EDITOR: | August 13th, 2013 | 6 Comments

Chinese REE ‘alliance’ lawsuit against Hitachi could lead to further REE price increases

| August 13, 2013 | 6 Comments
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Japan Surveys Disputed IslandsAbout a dozen Chinese rare earth companies have decided to join forces, in a veritable Alliance, to challenge the Japanese industrial giant “Hitachi Metals” (Hitachi). The Chinese accuse Hitachi of violating international patent law and of establishing unfair manner market barriers against them. The international trial could begin as early as next September in the United States. The dispute revolves around neodymium-iron-boron magnets, which are essential for modern technology and industry. About half of the global consumption of rare earths is related to this magnetic alloy. Neodymium-iron-boron magnets (NdFeB) are required, for example in the production of various motors, speakers, headphones and computer hard drives. It is perhaps not coincidental that even as August 12, today, marked the 35th anniversary of the signing of the Sino-Japanese Treaty of Peace and Friendship, signed after the normalization of bilateral relations between China and Japan in 1972. Indeed, relations between the China and Japan soured about a year ago as Japan took measures to secure its legal ‘ownership’ over the disputed Senkaku/Diayou Islands in the east China Sea. Starting about the end of July and continuing well into last week, Chinese government vessels increased their ‘visits’ to the disputed area located some 700 km south of Okinawa, in the territorial waters of the Senkaku Islands administered by Japan but claimed by China last Saturday, raising tensions.

China and Japan did exchange a series of diplomatic messages, invoking friendship and the great importance of friendly bilateral relations; however, no such pleasantries have been exchanged between rival business entities; and there are few bilateral industrial issues more contentious and strategic than rare earths.

The Chinese lawsuit against Hitachi is mirroring the Senkaku island dispute. Indeed, the lawsuit is nothing less than a tit-for-tat response to an August 2012 request,  by Hitachi, for the American International Trade Committee to ban the sale of NdFeB magnets produced by companies lacking the necessary patent licenses to produce such magnets – of course, in the USA this implies a direct attack on Chinese companies. The Japanese legal provocation led to three Chinese NdFeB magnet producers to apply and receive patent licenses in exchange for a fee to be paid to Hitachi. Now, “Shenyang General Magnetic” (SGM), leading the pack of companies suing Hitachi, claim that Hitachi itself does not have the aforementioned patent rights, because they expired – or because they are about to expire. Hitachi applied for an extension of the patent exclusivity period until 2029, but SGM has retorted that the extension is invalid and only served to create artificial market barriers against Chinese companies.

Hitachi Metals is a major downstream producer of rare earth products and holds the rights to 100 relevant U.S. patents, 300 patents in China and more than 600 in Japan. Such ‘domination’ would imply that most Chinese producers would be prevented from exporting their downstream rare earth products, because of the relevant patent violations. The Chinese Ministry of Industry and Technology, meanwhile, has pledged its full support for the Chinese Alliance rare earth producers. Presumably, an easing of political Sino-Japanese political and military tensions may imply a softening of the political backing for the ‘Alliance’. Interestingly, the Hitachi lawsuit also comes at a time when China has shown a real commitment to cleaning up its rare earth mining sector, a move that has led to verified production cuts, prompting the start of a rare earth price recovery. The expansion of Sino-Japanese tensions from the halls of government to the boardrooms of business in matters directly related to rare earths, however, could finally push China to reduce REE exports to Japan, resulting in an additional boost to prices. A disruption in REE supplies to Japan would inevitably affect end users, such as Hitachi and Toyota, among many others and while Japan has diversified its sourcing in the past few years the new REE sources that have come on stream with Lynas and Molycorp are still not producing at levels sufficient to be able to fill Chinese export gaps.

The history of neo-magnets is also instructive in understanding the current implications. General Motors and Sumitomo Metals discovered the Neodymium-Iron-Boron (Neo) compound and its ability to replace the more expensive Samarium-Cobalt batteries in 1982. General Motors Corporation sold its Neo technology through a separate company known as Magnequench in 1986. Molycorp now controls Magnequench, through its acquisition of Neo Materials Technology Inc. Meanwhile, the co-inventor of Neo magnets, Sumitomo Metals, has been acquired by Hitachi, becoming one of the largest Neo magnet suppliers through direct manufacturing and licensing of the technology. The Hitachi connection is rather significant in fact and it has played no small role in prompting the DOD’s decision to commission the three assessments. The Hitachi complaint before the US International Trade Commission against the Chinese magnet suppliers would imply an end to imports of , such items as golf balls, electronics, power tools and critical medical equipment (among others). Hitachi says that through an agreement with Molycorp Inc (NYSE: MCP) it will start to produce REE based magnets according to its own proprietary sintering techniques. The US, meanwhile, will be hard pressed to choose sides. Hitachi’s complaint targets Chinese mines and magnet makers as well as US importers; the latter, have expressed their dismay Hitachi’s decision, evidently prompting concerns in the halls of government as well. Hitachi says it would make up for the short fall resulting from banning the Chinese imports as Molycorp’s Mountain Pass mine increased production in 2013. The continuing tensions suggest Hitachi, or the Chinese Alliance, will not be backing down any time soon.


Editor:


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Comments

  • Robin Bromby

    Were the Chinese able to maintain a straight face when accusing “Hitachi of violating international patent law and of establishing unfair manner market barriers against them”?

    Have they got a cheek or what?

    August 13, 2013 - 9:27 PM

    • Gareth Hatch

      The whole thing is completely daft. There were no patent extensions.

      August 13, 2013 - 11:00 PM

  • Gareth Hatch

    In June 2013, Hitachi Metals filed a motion to terminate its complaint with the US ITC, after settling with most of the respondents. There was never any danger of a reduction of imports of these magnets into the USA, despite the ridiculous claims of some of the respondents, since there are well over a dozen licensed suppliers from which magnets can be purchased.

    Companies that are willing to violate the patent rights of others, for the sake of saving a buck or two, shouldn’t start whining when they get caught.

    August 13, 2013 - 11:11 PM

    • Alessandro

      This is why this patent lawsuit is so political; it can only be explained by the tensions between Japan and China and Hitachi’s own lawsuit against the Chinese companies from last year.

      August 14, 2013 - 4:33 PM

  • Tim Ainsworth

    Sintered Neodymium-Iron-Boron Permanent Magnet
    List of Licensees (as of April 2003)
    In alphabetic order:
    – Advanced Technology & Materials Co., Ltd.(China)
    (Note: A license to High Mag Technology Corp. has been assigned
    to Advanced Technology & Materials Co., Ltd.)
    – Beijing Jingci Magnetism Technology Co.(China)
    – Beijing Tsinghua Innovation Technology Development Co., Ltd.(China), which changed its name to THINOVA Co.,Ltd. on August 20, 2003
    – Dowa Mining Co., Ltd.(Japan)
    – Hitachi Magnetics Corp.(U.S.A.)
    – Hitachi Metals, Ltd.(Japan)
    – Magnequench, Inc.(U.S.A.)
    – Magnetfabrik Schramberg GmbH (Germany)
    – N.V. Philips’ Gloeilampenfabrieken(Netherland)
    – Neorem Magnets Oy(Finland)
    – San Huan New Material High-Tech Inc.(China), sold by Beijing San Huan International
    Trading Co.(China)
    – Shin-Etsu Chemical Co., Ltd.(Japan)
    – TDK Corp.(Japan)
    – The Morgan Crucible Company Plc.(U.K.), manufactured by Morganite Crumax Inc.(U.S.A.)
    – Vacuumschmelze GmbH(Germany)
    – Yunsheng(Group)Co., Ltd.(China)

    August 14, 2013 - 1:44 PM

  • Asher Berube

    It is news like this that makes me question if China really wants competition of rare earth production.

    August 16, 2013 - 1:53 PM

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