Thursday, October 7, 2010

The rare earth "connection"

Or, be careful what you ask for

At the very beginning of this blog I presented a number of postings on "why should industry care about green manufacturing." (see post) This included to minimize risk to the business due to supply chain problems for critical resources needed for production or other material related disruptions (like no material available.)

I came across a perfect example of this while traveling recently (and, hence, had access to the Financial Times and International Herald Tribune - neither of which I subscribe to.)

The October 7th edition of the Financial Times newspaper has an article entitled "China tightens its grip on the production of rare earths," written by Leslie Hook. Rare earths are a group of 17 minerals that have strategic applications in a wide range of products and processes. And they are hard to come by (hence the name "rare"!)

Of the earth's supply of these rare earth materials, 97% come from China, 2% come from India, and the remaining 1% come from "other" countries. The US used to be a producer of these materials but the mining and refining can be highly polluting if not properly controlled. So, costs of extraction and processing and environmental regulations encouraged the movement of production to places with lower costs and, regrettably, more lax restrictions or, at least, compliance.

So what? The use of these rare earths is ubiquitous in a wide range of high tech products, processes and products designed to reduce the environmental impact of operation. For example, the FT article cites the following statistics for use:

- 25% in automotive catalytic converters
- 22% in petroleum refining
- 10% in lighting, televisions, etc.
- 11% in materials for polishing glass and production of semiconductors
- 20% metallurgical additives and alloys
- 22% other

It turns out that these rare earths are key to "performance enhancing" materials and products important to us. For example,

- the rhodium in catalytic converters helps to remove harmful by-products of internal combustion engines (even highly fuel efficient ones)
- rare earths in "super magnets" help improve (a lot it turns out) the performance of electric motors in terms of power output with respect to input power (and remember that electric motors account for a major portion of electrical energy used to day - both domestically and industrially; and a number of the greening technologies (wedges) we've been discussing rely on improved electrical motor performance.)
- improved refinery techniques for less polluting fuels
- flat screen TV's and monitors with reduced energy consumption, and
- optical products ranging from specialized lenses for lithography and imaging applications to the bazillions of little lenses in cell phones and small cameras that a whole generation of young people are using to capture inane images of goofy behavior that will be posted on their social networking pages to impress their friends (and in 'cyberspace' in perpetuity) so that later in life when they want to get that dream job at a major corporation some recruiter can find it and say - not impressed. (Sorry, I got a bit carried away there - you get the point!)

The Chinese recently, and I assume entirely coincidentally with the Japanese detention of a Chinese fishing boat in disputed waters and the arrest of its captain, shut off the spigot of rare earths to the Japanese. And, thus the FT article I am referring to. Japan is the largest importer of rare earth materials.

Risk, you say?

Let's follow the trail of bread crumbs.

Japanese seize Chinese boat in disputed waters. Disputed, I believe, because of uncertain ownership following a conflict over 50 years ago precipitated by a country trying to, among other motives, secure sources of natural resources and energy (I am not a historian - if someone thinks I am off on my analysis let me know!). The Chinese interrupt the shipment of rare earth materials, materials needed to produce high tech products and enable processes to reduce the environmental impact of other processes and products. Companies relying on the supply of these materials see the supply chain stretching taut - panic thoughts emerge in heads of these companies (or at least in the supply chain manager.) Fortunately, the Japanese release the boat captain and materials, again by sheer coincidence, begin to flow again. Whew, close one.

How can a company watch out for an extemporaneous event on the high seas that might, in domino effect, interrupt its production?

I am reminded here of a great book (and BBC series) from some years back by a British author James Burke called "Connections."  Using some fascinating history sleuthing to "connect the dots" he shows along several lines the connection between technology development (and what is driving it) and commercial and political development. One line he followed was the nexus between precision engineering and fabrication techniques, the invention of the sea-worthy chronometer (previous instruments had suffered from the rolling action of ships, temperature variations, the high salty humidity of the air, and lower quality of fabrication to render them practically useless on long sea voyages), and the spread of British naval and commercial influence worldwide. Seafarers could now reliably get there and back with improved navigation aids and maps - all synchronized by accurate time keeping. Sort of a 18th century equivalent to GPS of today.

Today, we could build a similar story about anticipating and reducing risk in manufacturing.

I've a lot more to say about precision manufacturing and sustainability impacts prompted by some recent conversations I've had and remarks heard at conferences by industry leaders. More on that next time.

In the mean time, the world may be flat as Thomas Friedman points out, but some folks are sitting on mountains of critical resources, and the view from up their is decidedly different! Fortunately, as one of the Japanese researchers pointed out in the FT article, scarcity and risk of supply interruption drive innovation - in this case to find replacement, more commonly available, materials to substitute for the rare earths or ways to more efficiently use them. And the more the costs of these materials go up (remember, the market place rewards risk and uncertainty with higher material prices) the more incentive we have to find replacements or, in the case of the US which has reasonable wealth of these still in the ground, resume producing them with all the necessary safeguards and procedures in place.

That's a business strategy to reduce risk.

Finally, a comment from some time ago from one of the readers is appropriate to this discussion. It is complicated, so I am repeating the whole comment, and question posed from Steve Hanna following the post):

Let's say company "A" learns of a green house gas (GHG) "hot spot" in its supply chain, say manufacturer "X" of widgets.  Company "A" is purchasing substantial widgets from company "X" whose attributable production equals 80 tons of C02 emissions annually. Company "A" finds company "Y" who produces the same quality widgets (and pricing) that only takes company "Y" 1 ton of C02 emissions per year to produce. If company "A" decides to dump company "X" for company "Y", it is indeed a good steward to the earth but does company "A" receive any credit (offset or anything) for mitigating C02 emissions within its supply chain via Scope 3 indirect emissions?

In other words, are their any incentives/credits for companies who lean out their supply chains? After all, company "A" is mitigating 79 tons of C02 emissions from entering the atmosphere by switching to company "Y"'s product over the energy-intensive company "X" product. Can any of the savings be attributable to company "A"s footprint?

This is a great hypothetical and although I am not an expert on all the associated counting mechanisms over the different scopes, I have to say that I believe Company A can take credit for the reduction due to this switch. Certainly if they are tracking this in their annual corporate sustainability report (CSR) they can count this. And, specially in California where we are looking at how to identify and then, I assume, count GHG in products coming into the state.

But, there may be other opinions out there. Let Steve and I know  (i.e. comment!). I also like the concept of a GHG (or any other) "hot spot" as a way to identify sources of loss or potential savings in a process, facility or supply chain. And, apropos our discussion above, how about risk "hot spots"?

More on this next time also.

One last item, Energy Secretary Dr. Steven Chu has a blog! He is in government now but remember he was a Berkeley professor before! In his recent posting he commented on the need to revitalize American manufacturing. He starts out with "Some people think our economy can run on white collar and service jobs alone, but they are wrong. We can and must make high quality products in America. We are on the verge of a new Industrial Revolution and I believe it will revolve around the greatest untapped opportunity of our time, clean energy."

I couldn't agree more. The potential for manufacturing technology to address the emerging clean energy market (he continues talking about battery manufacturing), greener manufacturing technologies and facilities, and greener products manufactured in the US is huge.

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