With the world's population expanding rapidly and industrialisation taking hold in new corners of the globe, competition for raw materials is intensifying, triggering concerns about resource scarcity and the environmental 'footprint' of the planet's population (EURACTIV 29/10/08).
The 2008 Living Planet Report, by the Global Footprint Network, WWF and the Zoological Society of London, said growing populations are putting so much pressure on Earth's natural resources that two planets will be required by the early 2030s if current lifestyles are to be maintained (EURACTIV 25/09/09).
Considering the uneven distribution of natural resources, the report suggest that most nations have become ecological debtors, covering their excess demand by importing resources from other countries.
In the EU, the total ecological footprint is twice the size of the region's biocapacity, with the UK and Spain, for example, running ecological deficits greater than 150%.
Critical list of raw materials
This surging demand for raw materials has put unprecedented pressure on commodity prices, and has in some cases led to concerns over their availability.
"A strong and unforeseen surge in demand, essentially driven by strong growth in emerging economies, led to a tripling of metal prices between 2002 and 2008," the Commission underlined in its 2008 raw materials initiative.
"In particular, China accounted for more than 50% of the growth in world consumption of industrial metals between 2002 and 2005."
In addition, geographical distribution of natural resources is uneven across the globe, with extraction activities often limited to a number of countries which sometimes lack political and economic stability, the Commission said.
High-tech raw materials are of particular concern as they are increasingly the basis of innovative 'green technologies' associated with renewable energy and the reduction of greenhouse gases, the Commission pointed out.
For example, China produces 95% of all rare earth concentrates (needed for hand-held consumer electronics, LCD displays and high performance magnets), Brazil 90% of all niobium (needed for steel alloys in gas pipelines and super alloys in high-performance jet aircraft) and South Africa produces 79% of all rhodium (needed for car catalysts), the Commission said.
The EU executive's 2008 assessment contained a preliminary list of twenty raw materials considered to be potentially critical for the EU economy. These include niobium, platinum and titanium (see annex of Commission's raw materials initiative).
Platinum and palladium, for instance, are used in the fuel cells that power hydrogen cars, while silicon, gallium and silver are used in solar cells. Cu-Indium-Gallium-Selenium (CIGS) alloys are used in 'thin-film' photovoltaic technology for solar cells. Indium is used to manufacture microprocessors and the next generation of ultra-small RFID chips, which can be embedded in all sorts of consumer products.
A 2008 report by the US National Research Council listed five non-energy raw materials considered to be 'highly critical': indium, manganese, niobium, rare earths and the platinum group metals.
A French study identified short to medium-term risks to supply of a number of materials: antimony, chromite, cobalt, germanium, gallium, indium, lithium, magnesium, molybdenum, platinum, palladium, rhodium, rare earths, rhenium, titanium and tungsten.
The Commission said the list could be expanded to take in five more materials (chromite, manganese, niobium, tantalum and vanadium) targeted by the US report and Japanese stockpiling policy, "and for which there is a high degree of concentration of producing countries".
EU to test raw materials' 'criticality'
At the invitation of EU industry ministers, an expert group was set up by the European Commission to refine the draft list. In December 2009, the group expanded the list to include nineteen new substances, bringing the total to thirty-nine (EURACTIV 01/12/09).
A first batch of raw materials – cobalt, lithium and rare earths – was examined by the group during its first meeting in November 2009, with the objective of testing the Commission's proposed methodology on the raw materials' level of 'criticality'. The expert group has already identified three types of risk:
Import risk, where raw materials are imported from a politically instable region or from a country where the market economy does not work. "That is relatively easy to do as the World Bank has put together governance indexes which measure the political and economic stability index of countries," said an EU official, speaking on condition of anonymity because the methodology is still being adjusted.
Production risk within the EU, with potential problems such as land access. "If we are in a country for example where the population density is very high, where urbanisation is very high, obviously access will be weak," the EU official said.
Environmental risk, based on indicators such as air or soil pollution, where the impact of raw materials use is measured from an environmental point of view. "This is innovative compared to other studies," the EU official said. "We have just launched a life-cycle analysis to determine what the environmental impact is for each raw material in terms of exploitation, use, treatment, recycling, etc., for air or soil pollution as well as emissions of greenhouse gases."
The three types of indicator are then aggregated to determine risk. "For example, a given raw material may be used in 40% by the automotive sector and 30% by the aerospace sector," the official said. "And so we can utilise these percentages to aggregate the economic importance of these raw materials for the sectors that use them."
"The economic importance will be determined either by the employment or the added value of the sector," the official said.
A key factor will be whether or not the raw material can be easily substituted. "If it can be substituted in full by another raw material, in this case of course the risk is easy to avoid," the official explained.
Concern over Chinese rare earths
Of particular worry to Europeans are rare earths, collections of metals and elements found in a wide range of gadgets and consumer goods, including batteries used in electric cars.
Among the rare earths where shortages are likely is neodymium. Neodymium is the key component of an alloy used to make the high-power, lightweight magnets used in electric motors of hybrid cars, such as the Prius, Honda Insight and Ford Focus, as well as in generators for wind turbines, Reuters reported.
The problem is that 95% of global production and about 60% of consumption currently originates from China, according to the US geological survey. "We have already identified access difficulties, with China obviously being one of the countries where we have identified access difficulties," said the EU official, speaking on condition of anonymity.
Some rare earths can be found in Europe, the official added, saying geological information is "relatively precise" on this point. "So this is very important to know because if we find that rare earths are critical and that there is an import risk from China, then there is a first recommendation that goes without saying: let us try to exploit these earths in Europe if that is possible."
However, they may be located close to urban areas, complicating their exploitation by the mining industry. Moreover, there is no comprehensive geological map of Europe available yet, making predictions more difficult.
Raw materials 'diplomacy': EU-China trade disputes
Discussing the Commission's proposal in May 2009, European ministers in charge of industry called for an EU "raw materials diplomacy," and invited the EU executive to "reinforce the dialogue with all relevant third countries and raise the issue in all appropriate trade and other fora".
Shortly afterwards on 23 June, the United States and the EU filed a complaint with the World Trade Organisation (WTO), accusing Beijing of unfairly favouring its steel, chemicals and other industries by restricting access to nine types of key raw materials, despite a pledge to eliminate export taxes and charges made when it joined the WTO in 2001 (EURACTIV 24/06/09).
According to the European Commission, China imposes "quantitative restrictions on the export of bauxite, coke, fluorspar, silicon carbide and zinc," increasing supply issues for Europe's industries. Products concerned are used by the steel, aluminium and chemical industries, the Commission said, and serve a multitude of sectors, including the automotive sector, which has been hit badly by the economic recession.
This hurts foreign "downstream producers" of goods, such as aluminium producers and steelworkers, since the export restraints limit their access to raw materials and raise world market prices for the materials while lowering the prices that domestic Chinese producers have to pay, US officials said.
In September 2009, Chinese media reported that Beijing would start applying quotas on exports of rare earths and other exotic metals of which it is the only major supplier, citing environmental reasons.
Other major suppliers of rare earths include the United States, but it has become dependent on Chinese imports because production prices there are lower, according to the US geological survey.
Scrap metal: Waste or usable product?
In Germany, the EU's largest exporter of manufactured goods, enterprises have already warned of a looming raw materials gap, singling out scrap metal as an issue.
Ulrich Grillo, chairman of the commodities group at BDI, the German business lobby, said China alone restricted trade of raw materials and semi-finished products with some 373 export duties (EURACTIV 26/08/09).
Grillo, who is also chief executive of German zinc producer Grillo-Werke, said China planned to refund value added tax on imports of scrap metal from 2010. When China made such refunds in the past, they had a "vacuum cleaner impact on the scrap market and sucked the world scrap metal market empty," he said, according to Reuters.
Germany needed such scrap metal as about 50% of German metal production involved scrap, Grillo said. European exports of secondary raw materials had risen strongly in past years, he said. "Such exports are often illegal," he said. "Waste is often exported as usable goods or false declarations of material type are made."
"The central problem is the boundary between waste and usable products."
Under half of automobiles sent for scrap in Germany were recycled into metal, he said. He estimated that 40% of German automobiles sent for scrap were sent abroad without notification as exports.
Over a third of global steel production now comes from recycled scrap material, but recycling rates vary a lot across the globe, according to a report by the WorldWatch Institute (EURACTIV 7/09/09).
Michael Renner, senior researcher at the institute, explains that rapid growth of the Chinese economy has pulled up production since the late 1990s and that China's steel production "skyrocketed from 66 million tons in 1990 to 500 million tons in 2008, accounting for 38% of the world's total".
Recycled steel currently amounts to some 35% of total steel output and is said to save up to 75% of the energy needed to produce virgin steel.
Concentration in the mining industry
German industry was also worried about the increasing concentration of global commodities supplies in the hands of a small number of powerful companies, such as the iron ore joint venture formed in June by mining giants Rio Tinto and BHP Billiton.
There was also concern about increasing Chinese purchases of shareholdings in nickel mines in Canada and South America.
The BDI's Grillo called for greater political attention to be paid to European commodity supplies. Germany and the European Union should develop a unified commodities strategy involving more energetic action to tackle international trade distortions which disrupt commodity trade, he said, according to Reuters.