The world auto industry is on the verge of a new crisis in the wake of a shortage of microchips as the industry faces a magnesium shortage. China has reduced the extraction and processing of this metal due to energy problems. Magnesium is essential for aluminium alloys widely used in automobile manufacturing.
The current situation of magnesium deficiency is primarily associated with new environmental requirements in China. Several provinces in China have been forced to cut electricity consumption since September to meet the required indicators. Prolonged power outages are a consequence of the new environmental policy. The PRC plans to reduce the use of coal.
This led to disruptions in the work of enterprises, including those associated with the extraction and production of magnesium. China produces almost 90% of the world’s volume of this metal. Production cuts have an immediate impact on the entire supply chain.
The European Union is particularly dependent on Chinese magnesium. In Europe, 95% of the magnesium used is sourced from the PRC.
In late October, the European Automobile Manufacturers Association (ACEA) and 11 other industry trade associations issued a warning of impending magnesium shortages. The business believes that by the end of November in Europe, stocks of magnesium will run out, which will lead to the closure of enterprises and the reduction of employees.
The deficit may affect not only the new car market but also spare parts. The parts for cars of the upper price level and premium class will be hit first as aluminium is widely used to lighten the weight of the car.
Magnesium has a short shelf life and is not possible to stock up. The metal begins oxidising in3 months.
Artificial shortage?
China is one of the largest manufacturers of auto parts in the world. It fully provides its own auto industry and successfully exports these products to many countries of the world. For example, the Ningbo plant is the largest in China in its segment. It receives conveyor orders from Porsche, Audi, BMW, General Motors, Mercedes, Volvo and many other well-known brands. And given the factor that China’s domestic market does not experience a magnesium deficiency.
The problem is not the availability of magnesium ore but in the fact that all auto components are made in China, and the further development of the situation depends on the decisions of the Chinese leadership. PRC theoretically has the ability to manage supply, thereby influencing the global economy. This could be a new round of economic war.
How does China manipulate the raw material market?
In the first stage, Chinese manufacturers lower prices for various rare metals as much as possible, which leads to two results. Firstly, due to price reductions around the world, local production is closed – it makes no sense to produce if you can just buy in China. Secondly, the use of a specific material for various needs is growing – after all, it is widely available and at a minimal price.
At the second stage, the price of the base metal rises, which forces consumers to purchase not raw materials, but at least a semi-finished product, for example, the same alloy made in China. Thus, China first creates a market and survives competitors, and then increases the profitability of supplies. This scenario was previously worked out for the supply of lithium and rare earth metals.
Indian and the Scenario
India has vast resources of magnesium, both as seawater and as high-grade mineral deposits. Extractable dolomite deposits are widely spread across the country and estimated in 2010 at 7730 million tonnes. The total reserves/resources of Magnesite as of 2010 is estimated at about 335 million tonnes, of which reserves and remaining resources are 42 million tonnes and 293 million tonnes, respectively. But the production is meagre and is falling.
With its Pidgeon process plants, China has literally dethroned almost all electrolytic route plants in the world. Other key magnesium producing companies are located in Russia, the US, Israel, Kazakhstan, Brazil, Malaysia and South Korea.