymium metal used to make magnetic alloys. The company, the world’s biggest producer of some components used in hard disk drives, makes 8,000 tons of the alloys a year and plans output of 800 tons at the recycling factory.

Reducing Costs

Copper processor Mitsubishi Materials Corp., which has recycling ventures with Panasonic Corp. and Sharp Corp., last year started researching the cost of extracting neodymium and dysposium from washing machines and air conditioners.

“We’re trying to reduce costs by automating the process,” said Isato Matsubara, a spokesman at the company. “How profitable the business can be depends on the prices of materials and getting our costs down.”

Sumitomo Corp., Japan’s third-largest trading company, said it’s considering an investment in U.S.-based rare earth miner Molycorp Inc. An investment by Sumitomo, which the company said is one option being considered, would give it access to the world’s largest known deposit of rare earths outside of China at a mine in Mountain Pass, California.

Flooding the Market

Molycorp raised $394 million in an initial share sale in July to reopen the mine. It was closed in 2002 as China output flooded the market and drove down prices. The company will export half of its rare earth metal shipments to Japan in 2010, the Nikkei newspaper reported today, citing an interview with Chief Executive Officer Mark Smith.

Toyota Tsusho Corp., the trading company part-owned by Toyota, will build a rare earths plant in India that will help secure supplies from 2012, the Nagoya-based company said in a statement on its website today. The plant in Orissa province will provide 3,000 metric tons to 4,000 tons of the metals a year, the statement said.

“It’s never good to have all of your eggs in one basket,” Paul Nolasco, a spokesman for Toyota, said before today’s announcement from Toyota Tsusho. “As we do whenever there’s a supply issue, or even the perception of an issue, our procurement people are looking into it.”

Processing

For recyclers, extracting components is the first step. Magnets from air conditioning compressors are 25 percent rare earth metal and a chemical process is needed to refine out the rare earths, Hitachi’s Baba said.

“We’ve succeeded in processing the metals in small quantities without using acids,” Baba said. “Now we’re working on methods to increase the scale.”

Even China’s supply is not unlimited, some of the heavy rare earths it has will only last about 15 years, Ali Izadi- Najafabadi, a Tokyo-based analyst at Bloomberg New Energy Finance, said.

“So if we’re going to have a clean energy revolution and electric vehicles and other things, recycling would have to be part of the infrastructure,” he said.

To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net; Mariko Yasu in Tokyo at myasu@bloomberg.net; Stuart Biggs in Tokyo at Sbiggs3@bloombereg.net.

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.