LONDON, Sept 12 (Reuters) - How can the West break its

dependency on China for rare earth magnets?

The question has taken on new urgency after China restricted

exports earlier this year, sending shockwaves through Western

manufacturing chains.

The race to build domestic mine-to-magnet supply chains has

accelerated, particularly in the United States, where the

Department of Defense is taking a direct stake in MP Materials ( MP )

, operator of the country's only rare earths mine, and

guaranteeing a floor price for its products.

But part of the solution is lying in plain sight all around

us in the form of old laptops, power tools and smartphones.

Given the criticality of rare earths in today's high-tech

world, it's astonishing that less than 1% are recycled.

That may be about to change.

TECHNICAL BREAKTHROUGHS

The low recycling rate reflects a combination of

technological and economic challenges.

Dismantling magnet motors, removing the rare earths and

reprocessing them can be both manually and energy intensive. The

concentration of rare earth elements in the final product is

often so low that it is simply not worth it.

Automotive shredders, for example, will strip copper and

aluminium out of end-of-life vehicles but the rare earth magnets

end up in a steel mill, where they are lost to slag destined for

landfill.

Several companies, however, seem to have cracked the problem

using an array of technologies.

Canada's Cyclic Materials announced in June a $25-million

investment in a recycling facility in Ontario to convert 500

metric tons per year of magnet-rich feed-stock into mixed rare

earth oxide.

Cyclic has signed deals for the supply of end-of-life motors

with Lime, the company behind the ubiquitous shared e-bike, and

SYNETIQ, the UK's leading automotive salvage operator.

Proprietary dismantling and processing technologies recover

not just the rare earths but all the other metals such as

copper, which will be sent to Glencore's ( GLCNF ) Horne smelter

in Quebec for refining back into cathode.

American Resources Corp's ( AREC ) ReElement Technologies

division is pioneering the use of chromatography to separate

metals from both rare earth magnets and end-of-life lithium-ion

batteries at its plant in Indiana.

The company, which has this month been awarded a $2-million

grant from the Department of Defense, claims its technology uses

75% less energy and generates 70% less carbon emissions than

existing recycling processes.

A multi-party collaboration, including Western Digital ( WDC )

, Microsoft ( MSFT ) and Critical Materials Recycling,

has piloted acid-free dissolution technology developed by the

Department of Energy's Critical Materials Innovation Hub to

recover rare earths from hard drives collected from Microsoft ( MSFT )

data centers.

MP Materials ( MP ) itself is branching into the rare earths

recycling business via a $500-million tie-up with Apple ( AAPL )

.

MAGNET POWER

This recycling revolution is only now starting to transition

from pilot to commercial-scale operations.

But the new technology comes with a much lower price tag

than new mines and primary processing plants. It can also

deliver units faster.

Moreover, if the West wants to break free of China's rare

earths chokehold, it will need both primary and secondary supply

streams to have a hope of catching up with booming demand from

the clean energy sector.

Internal combustion vehicles need only a handful of small

magnet motors for ancillary functions such as sensors and audio

systems. But permanent magnets are core components for most

electric and hybrid vehicles, translating into a five-fold

increase in rare earth requirements.

Rare earth magnets are also critical inputs for wind

turbines, a sector that has been super-charged by the shift to

renewable energy.

Global demand for permanent magnets is expected to triple

over the next decade, according to consultancy McKinsey.

Usage of core magnet rare earth elements - neodymium,

praseodymium, dysprosium and terbium - is forecast to grow from

59,000 tons in 2022 to 176,000 tons in 2035.

TAPPING THE URBAN MINE

On the basis of the currently announced project pipeline,

magnet rare earths supply is set to fall short of demand by

60,000 tons, or roughly 30% of usage, in 2035, according to

McKinsey.

The caveat is that this assessment excludes China, which

doesn't issue forecasts and regulates rare earths production via

quotas.

Even though the West is trying to loosen China's rare earths

grip, McKinsey sees only a gradual diversification of supply,

warning "current pipelines and trajectories are likely to fall

short over the next five to ten years".

Which leaves China as the most likely player to fill any

global supply shortfall, extending the West's rare earths

dilemma into the next decade.

Scrap could be an important lever in the global balance of

rare earths power. McKinsey expects the scrap pool both to keep

accumulating and to shift from smaller magnets in electronic

devices to larger magnets in electric vehicles and wind

turbines.

By 2035 the rare earth value stream could generate 40,000

tons of pre-consumer scrap and 41,000 tons of post-consumer

scrap. The former will mostly reside in China, the world's

largest processor, but the latter will be widely geographically

distributed.

Tapping that urban mine would both help the West meet

burgeoning demand and build out domestic supply chains.

Indeed, to quote McKinsey, "powering the energy transition's

motor begins with understanding scrap pools" and the technology

to exploit them.

The race to do so is now on.

The opinions expressed here are those of the author, a

columnist for Reuters.

(Editing by Helen Popper

)