February 12, 2021
The military coup in Myanmar is a setback for democracy in the country and introduces a new wrinkle in the trade dynamic between the U.S. and China. Last week, Myanmar’s army seized power from the civilian government and imposed a year-long state of emergency. The coup comes after decades of persecution of Rohingya Muslims in the country’s coastal region which escalated in 2017 under the previous, democratically elected leader. The U.S. imposed sanctions on the country in December of 2019 after more than 1 million Rohingya fled to Bangladesh. Since then, the U.S. and Myanmar have traded over $1 billion in goods with apparel, footwear and luggage accounting for over 70 percent of U.S. imports from the country. While last week’s coup threatens to undermine trade with the U.S., it may have broader implications for raw material supply chains in electronics, electric vehicles, wind power and other industries.
With its proximity to China’s tin-smeltering heartland—the Yunnan province—Myanmar supplies over 95 of tin concentrate imported by Chinese smelters in the region. These smelters make refined tin for circuit-board soldering. Tin mines in the southern part of Myanmar have been cut off from mining supplies coming from China and may reduce output or suspend operations. The majority of tin, however, comes from the northeast region of the country controlled by ethnic Wa militias and acts independently from the country’s central government. The Wa region also is a critical supplier of feedstock used to produce rare earth metals. 
China produced almost 60 percent of the world’s rare earth metals last year. The majority of its imported feedstock comes from Myanmar including over 70 percent of rare earth carbonate and 90 percent of rare-earth oxide (excluding cerium).  “Rare earths” are a group of 17 heavy metals used in glass, lasers, industrial processes, and electrical and electronic components. They are plentiful in the earth’s crust, but concentrated mineral deposits are sparse—hence “rare.” The Mountain Pass mine in California is the only facility producing the metals in the U.S. and once produced most of the world’s rare earth elements. In 2018, the mine resumed operations after being closed for almost two decades due to environmental issues and competition from Chinese mines. 
Magnets made with rare earth metals are the strongest permanent magnets available and used in electric vehicles, wind power generators, industrial robots and a number of defense-related applications. The U.S. and E.U. governments introduced initiatives last year to reduce reliance on China for the critical metals.  With the renewed importance of electric vehicles and wind power in the Biden-Harris Administration, the coup in Myanmar may rock the complex trade dynamics between the U.S. and China, and the quest for rare earth metals.
Mining metals for electric vehicles and renewable energy technologies faces complex economic, political, environmental and human rights challenges in other regions as well. In the Democratic Republic of Congo, cobalt mining has been linked to hazardous conditions employing thousands of children.  In South America, lithium is extracted in one of the driest places on earth using a process that requires a lot of water and consumes vast stretches of salt flats for evaporation pools. And in California, a new state government initiative was established last September to explore how best to develop lithium deposits in the deserts east of L.A. and San Diego. According to the California Energy Commission, the Salton Sea, a shallow lake in California’s Imperial County, could supply 40 percent of global lithium demand. 
The lithium found in California is extracted from naturally occurring geothermal brine, a byproduct of geothermal energy production. Lithium is separated from potassium, sodium and the other components of the brine using new ion-exchange, solvent or membrane technologies. This process eliminates the need for the vast evaporation ponds used in South America. Tesla, Berkshire Hathaway, Bill Gates’s Breakthrough Energy ventures and a number of other companies have new projects aimed at tapping lithium in the U.S. southwest.  Similar projects have been announced for geothermal brine found in Germany and the U.K. as well. 
Cobalt and lithium are key metals used in batteries for portable electronics, electric vehicles and grid energy storage, but batteries are not the only alternative power source for freight transportation. This week Hyzon Motors raised over $600 million to develop fuel-cell-powered buses, medium-duty trucks and semi-tractor-trailers. The special purpose acquisition company (SPAC) deal values Hyzon at $2.6 billion.  Hyundai, Toyota, Navistar and Nikola are all developing fuel-cell-powered trucks as well.
Fuel cells combine hydrogen and oxygen to power an electric motor (still need rare earth metals). A battery-powered truck needs time to recharge and a large number of battery cells—a constraint that has delayed Tesla’s truck due to demand for cells in its passenger vehicles. A hydrogen-fueled truck, in contrast, can refill quickly. Hydrogen can be produced using renewable energy sources (“green hydrogen”) providing a similar carbon intensity profile to battery-powered vehicles as well. One of the biggest obstacles to hydrogen in transportation is limited fueling infrastructure. There are only 42 public hydrogen filling stations in the U.S.—all but one in California. Commercial trucking operations, however, don’t need the same density of fueling stations that passenger cars need making a compelling case—at least for some investors—for hydrogen in trucking. 
Both battery-powered and fuel-cell-powered electric trucks are still early in development. By 2025, Wood Mackenzie estimates there may be as many as 54,000 on the road in the U.S., but that is less than 1 percent of the 12.5 million large trucks and buses registered in 2016.  One solution that may serve as a bridge between traditional fuels (mostly diesel) and electric is natural gas. Trucks and ships running on natural gas emit far less tailpipe greenhouse gases than traditional engines—roughly 10 percent of gasoline and diesel. 
Most natural gas is extracted from coal beds, and onshore and offshore wells. It also can be made from renewable decomposing organic matter in landfills, dairy farms and water treatment plants (“renewable natural gas”). In the U.S., there are over 800 compressed (CNG) and 55 liquid natural gas (LNG) filling stations open to the public and many more for private users.  Bunkering and port infrastructure is well established in the marine industry as well.
Given that engine technology and fueling infrastructure is available—and tailpipe emissions are lower—it’s no surprise that many truck and ship operators are switching to natural gas. Last week Amazon announced an order for more than 700 class 6 and class 8 trucks that run on the fuel.  UPS announced plans in 2019 it was buying more than 6,000—almost 5 percent of its fleet—natural gas-fueled trucks.
In the marine industry, CMA CGM took delivery last year of the world’s largest LNG container ship with a capacity of 23,000 twenty-foot equivalent units (TEUs). The company plans to operate 26 LNG-powered vessels by 2022.  Hapag-Lloyd ordered six new ships with a capacity of 23,500 TEUs in December as well.  Despite the growing demand for trucks and large container ships, however, less than 3 percent of natural gas is used for transportation in the U.S. and only 1 percent of the world’s merchant fleet currently runs on LNG.  Moreover, though tailpipe emissions are lower, methane leakage and other emissions during production contribute more to natural gas’ lifecycle emissions than combustion and for fossil-based sources it may be no better than traditional fuels. 
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 https://mpmaterials.com/; https://www.reuters.com/article/us-myanmar-politics-china-metals-explain-idUSKBN2AA12U
 https://www.woodmac.com/press-releases/us-electric-truck-sales-set-to-increase-exponentially-by-2025/; https://www.fmcsa.dot.gov/ourroads/large-trucks-and-buses-numbers
 https://theicct.org/sites/default/files/publications/Climate_implications_LNG_marinefuel_01282020.pdf; https://stats.unctad.org/handbook/MaritimeTransport/MerchantFleet.html
Supply chains are complex and dynamic. This past year delivered that message in container-ship-sized portions.To accelerate out of the pandemic and excel in the coming decade, we need better tools and processes than MRP systems developed in the 1960's.
With the climate crisis, coronavirus pandemic, trade tensions and the rising power of China... uncertainty may be the one certainty. Join us at #reConnect2021 for a fireside chat with Sam Kaplan, author of the new book "Challenging China: Smart Strategies for Dealing with China in the Xi Jinping Era," and moderator Kellen Betts. They will discuss challenges and opportunities in the international business environment, and what this shifting landscape means for global supply chains, trade and world economies.