The criticality of raw materials
Raw materials: Are they truly scarce?
28 February 2011
The EU should not restrict itself to China-bashing over rare earth supplies and instead focus on access to all raw materials and emphasise recycling and substitution, experts say.
In November 2008, the European Commission presented a new integrated strategy for raw materials, suggesting three pillars for the EU's policy response to different challenges related to access to global resources:
- 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.
Since then, an EU expert group has identified 14 raw materials seen as "critical" for EU high-tech and eco-industries and suggested that the bloc’ global diplomacy should be geared up to ensure that companies gain easier access to them in future.
For the experts, the "criticality" of these raw materials relates to their production, which is concentrated in a handful of countries – mainly China, Russia, Congo and Brazil. It also relates to difficulties in substituting them with more commonly available materials and to their low recycling rates.
Since then, attention has focused on rare earths, a group of metals featured in the list as critical to EU industry. China, which accounts for 97% of global production, has imposed a steep decrease of export quotas on a number of rare metals since 2005 and is mulling a full export ban as of 2015.
Rare earths are seen as critical for European businesses, as these materials are widely used by high-tech and eco industries, for example in laptops, solar panels and batteries for electric cars.
A long-awaited European Commission paper on raw materials, tabled on 2 February, has failed to raise enthusiasm among EU businesses and other stakeholders.
Many described the paper as a mere repetition of a previous 2008 initiative and called for better prioritisation of its three pillars of action – trade, domestic mining and recycling (see 'Background').
German centre-right MEP Karl-Heinz Florenz (European People's Party), president of the raw materials group in the European Parliament, said he could not see "any new initiative" in the proposal and lamented the lack of "clear weighting between the pillars".
The majority of stakeholders also seem to have rejected the inclusion of a whole new chapter on financial and commodity markets, saying these should be dealt with separately.
The European Parliament's raw materials group, which was set up two weeks ago to work on an EU strategy, is not even going to address these markets.
The new chapter was added to the Commission paper at the last minute at the request of France, which has vowed to take on commodity speculators as part of its G20 presidency.
Concerns over scarcity and supplies of raw materials have emerged as the global population continues to grow and the world's poor continue to lift themselves out of poverty.
The rapid industrialisation of emerging economies, such as Brazil, China and India, has intensified competition for raw materials, pushing up prices on world commodity markets.
However, some scientists are now challenging this widely accepted view. "We are not running out of minerals, at least not any time soon," Professor Roderick Eggert of the Colorado School of Mines told a European Parliament hearing in January.
Speaking in Brussels, Eggert, a geochemistry graduate who holds a PhD in mineral economics, challenged such perceptions and said businesses and policymakers should focus instead on "costs, geography and timeframes".
By cost, Eggert referred to both the economic cost of extraction and recycling, "which varies significantly from one location to another". He also drew attention to broader, "less quantifiable" environmental and social costs associated with those two methods of production.
For the European Commission, the "criticality" of a raw material primarily relates to the concentration of production in a handful of countries. But Eggert disputed this claim and argued that "geographically concentrated production cannot be a risk factor in terms of access to raw materials".
In his view, geographic concentration and dependency on imports are simply not the same thing. And in many cases import dependency can even be good if foreign sources are better and available at lower cost than domestic ones, he said.
Eggert also stressed the difference between short and long-term supply issues. In the short term, the real issue is "the reliability of producers and the risks associated with availability," which depend on existing production capacities and are strongly influenced by investment decisions and past government policies.
Long-term issues are very different and are linked to geological availability, the evolution of production techniques and the role that public policy plays in facilitating them, the professor went on.
The Commission's new strategy also calls on member states to draw up "national minerals policies," draft land-use planning policies for minerals, and ease the authorisation process for mineral exploration and extraction.
Even regarding rare earths, Eggert believes that non-Chinese sources of supply will ultimately come on to the market, as a result of "miner mania" – the expected boom in exploration for deposits that contain rare earth elements.
Despite their name, rare earths are actually not that rare, with a third of the world's known reserves located in Greenland and deposits existing in the US, Canada, Australia, South Africa and even Sweden, according to Reinhard Bütikofer, a Green MEP.
Had it not been all too easy in the past to rely on China to supply Europe's high-tech industries with rare earths, policymakers would not have fallen asleep at the wheel, he wrote in a recent op-ed for EurActiv.
"Within the next couple of years, production is already expected to come online in the United States and particularly Canada. As such, others argue that their supply risk is more of a medium to long-term issue," Bütikofer said.
Available, but at what price?
If, like Eggert and Bütikofer suggest, raw materials are not really scarce, the EU could decide to boil down its strategy to ensuring that industry access is maintained at a competitive price.
The European Commission says the 2002-2008 price boom was marked by surging demand from emerging countries and that the trend will continue with further industrialisation of China, India and Brazil.
As European demand for materials remains relatively stable compared to the surge in China, the Old Continent is losing buying power on world markets to emerging economies, and is forced to gear up its raw materials diplomacy via trade agreements or attacks against China at the WTO.
But rare earths are not the only a case in point. In sectors such as steelmaking, market concentration has also played a big role in pushing up prices, the Commission says. While reserves of iron ore are abundant, supplies have tended to concentrate into the hands of a smaller number of global companies, such Australian mining giant BHP Billiton, British-Australian firm Rio Tinto and Brazil's Vale.
Last month, Bloomberg analysts estimated that the three companies were set for record profits totalling $52 billion, representing an average 66% jump in annual earnings last year compared to 2007. In contrast, the largest publicly-traded steelmakers, including ArcelorMittal, may have seen an average slump in profits of 30%t over the same period, the analysts predicted.
The European steel industry, represented by Eurofer, said it was "outraged" by recent increases in iron ore prices of nearly 100%. The confederation warned of its "significant impact on steel prices and as such on the whole manufacturing and construction value chain, and ultimately on the European consumer".
Yet industry and lawmakers alike acknowledge that potential raw material supply risks should be seen as an opportunity to direct the EU economy towards a more resource-efficient model.
Reducing consumption of materials while pushing for more recycling and substitutions are seem as key to reducing the bloc's dependency on imports and steering the Union towards a more resource-efficient economy.
And with proper investment in research and development into new recycling technologies and substitution materials, Europe can secure a leading position in this knowledge area and create new green jobs, proponents argue.
Stéphane Arditi from the European Environmental Bureau (EEB), an NGO, noted however that "legal drivers" such as ambitious targets for recycling need to be put in place to provide the recycling industry with incentives to invest in R&D and new plants.
The European Commission is currently preparing a roadmap to a resource-efficient Europe, due in June. According to Environment Commissioner Janez Potočnik, the map, which will also address raw materials, might introduce resource-efficiency targets for member states.
- 22 April 2011: Deadline for participating in Commission consultation on 'Roadmap for a resource-efficient Europe'.
- June 2011: Commission to adopt 'Roadmap for a resource-efficient Europe'.
- 2012: Review of EU thematic strategy on waste prevention and recycling.