HANOI: As part of an effort to diversify supply chains away from China and counteract Sino-US hostility, Korean and Chinese magnet manufacturers, including an Apple supplier, are planning to open plants in Vietnam, according to documents and people with knowledge of the project.
In response to tightening trade restrictions, firms from industries as diverse as electronics and autos, including South Korea’s Star Group Industrial (SGI) and China’s Baotou INST Magnetic, will shift assembly lines, according to the sources. Some clients had even requested the change.
Magnets and the rare earth metals used to make them are largely produced in China. The sector is strategically significant since magnets are essential to the production of items like electric cars, wind turbines, weaponry, and cellphones. Even so, there hasn’t been much of an effort to overtake China as the leader.
However, industry sources claim that neighboring Vietnam possesses undeveloped rare earth deposits that are second only to China’s and a budding processing industry, giving it the potential to be a far bigger competitor.
For instance, the SGI Vietnam project aims to produce 5,000 tons of high-end neodymium (NdFeB) magnets annually by 2025, or enough for 2 million electric cars (EVs).
However, data from Adamas Intelligence referenced in a US Department of Energy assessment showed that Vietnam produces barely 1% of the world’s magnets, compared to China’s 92%.
Furthermore, China dominates ore mining and processing, and certain Chinese manufacturers have the capacity to generate 10 times as many magnets as SGI’s project.
However, Vietnam’s development is important.
When operating at full capacity, SGI’s factory would contribute close to 3% of the projected worldwide output for 2022, according to critical materials consultancy Project Blue. According to US trade data, that amounts to over half of the neodymium magnet imports into the US last year.
Along with talks to improve bilateral ties this year, US officials have shown greater interest in Vietnam’s rare earths potential. In addition, South Korea struck a contract with Vietnam in June to strengthen its supply chain of essential minerals.
Low labor costs and the market access provided by numerous free-trade agreements are further factors that lure magnet manufacturers to Vietnam. Additionally, they want to be nearer to their Vietnamese-based clients, such automakers and electronics companies, which are becoming more cautious about relying too much on Chinese supplies as ties between Washington and Beijing deteriorate, according to industry insiders.
According to a Vietnam-based industry consultant who declined to give his name because he was not authorized to speak to the media, Vietnam is the only country outside of China that has all phases of the magnet supply chain, from rare earth mining to downstream production.
The government is increasing refining capacity, which the US energy department said accounts for 3% of the world share, and expects to significantly increase rare earths output by the end of the decade.
However, according to David Merriman of Project Blue, “anyone who is trying to build from scratch a mine-to-magnet supply chain is going to face a lot of challenges.”
SGI, which provides magnets to Korean automaker Hyundai Motor and Vietnamese electric vehicle manufacturer VinFast, told Reuters that it is investing US$80 million in its new Vietnam factory, with production set to begin in 2024.
The project would almost treble the business’s current annual output of 3,000 tons from operations in China and South Korea.
The investment, according to SGI, is one of several “countermeasures” against potential Chinese trade restrictions.
“China’s policy on control of rare earths-related raw materials and technology is being strengthened, resulting in supply uncertainty,” SGI claimed.
It claimed that while it gets the majority of its rare earths from China, it is also looking at other sources in Vietnam and Australia and intends to build a processing plant there.
After receiving local approval in June, China’s INST is expected to start operations as early as next month at a leased plant in northern Vietnam, according to two people familiar with the plans.
In 2021, INST, a sizable magnet company with a focus on circuit design, was added to Apple’s supplier list. According to the two people—who declined to be named—its development into Vietnam came in response to calls from clients to diversify away from China amid escalating trade tensions.
Several significant Apple suppliers, including Luxshare of China and Foxconn of Taiwan, produce magnet-equipped devices in Vietnam, including iPad tablets and MacBook laptops.
The persons, who asked to remain anonymous because they lacked permission to speak about the situation, indicated that INST’s initial investment will only amount to a few million dollars, with a potential second phase involving additional spending for the construction of its own factory
Reuters contacted INST for comment but received no response.
Another Chinese magnet manufacturer, Magsound, decided to construct a production in Vietnam in the first half of next year as a result of a similar client request, the two said.
However, registry records revealed that Magsound withdrew plans this month after receiving approval in June. According to the sources, this was due to the failure of supply agreement negotiations with Luxshare.
Requests for comment from Magsound and Luxshare were not answered.
According to business statements and information on consultancy Obayashi’s website, Japan’s Shin-Etsu Chemical has been expanding facilities this year among the magnet manufacturers in Vietnam after deciding in 2017 to increase annual capacity there to 2,200 tons.
Requests for comment from Obayashi and Shin-Etsu were not returned.
With a Vietnamese refiner, Australia’s Strategic Materials committed to supplying rare earths for export to South Korea in a contract that was inked in April.