The 2020s will be remembered as one of the most turbulent periods for the global car industry. First, we had a significant technology shift and massive push towards electric and plug-in hybrid vehicles that shook the foundations of the industry as we know it. Furthermore, the Covid-19 pandemic threatened to shut down the market and caused numerous shortages and supply delays. Recently, the Russo-Ukrainian war and Western sanctions will significantly lower the global production output, especially in Europe.
Unfortunately, this is not the end of the car industry’s problems. The latest issue which affects car manufacturing comes in the form of a magnesium shortage. But is this just a temporary problem that could disappear as fast as it came? Or are we looking at a problem of the same proportion as the semiconductor chip shortage?
Even though it is not mentioned as often as steel, automotive experts know that magnesium is a very important element in car construction processes. Its main purpose is the production of aluminum. Due to its extraordinary lightness and stiffness, this material is used to manufacture various alloys, engine blocks, rotating components, suspension parts, brackets, axles, and much more. Knowing this, the magnesium shortage threatens all aspects in a vehicle’s production process.
China is by far the biggest magnesium producer in the world. Currently, over 85% of all magnesium comes from China, and more than 54% even comes from the city of Yulin in the Shaanxi Province. It is estimated that there are over 50 facilities in the area of Yulin that mine and produce magnesium for domestic purposes and international customers. Those percentages translate to over 900,000 metric tonnes of pure magnesium every year. The material is then shipped to numerous companies all over the world, with European car manufacturers being the biggest consumers of Chinese magnesium. However, China is not the only producer, and the United States, Russia, Kazakhstan, Israel and Ukraine are also known for magnesium mines.
Instinctively, we tend to think that the Covid-19 pandemic and recent outbreaks in China are causing magnesium shortages, but the actual source of this problem is quite different.
The Chinese government directly causes the deficiency in a bid to reduce emissions and energy dependency, and save the environment. Local governments realized that magnesium production requires tremendous amounts of electric energy, which participates in greenhouse emissions and national pollution levels. Around 40 MWh of electric energy is needed to produce one tonne of magnesium. China as a country is actively looking for alternate power sources and sustainable solutions for its vast industrial complexes. Therefore, the government ordered all magnesium-producing facilities to reduce their output to 40% of full capacity, in what is called “an active experiment”. This decision was first implemented in mid-2021 in a limited number of factories. Since then, it has affected the whole area of Yulin, which is known for its dominant output of magnesium. In the entire region of Shaanxi, 35 magnesium plants were closed during 2021 to reduce carbon dioxide emissions.
The shortage is also affected by the Russo-Ukrainian conflict, as both countries also mine magnesium, however on a much smaller scale than China. But, due to Western sanctions on Russia and the Ukrainian inability to produce and export magnesium abroad, even the absence of their smaller supplies significantly add to the global lack of this material.
While we cannot blame China for trying to make its industry more sustainable and environmentally friendly, this move could be considered a bit conspicuous, according to economic analysts. Even though they rely heavily on export markets, Chinese magnesium suppliers never offered a clear explanation or alternative to their international partners.
Some analysts suspect that the Chinese government is deliberately limiting the output of their factories, which remains sufficient for domestic needs but not for export, at least not at the previously established rate. They believe that this move was actually intended to set a higher price for international buyers, rather than wanting a cleaner environment. The limited production and shutdown of the magnesium plants immediately resulted in rising prices on the stock market. In early 2021, magnesium was priced at $2,800 per tonne, and in just a few months time, it has risen to $4,500 per tonne with the prospect to go even higher. Higher prices of raw materials result in higher production costs and more expensive final products.
At the moment, European car brands with factories in China are affected the most by this decision, as they are exclusively dependable on Chinese magnesium, and the shortage of it means that production predicaments are in danger. Some manufacturing experts claim that this is more severe than the ongoing semiconductor chip shortage.
Since the Chinese suppliers have no concrete propositions for European and global car companies, nor does it look like the production will ramp up soon, car manufacturers are forced to look for alternatives.
The first alternative comes in importing aluminum from other countries like the United States. American magnesium, at the moment, is mostly covering the domestic industry, but with investments in production facilities, it could also help Europe with reaching its goals. Of course, it would take a few years and considerable investments to replace China as the primary source.
The second alternative is investing in magnesium recycling plants. Magnesium recycling is not a common topic, but the process is relatively simple and uses significantly less energy. At the moment, there is a magnesium recycling plant in Romania with a capacity of 7,000 tonnes per year. It is not much compared to the amount Europe annually needs, which is over 100,000 tonnes, but it’s a start.
The car industry is facing yet another challenge with the magnesium shortage, a crucial element for making cars. Nearly all of the world’s magnesium comes from China and the shortage stems from the government’s decision to look for environmentally friendly power sources. As magnesium production requires a lot of energy, production in factories has tempered as part of an active experiment. However, many analysts are wary, as they suspect the decision is aimed at raising the prices for non-domestic buyers. It’s feared that the impact could be even more harmful and long-lasting than the ongoing semiconductor chip shortage.