Raw materials: Heading for a global resource crunch?

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This article is part of our special report Raw Materials.

With the world's population growing and industrialisation rising, competition for raw materials is intensifying, raising concerns about access to key natural resources for European industry.

Background

EU industries, and particularly those active in telecoms, aerospace and other hi-tech sectors, are facing fierce competition for natural resources from emerging economies. 

China and India for instance are increasingly using raw materials from Africa and Latin America, which are home to some of Earth's largest reserves of minerals and metals.

According to the European Parliament, the price of non-fuel commodities rose by 159% between 2002 and 2008, metal and mineral prices by 285% and agricultural raw material prices by 133%.

As a response, in November 2008, the European Commission presented a new 'integrated strategy' for raw materials (EURACTIV 05/11/08). 

The proposed strategy suggested three pillars in its policy responses to those challenges, which could pose a threat to the competitiveness of European industry:

  • Better and undistorted access to raw materials on world markets
  • Improved conditions for raw materials extraction within Europe, and; 
  • Reducing the EU's consumption of raw materials by increasing resource efficiency and recycling  (see EURACTIV LinksDossier).

Another related component of the EU's response is the sustainable consumption and production action plan, launched in 2008 (see EURACTIV LinksDossier).

Issues

Resource scarcity

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.

Positions

The European Commission's proposed strategy was supported by EU industry ministers in May 2009, but they said further steps were needed before it can be finalised (EURACTIV 04/06/09).

"Reducing energy consumption and the use of raw materials, removing trade barriers to improve the supply of raw materials, improving energy- and resource-efficiency and achieving a greater use of renewable energy sources and secondary raw materials should be the guiding principles for European industry," the ministers said in their conclusions on the proposed strategy.

"The European economy is dependent on a number of energy and non-energy raw materials," the ministers said, adding that achieving a "resource-efficient economy should be a guiding principle for European industrial policy".

In a May 2008 resolution, the European Parliament said it was "concerned about the trend to restrict free access to raw materials in third countries" but also recognised "the right of countries to restrict access to their raw materials for environmental purposes or to address critical shortages of supply when necessary".

Noting that 95 of 141 developing countries derive at least 50% of their export earnings from commodity exports, the Parliament said it regretted that many developing countries have been "locked into the production and export of raw materials and commodities". But it also underlined "the opportunities" for producer countries in their own exploitation of raw materials "when fundamental rules of transparency and fair competition are respected".

MEPs pointed out that China's raw materials policy in Africa "is having a major and negative impact on global security of access to commodities" and stressed "the need to overcome the current approach based on one-to-one relations between states and neglecting references to human rights, corporate social responsibility and environmental and social standards, in favour of a multilateral approach based on the criteria of sufficiency and sustainability of resource use".

In its resolution, the Parliament said that raw materials and commodities should be understood in broad terms as encompassing "agricultural food products, agricultural primary commodities, metals, minerals and energy products, which serve as input in the industrial process, whether processed, unprocessed, or recycling products such as scrap".

BusinessEurope, the EU employers’ lobby, stresses that raw materials are becoming "more relevant for trade policy". In a letter to EU Trade Commissioner Karel De Gucht, the group warned that Europe’s competitors were increasingly "pursuing strategic policies to secure access to raw materials at our expense," adding that this was "in particular the case for highly specialised raw materials needed for green technologies such as rare earths or lithium". 

Citing China’s "rush for raw materials in Africa," where it said companies operate "without financial constraints" and are "backed by state subsidies," BusinessEurope said a key task for Europe’s trade policy was to "actively pursue raw materials diplomacy with resource-holding countries in Africa".

To combat soaring consumption of natural resources, the World Resources Forum  (WRF) is calling for a global strategy to frame a new economic model that would directly tax raw materials instead of products and labour.

Adjusting the fiscal framework is "the most fundamental and urgent pre-requisite for approaching a sustainable future," the WRF stated, saying this would have the "side effect of creating new jobs and redistributing income to developing countries where many of the resources come from".

Going even further, the declaration suggests that instead of applying VAT to final products, "it may be more effective to tax natural resources at the point at which they are removed from nature or where they enter the industrial metabolism". 

Friends of the Earth Europe  (FoEE), an environmental NGO, has expressed "severe concerns" about the European Commission's raw materials initiative, saying it "will have a detrimental effect on the environment and developing countries".

FoEE pointed to "fundamental contradictions" in the EU’s proposed strategy which, on the one hand, reiterates the need for increased resource efficiency and recycling of raw materials and on the other, spells out "aggressive plans to grab other countries' resources". 

Environmentalists said they are "particularly concerned that the proposals challenge other countries' rights to restrict trade on environmental grounds and their ability to process raw materials themselves". According to Friends of the Earth Europe, "the proposals aimed at improving the EU's 'security of supply' of raw materials succumb to the selfish interests of Europe's industries and are at odds with the long-term sustainability of the natural resources sector".

Michael Warhurst of FoEE deplored that Europe "has no targets" for reducing resource use, while "new policies are not assessed for their potential to increase our resource efficiency". 

In a joint report with the Sustainable Europe Research Institute, FoEE is calling on the EU to measure its resource use and adopt new policies, such as higher recycling targets, to increase resource efficiency.

They suggest that Europe should measure its use of materials in particular, but also its land and water use and greenhouse gas emissions, taking account of the impact of Europe's consumption on the rest of the world in terms of imported resources.

Non-metallic extractive industries have been actively promoting their image at European level. The minerals industry group IMA Europe says mineral rocks such as calcium carbonates, dolomite, borates, diatomite, kaolin, plastic clays, bentonite, feldspar, silica and talc are "of fundamental strategic importance" to EU industry. 

The automobile, aerospace, telecoms and construction sector for example all rely on industrial minerals that have a wide range of applications, including paint, electronics, metal casting and foundry, says IMA Europe. Industrial minerals are usually transformed into everyday goods, from glass and ceramics (up to 99% of IM) to paper (up to 30% of talc, bentonite, kaolin and calcium carbonate).

But, unlike other mining sectors, non-metallic extractive industries and their markets are largely self-sufficient, says IMA Europe. It therefore warns that regulating the use of natural resources may lead to serious unwanted side effects, such as the disruption of the free market.

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