Tag: determining
Magnesium shortage in context: A real threat or just a price spike?
(This is an executive summary. The full report can be found on AutoTechInsight. See links below.)
As the automotive sector struggles to sustain production in light of semiconductor shortages, new concerns emerge around the stability of the supply for magnesium, which is key to aluminum production and is heavily sourced from Mainland China. The price of the raw material has recorded a three-fold increase when compared to pre-pandemic levels, further corroborating shortage concerns in the industry.
The issue has been raised at the governmental level at a recent EU Council held one week ago as it could have "far-reaching ramifications on entire European Union value chains". There is little doubt that a prolonged shortage of magnesium could have a devastating impact on vehicle and components production. This article analyzes why this has become an issue and whether it will trickle down to vehicle and component production.
Magnesium in automotive
Magnesium is considered the lightest material among all commonly used ones for structural applications. It is roughly one-third lighter than aluminum. It has also the property of bonding with other elements easily, which makes it difficult to find magnesium in its pure form. Automotive applications of magnesium started from racing cars, adopting the material in some components as early as the 1920s. The adoption of the material in light vehicles started with commercial vehicles.
The majority of this material is produced from natural minerals such as dolomite and magnesite and it is extracted typically through two processes, both needing high energy levels and producing high emissions levels: pidgeon process and electrolysis process (mainly used in the United States), one respectively starting from the dolomite mineral, the latter from magnesium chloride.
It must be noted that the vast majority of automotive applications comes from alloys in which magnesium is present with different levels, mainly aluminum alloys. The following aluminum series commonly used in automotive components are impacted by magnesium or silicon usage (and thus potential shortages): 5xxx, 6xxx, 7xxx, and 3xx.x.
Aluminum alloys are highly recycled within the automotive value chain, so specific attention should be paid to market demand increases for wrought alloys, which burden the minerals supply chain with additional raw materials. For the automotive value chain, an extensive amount of wrought alloy demand comes from aluminum sheets used in body construction.
Is there a shortage?
The origins of the concerns are to be found in Mainland China, which in 2020, accounted for 85% of global output of magnesium metal, in particular in the Shaanxi Province, which accounted for 63.5% of total production output with its 0.61 million metric tons. Magnesium producers in Shaanxi Province are dealing with high coal and electricity prices, and stricter "dual control" of energy consumption.
To further cut 2% of energy consumption in per capita GDP growth in the third quarter, and 3.2% in the whole year 2021, Shaanxi's Yulin city urged industrial facilities, including magnesium plants, which are categorized as high-emission units, to either completely shut down or run at 50% of production capacity in the last two weeks of the third quarter. Most magnesium plants have resumed operations since early October, but they are being asked to run at about 40% of capacity until the end of this calendar year.
This has sparked concerns, particularly in the automotive industry about an imminent shortage of material. John Mothersole, economics director at IHS Markit in the Price and Purchasing division, clarified that there is no certainty about the imminent shortage, but markets are reacting to the scale of production cuts in Mainland China and comparatively low inventory coming into the fall. "The fear that if this lasts for a few months will result into a material shortage is well placed," Mothersole explained.
There are indications that the mandated cuts in production imposed in China may soon be relaxed, perhaps as early as November. Chinese authorities have intervened in both coal and electricity markets in an attempt to alleviate the crisis. If the electricity supply begins to improve, it is likely that those mandated production cuts will be relaxed.
To date, no shortages of aluminum have been reported.
Possible long-term implications
The current energy market within Shaanxi Province and guidance provided by Yulin city officials is the determining factor for both the near-term and long-term direction of the magnesium market. The duration of production limits, as constrained by province-level grid energy demand, will become a key metric to monitor to understand pricing and supply availability of magnesium. Most plants within this province will run at 40% production capacity until the end of 2021.
Beyond the immediate next quarter of magnesium production, energy capacity investments within Shaanxi Province, relaxations in energy cuts, or changes in prioritization of energy restrictions will establish market direction for both the availability of magnesium as well as the cost basis of production. While relaxations in policy may alleviate the supply chain bottleneck of this material, the energy-intensive nature of magnesium production will not be impacted within a mid to long-term period. Substantial research and development is required for any material production to reduce energy requirements. Beyond this, there is not a clear pathway to adjust for the fact that Shaanxi Province is responsible for producing nearly 54% of the global magnesium supply.
In a worst-case scenario, extended production cuts will lead inevitably to a material shortage, as capacity outside of Greater China will not be able to make up for the shortfall in global supply. In this situation, we could see a cascade effect on the aluminum sector, although aluminum prices seem stable so far. IHS Markit, to date, does not have any confirmations about this happening, nor that the aluminum producers are concerned about this magnesium situation.
The automotive industry remains concerned about this situation, with the immediate impact of substantial input cost increases as an ominous signal that shortage is imminent. The next two months will be crucial to understand whether this will result in a journey similar to what was observed with the semiconductor shortage or is an overreaction in the metals market. In the meantime, long-term risks about supply should also be in focus.
A recent study by the US Department of Defense identified magnesium as one of the key strategic minerals for the country. Such over-reliance on China might not bode well in the context of the economic decoupling the United States is pursuing or Europe's "strategic autonomy" policy. In this context, it would be wise for OEMs and suppliers to explore some pathways to alleviate their exposure to magnesium-intensive alloys in the longer run.
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DABUS Again Denied in the US and the UK, Part III – Implications for Australia
In both the US and the UK, patent offices have refused to allow applications filed by Dr Stephen Thaler to proceed, on the basis that the named inventor – an ‘AI’ machine dubbed DABUS – is not a human being. In the first article in this series I looked at the US approach to the role of the inventor in patent law and practice, and at the recent decision of Judge Leonie M Brinkema in the United States District Court for the Eastern District of Virginia (‘EDVA’) upholding the USPTO’s decision. In the second, I discussed the split decision of the Court of Appeal of England and Wales, which upheld (by a 2-1 majority) the decisions of the UK Intellectual Property Office (UKIPO) and the High Court.
In Australia, the Patent Office also refused to allow a corresponding application by Dr Thaler to proceed. In contrast to the US and the UK, however, that decision was overturned by Justice Beach in the Federal Court. The Commissioner of Patents has now appealed that ruling to a Full Bench of the Court (case no. VID496/2021). In this article, I will be looking at the potential implications of the recent US and UK decision for the conduct and outcome of the appeal in Australia.
It should be said at the outset that the US law is very different to that of Australia, and it is therefore unlikely that anything in Judge Brinkema’s legal reasoning will be influential upon the Full Court. It has also become apparent through the UK High Court and Court of Appeal decisions that while the UK law shares some similarities with the corresponding provisions of the Australian Patents Act 1990, there are also some significant differences. Even so, there are aspects of the reasoning of Lord Justice Arnold in the Court of Appeal that the Australian appeals court may consider persuasive, and that could therefore influence the outcome here.
There are two key questions likely to be addressed in the appeal, both of which also arose in the UK, although only the first received substantive attention in the US. These are:
- Can DABUS, as an ‘AI’ machine and not a human being, validly be named as an inventor on a patent application?
- Can Dr Thaler, not being (at his own insistence) the inventor, establish a proper legal basis for entitlement to the grant of patents on inventions said to be generated by DABUS?
I shall look at each of these questions in turn.
Read more »DABUS Again Denied in the US and the UK, Part II – the Split Decision in the UK
In the first article in this series I looked at the US approach to the role of the inventor in patent law and practice, and at the recent decision of Judge Leonie M Brinkema in the United States District Court for the Eastern District of Virginia (‘EDVA’) upholding the USPTO’s decision to refuse two patent applications on the basis that the ‘AI’ machine DABUS is not a human being and therefore cannot be an inventor under US law (Stephen Thaler v Andrew Hirshfeld and the US Patent and Trademark Office, Mem. Op. [PDF 998kB]). In this article, I shall turn my attention to the split decision of the Court of Appeal of England and Wales in Thaler v Comptroller General of Patents Trade Marks And Designs [2021] EWCA Civ 1374, in which parallel efforts to name DABUS as an inventor have also been rejected, with Thaler’s appeal being dismissed despite a weighty dissent by Lord Justice Birss.
The issues in the UK case are somewhat different, and more nuanced, than in the US. While all three judges on the Court of Appeal agreed that an ‘inventor’ under the UK law must be a human being, the fact that DABUS is a machine was not immediately determinative of the outcome. An inventor is not required to play any active role in the filing, prosecution, or grant of a patent in the UK, so arguably there remains a question as to whether an application can be permitted to proceed even if a legally valid inventor has not been – or cannot be – named. In the event, the answer to this question turned on whether or not the applicant (i.e. Dr Thaler) could satisfy statutory requirements to name the inventor, and to indicate how he is entitled to be granted patents on inventions that he did not claim to have devised himself.
Lord Justice Arnold and Lord Justice Birss disagreed on the outcome, with the tie being broken by Lady Justice Elisabeth Laing, agreeing with Arnold LJ that the DABUS applications should be deemed withdrawn.
Arnold LJ is the preeminent patent law specialist on the Court of Appeal. He was elevated to the Court of Appeal in 2019, after being appointed to the High Court in 2008, and as Judge in Charge of the Patents Court in April 2013. In March 2016 he was appointed as an External Member of the Enlarged Board of Appeal of the European Patent Office. Impressive as this is, however, Birss LJ is no lightweight. In 2010 he was appointed as a Specialist Circuit Judge sitting in what was then the Patents County Court. In 2013 he was appointed to the High Court, and in 2019 he filled the place formerly held by Arnold LJ as Judge in Charge of the Patents Court, before being elevated to the Court of Appeal in January 2021.
So this is a case in which the dissenting judgment must be taken seriously, especially with the possibility still open of an appeal to the Supreme Court. But for now, at least, the balance of the law remains against DABUS in the UK.
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