Advanced Materials and Technologies for Light-Weight Applications

Martin Tauber of Magontec provided a critical analysis of the state of magnesium recycling with a focus on the automotive industry and its potential for magnesium recycling opportunities.

Martin Tauber of Magontec provided a critical analysis of the state of magnesium recycling with a focus on the automotive industry and its potential for magnesium recycling opportunities. "Magontec maintains a successful recycling facility in China, but the magnesium industry is an unstable market. The situation is unpredictable. Three years ago, the market was going up, there was a strong growth strategy and no one predicted a 30-50% drop in the market. There was no strategy in place to deal with that kind of drop. The industry needs to shift its perspective and view for magnesium for it to become a relevant and sustainable material for the future. We hear it many, many times but now we need to act on it as a unified industry. Magontec is looking at alternatives for the recycling of materials through End of Life Vehicles (ELV) and Post Consumer Scrap (PCS) as sources of sustainability and environmental protection in the industry.

The use of magnesium in automotive parts and components is not known to the broader public and is not established in from of a sustainable recycling loop with ELV. Overall legislative target setting is of vital importance for defining a strategy, and offers as well a chance to get magnesium positively connected with CO2 reduction and reduction of global warming.

It is necessary to have an up-to-dated set of data in form of a Life cycle analysis (LCA) and an Environment risk assessment (ERA). External target setting impacts the complete value chain of magnesium, and different positions of players, such as alloy producers and die casters, show points of conflicts, which can in the short run slow down the industry, but in the long run can also jeopardize its existence. In order to achieve a higher penetration rate of magnesium into automotive applications, the industry needs secure supply and transparent pricing throughout the value chain. By implementing new alloys, there has to be complete analyses of its potential to reach a certain economy of scale, but also to economically fit to existing casting equipment and does not make the later PCS activities more complicated.

The automotive market is the most diversified, technically challenging industry with volume, leverage that the magnesium industry needs to move forward. The current global business loss needs about a five to six-year recovery. The automotive industry will embrace magnesium as a favored metal with continued global legislation influencing production, manufacturing and consumer consumption.

As new non-Chinese capacity comes on-stream the risks to the primary magnesium supply will be alleviated. China is expected to be the largest magnesium-consuming nation by 2011. The automotive industry is among the sectors that have been hit most by the recession. The size of the automobile industry relative to overall activity is small, but because of its strong linkages with other parts of the economy, the final impact of a shock in the industry on the broader economy is sizable. European commercial vehicle production has been down 52% over the first three quarters of 2009. While in China sales of passenger vehicles more than doubled (+121%) to just under 1.1 million units in January, which was otherwise a month of lackluster sales.

Taking the sluggish performance in 2009 as a starting point, the revitalized demand in the country was above all a result of a continuing economic recovery and the Chinese government’s stimulus programs, which are still showing their effectiveness. The passenger vehicle business in India grew by almost 37% in the first month of 2010 and is also continuing to gain momentum.

The main elements of defining a strategy in the value chain of magnesium die-casting are its history, competitive environment, market, target, resources, motivation and luck. Magnesium has a strong history in aerospace and automotive components but seems lacking for its potential. This is because most drivers or users do not know about its existence.

As for resources and competitiveness, China as the number one supplier in magnesium is facing restriction on further growth due to environmental pressures and export regulations. But China will remain with a high number of installed capacity and also new types of integrated industrial concepts, which will be even more cost competitive and showing an improved ecological footprint.

The high dependence on raw materials, which are a minor portion of the production of magnesium and together with their volatility, makes it a disadvantage for the automotive industry in terms of long term pricing. This price uncertainty comes back to the alloy producer and respectively to the magnesium recycler of the process or primary scarp, who cannot absorb the price cycles, but on the other hand can also not stand in for long-term pricing agreements.

The automotive industry is among the sectors that have been most affected by the recession. Demand for cars fell sharply, accentuating the difficulties of excess production capacity already faced before the crisis and deepening the economic downturn in major car-producing countries. In 2009, the traditional production countries lost about 1/3 of their volume compared to 2007, while China gained more than 30% in both production and demand.

The automotive industry is capital intensive, with relatively high capital-to-labor ration, and in many countries a large share of the production is exported. A large number of countries have put in place scrapping schemas in response to the crisis.

Automotive markets are close to saturation in the G7 and other advanced economies, were cars per capita is likely to be relatively close to saturation and therefore future developments are likely to be driven by slow increase in car ownership per capita. The most significant fact outside the G7 states is that China shows beside a growth of production capacity as well a huge increase of market sales, and it is projected that in 2015, that China is only building half of their sold cars locally. High export countries such as Korea, Japan and Germany will remain in their position.

The increase in vehicle registration fees, environmentally motivated in Europe and driven by the need for state governments to balance their budgets in the US, added to vehicle operating costs. In recent years, production has been increasingly shifted towards non-OECD regions, in particular Asia.

Between 2000 and 2007, the share of US and Japan in global production fell from 40 – 30%, while the share of the non-OECD areas increased from producing of one car in ten to one car in five. The economical crisis may serve to reinforce and accelerate this trend.

The crucial factor for magnesium is to proactively adapt to those trends and connect to the main innovative and communicational channels. The discussions around global warming and the obligation to reduce the CO2 emission, has led to an increased public awareness and a change of attitude. In a recent study in Europe, for 58% of buyers of new cars, the CO2 emission is of relevance. The high social emotional awareness took over from factors such as power, cylinder and valves.

The association of magnesium parts in cars have always been on “light weight”, but as well connected to premium and high-powered cars. There are a number of saving potentials in up-coming car technologies, and magnesium has to connect as a main contributor in weight saving resulting into lower CO2 emission, even in the segment of smaller urban cars.

The main findings for the magnesium suppliers in serving the automotive industry are: · Pro-active connect to the CO2 reduction discussion and take a lead in weight saving · Main volume levers will be in the non-OECD countries with China in the lead · Target other segments and make magnesium a prestige part for high premium urban cars

Further main requirements for magnesium are the documentation of its environmental performance in both Life cycle analysis (LCA) and Environmental Risk Assessments (ERA).

The increase of magnesium alloys in automotive combined with the external pressure on car companies to almost complete their recycling rates, makes a sustainable PCS recycling process necessary. Because of the impurities in shredded Al/Mg fractions it is impossible to establish similar recycling loops as for HPDC alloys (High Pressure Die Casting = Class1 process scrap = primary scrap). Due to the relatively low volume ratio of magnesium in such shredded fractions, the output is used for aluminum alloying and desulphurization of steel.

Disposal of cars and light vehicles at the end at their operational lives (end of life vehicles – ELVs) reaches about 10 million within the EU, and is estimated to rise to 14m by 2015 based on pervious increased sales numbers, but also increasing weight per car.

In Europe, most of the member states have not reached their rates of reuse, recycling and recovery. Besides recycling targets, a European directive requires as well a 100% collection and transferring rate of ELVs to authorised treatment facilities.

· Export of second hand cars before they reach their end of life is an important (and possibly growing) feature of the European car market.

· The legitimate second-hand trade masks some illegal activities, such as the export of wrecked or stolen cars

· A significant number of cars in some countries are being scrapped by unlicensed operators who remove the economically desirable parts · Some cars are still abandoned rather than properly scrapped

With a very ambitious target setting in reduction of CO2 emissions and shift to alternative powertrain technologies, the light-weight necessity offers very attractive opportunities for magnesium parts.

- the a broad discussion around CO2 emission reduction - the complete assessment of its competitive position via LCA

- By 2015 the average CO2 emissions of new passenger cars should be not more than 130 g CO2/km.

- Ensure that a minimum of 85% of vehicles are reused or recovered (including energy recovery) and at least 80% must be reused or recycled from 2006. Increasing to 95% reused or recovered (including energy recovery) and 85% reused or recycled by 2015.

A large number of countries have put in place scrapping schemas in response to the crises. It’s evident that scrapping schemas can boost sales in the short-term. However, the profitability of the industry may suffer not just because excess capacity is left in place but also because demand is shifted towards low-margin segments, as many schemas mainly favour small and cheap carsthere are an enormous number of R&D capacities for the further development of magnesium, with significant shift towards China. Magontec believes that synergies from that are sufficient to fund and to grow the magnesium industry. Also, the IMA has and will play a major role in providing fruitful platforms for cooperation and development.

There will be attractive growth in “new markets to magnesium” and challenging legislative targets in traditional markets. These circumstances offer good opportunities for magnesium and its profiling as a sustainable contribution to the big picture of GWP.

It is important for both the magnesium industry as such, but also for the individual companies to shift their strategies from the “survival” mode, and to actively work on their “post-crisis” strategies.

In terms of the magnesium industry, it is transparency and information in the first place. A complete set of common data, both environmental and technical is essential to be even considered as an alternative for rival materials. This includes as well integration of new alloys into industry standards, as well as establishing of LCA and ERA for the broader audience.

Pricing of magnesium is seen as unstable and in connection with the automotive industry there is certainly a conflict in providing long-term pricing contracts for OEMs. There is the need for more integration of the Chinese pure production into the value chain. This could be realised with either downward integration into the alloy and recycling market, but also by involvement of alloy or recycling companies into pure production. A global view is essential, and would also make a more transparent documentation easier. The common shortcoming of magnesium is that there are long- existing commodity alloys, and that there has been an enormous effort in developing new alloys.

The individual approaches of magnesium producers, but also of die casters and OEMs have not yet succeeded in launching “the” new generation of magnesium alloys. Even more, a holistic view on top of chemical and mechanical properties is getting more important. Using “economical” alloying elements, taking the processablity into consideration, and making sure that recycling and post consumer profiles are competitive and sustainable.

A Shift in Strategy for the Magnesium Industry – A Global Alloy Producer and Recycler Point of View

2010-05-17