Raw material price increases
In 2012, the price of iron needed for steel production, copper for windings and rotors, as well as aluminum and other metals, all recovered from the global recession and returned to levels that resemble historical price increases. The cost of raw materials plays a significant role in ASPs, as an estimated 65% of the production cost of a LV motor is attributed to raw material costs. With the ongoing efficiency transitions to IE2 and IE3 occurring, which require higher grade steel and in some cases more copper, this production cost percentage is expected to rise significantly.
It is interesting to note that there exists a fundamental market reality that these legislative actions require all manufacturers in a particular region to produce a motor that meets the same mandated efficiency rating, regardless of proprietary design. With the same efficiency standard being a common goal in any respective region, manufacturers are limited in how they can differentiate their respective IE2 and IE3 motor products and must rely heavily on price competition. Moderate to intense price competition among suppliers is likely to ensue immediately after legislation comes into effect.
Copper
Copper windings are used in all motors regardless of efficiency class as this raw material contributes a significant portion of the total production cost of the motor. Copper is an excellent conductor of electrical current. Copper prices per metric ton more than doubled from 2005 to 2008. By mid-2013 the price of raw copper stabilized to an estimated $3.20 per pound or $7,045 per metric ton from a high of $4.50 per pound, or $9,907 per metric ton in 2011. At certain horsepower (HP) ratings an IE3/NEMA Premium motor may have more (or less) copper than the equivalent HP IE2/EPAct motor, and vice-versa. The relationship between copper content and HP is not linear within a defined efficiency class, nor is the relationship linear when comparing the copper content between efficiency classes. For example, at certain HP ratings an IE3 motor will have more copper than an IE2 motor of the same HP; likewise, an IE2 motor may have more copper than an IE3 motor of the same HP.
Proprietary designs of high efficiency LV motors will often use a balance of copper and high grade steel to achieve a certain efficiency level. This balance differs between manufacturers, and even year to year in a motor’s design. The balance between copper and steel content varies, and is strongly tied to favorable raw materials pricing at the time of production.
Aluminum
Most steel or iron enclosed motors use aluminum rotors. However, motors with aluminum enclosures represent a very small share of the global LV motors market. Aluminum prices increased by 40-50% from 2005 to 2008 before plummeting during the recession and, though they did not recover to their pre-recession levels at the end of 2010, they continue to steadily increase and tend towards levels indicated by historical price increases. Aluminum enclosures are custom made for application-specific purposes where high efficiency and a small form factor are desirable.
Because aluminum is a softer metal than iron or steel, the large amounts of torque produced inside aluminum enclosures could literally rip the motor frame apart, so these motors are normally relegated to smaller frame sizes with low HP. IHS expects that aluminum enclosures on LV motors will continue to represent a small niche market and are unlikely to be off-the-shelf, mass- produced motors kept in stock in significant volumes.
High grade steel
Steel (iron ore and carbon) enclosures represent the overwhelming majority of LV motor enclosures currently being produced. Higher quality steel is essential to maximize electrical conductivity within the motor itself, allowing a higher efficiency level to be achieved. Because of the need for higher quality steel, the bill of materials cost of an IE1 LV motor will be less than the cost of an IE2 LV motor, and likewise, considerably less than the cost to produce an IE3 LV motor. Steel producers are keenly aware of the efficiency mandates coming into play in various regions, which will result in increased demand for the higher quality steel needed to produce IE2 LV motors in Western Europe, Brazil, and China. This dynamic will be further escalated in 2015 and 2017 in the EU, when the IE3 transition comes into effect. There are significant differences between the form factors of IE1 and IE2 and IE3 motors of equal power ratings. A stand-alone comparison of a motor with its next higher level of efficiency counterpart is usually a 25-30% commercial cost increase. An obvious difference when comparing all three efficiency classes of LV motors is increased weight due to the denser, heavier steel and increased number of laminations found in the rotor.
The production of raw stainless steel requires additional costs for steel manufacturers, as stainless steel enclosures, sometimes referred to as washdown motors, justify significantly higher costs than a normal steel enclosure. Stainless steel enclosures are much preferred in controlled environments because of their inherent ability to not add contaminants (e.g. paint chips from the motor’s coating, rust particles, etc.) to consumables. IHS believes that the demand for stainless steel enclosures will increase in industry sectors where strict quality controlled contamination-free environments are required, including food and beverage processing and handling, pharmaceuticals, and pure grade chemical production.
Dysprosium
Dysprosium (Dy) is never found in nature as a free element, though it is found in various minerals, such as xenotime, fergusonite, gadolinite, euxenite, polycrase, blomstrandine, monazite and bastnäsite. Dysprosium is an essential compound for making control rods for nuclear reactors. Currently, most dysprosium is being mined from the clay ores of Southern China. Future sources include the Halls Creek region of Western Australia and the newly opened facility in Kuantan, Malaysia. In neodymium and samarium cobalt magnets, dysprosium accounts for 5-7% of the active material and is responsible for the magnet’s high heat tolerance. It is possible to reduce dysprosium’s share of the magnet’s composition to 2-3%, but this would result in the magnet having a lower heat threshold.
China’s strong position in the rare earth mineral (REM) market and its careful control of its domestic supply and export quotas could mean that dysprosium shortages on a global scale are eminent. This is expected to result in design challenges for PM motor manufacturers. This has caused some IE4 motor manufacturers that rely on neodymium supply to take a second look at samarium cobalt (SmCO5) designs. Toshiba Corporation introduced dysprosium-free samarium cobalt-based IE4 motors into the Japanese
market in late 2012 with great success. Revenues for Toshiba’s IE4 motor neared $30 million in 2013, the first year in the Japanese LV motor marketplace.
Neodymium
China is the leading producer of neodymium (NdFeB) magnets and currently accounts for 97% of the world’s current production. Although the raw material monazite & bastnäsite ores exist almost everywhere in the world, China has a huge logistical advantage in that the country can locally mine the rare earth minerals (REMs) including neodymium and dysprosium, and locally process them into magnets resulting in abnormally low production costs for an expensive raw material and expensive manufacturing process. Should other countries mine these REMs, they must still rely on a third party (China) to process the minerals, which then nullifies any production advantage gained. In addition, China has a tremendous head-start in this market, as it has been producing large amounts of REMs for the last decade. Neodymium is not only important for producing high powered magnets for IE4 LV motors. The compound is essential in many consumer electronic products, especially audio speakers, headphones, and ear buds. Sintered neodymium magnets are also produced in Japan.
In 2009, China exported an estimated 21.5k metric tons of neodymium magnets. In July 2010, China’s Ministry of Commerce announced plans to cut export quotas for REMs, including neodymium and dysprosium, by over 70% during the second half of 2010. In August 2010, two of China’s largest state-owned REM mining companies announced the creation of a unified pricing system that intends to give China greater control over the availability and supply of domestically produced REMs, including those needed to make neodymium. This bureaucracy was created in order to prevent hoarding of REMs and to limit speculators from adding volatility to the market. During 2010, China reduced its exports of neodymium magnets further to just over 15k metric tons. In 2011, the export cap was raised to 16k metric tons. In 2012, it was raised slightly, to just over 16k metric tons.
To give perspective, in 2012, China produced an estimated 80k metric tons of sintered neodymium magnets. A joint venture between Molycorp/Molyquench and Hitachi Metals will open an REM mining operation in North Carolina, US. It is estimated that it will be 5-7 years before this operation can produce 500 metric tons of REMs (not necessarily just neodymium and dysprosium). However, due to the global mining slowdown in 2013, the planned opening of the North Carolina REM mining operation has been delayed.
The US Department of Energy has estimated that 28k metric tons of neodymium magnets will be needed in the US alone for not only LV industrial and commercial motors, but consumer electronics and other applications that are dependent on these magnets. IHS estimates that by 2015, over 400 companies in China will be producing neodymium magnets. At this time, it is estimated that China will still produce 80% of the global neodymium magnet supply. As is mentioned in Chapter 5, the Chinese Government is also offering rebates for using IE4 PM motors, which contain neodymium magnets.
To a much smaller extent, neodymium mining also occurs in Canada, Brazil, Russia, Ukraine, India, Sri Lanka, and Australia. The actions of the Chinese Government concerning this specific compound, has caused an increase in neodymium composite mining operations throughout the world. However, it will be quite some time before REM mines in these regions will be able to enter the global supply chain in a significant way. Recently, Lynus Corporation, Ltd., an Australian REM mining company opened a refining facility in Kuantan, Malaysia. The refining facility entered production in 2013, producing 1,089 tons of rare earth oxides in the first quarter of 2014, with a target of 11,000 tons per annum.