New Challenges for Raw Material Supply Security in the New ‘Rare Metal Age’ in the 21st Century ‐ Prospects for European‐Australian Cooperation

The question of raw material supply security and its challenges has returned to the international agenda in May 2019, when Beijing has threatened to restrict its exports of rare earths (REs) to the United States amidst the US-China trade conflict. China’s threats reminded the US and the EU of the rare earth supply conflict in 2010.

Back then, China – as the world’s largest producer and exporter of rare earth elements (REEs) – suspended its supply to Japan and tried to use its de facto monopoly of global REEs’ production for political purposes in an escalating diplomatic conflict over maritime territories and energy resources in the East China Sea. Prior to China’s latest threats to supply security of REs, international experts warned that China might reduce its REs exports to meet its domestic demand from its electric vehicle (EV) industry and other high-tech sectors.

The rapidly growing worldwide demand for critical raw materials (CRMs) is largely the result of the global transition to decarbonised economies, expansion of ‘green technologies’ (i.e. renewable energy sources) and ‘industry 4.0’.  Each of them is heavily dependent on a stable supply of CRMs. The growing demand creates unprecedented challenges, including bottlenecks and supply shortages, to each stage of the global supply chains of CRMs, from mining to processing, refining and manufacturing. Addressing these challenges has become even more important as emerging disruptive technologies such as electric vehicles (EVs) and their batteries, robotics and artificial intelligence (AI) systems further drive the global demand for CRMs (i.e. ‘technology metals’). The World Bank already warned in 2017 that decarbonised energy systems and ‘green economies’ are much more raw material intensive than the old energy world based on fossil fuels. 

Given the new waves of disruptive technologies which come at an ever increasing rate in the civilian and defence sector, the availability and stable supply of CRMs as the foundation of these technology revolutions have become a major worldwide concern of companies and governments alike. Access to, and stable supply of, CRMs and their supply chains are required for any new technology to enter the market and to be applied for its use. These concerns have risen as the great power rivalries, in particular, between the US and China, are fuelled by the technology race. Both superpowers increasingly use strategies of economic warfare to push their unilateral economic and foreign policy agendas by using the instruments of their economic prowess such as China’s producer and export monopoly of refined REs. The powers who control CRMs and possess the manufacturing and processes know-how as well as capacities also control the technological and industrial power in the 21st century’s new ‘Rare Metal Age’. 

Characteristics of the new Critical Raw Material sectors

The production of CRMs – compared with the production of conventional oil and gas resources – is geopolitically more challenging and problematic as 50% of the CRMs are located in fragile states or politically unstable regions. Security of supply risks are not restricted to primary natural resources and CRMs but also extend to the import of semi-manufactured and refined goods as well as finished products. Manipulated prices, restricted supplies and attempts to cartelise CRM markets with wide-ranging negative economic consequences are not limited to producing and exporting countries. Powerful state and private companies are also responsible for non-transparent pricing mechanisms for many precious CRMs. Global supply chains have become ever more complex with blurred boundaries between physical and financial markets and weakly governed market platforms. These market imperfections lead to the manipulation of prices, and threaten the stability of the future security of CRMs’ supply.

The specific functionalities and characteristics of the various CRMs often render them difficult to recycle and/or to substitute, in some cases they are even irreplaceable. New technologies also bring about the need for new raw materials and suppliers. For these raw material exporters, new technologies offer new economic development, welfare and trade with industrialised high-tech countries dependent on the import of CRMs. The rise of these new economic powers based on CRM exports, however, may domestically lead to the ‘Dutch disease’ with social imbalances and widespread corruption, and externally result in new geo-economic and geopolitical competition, rivalries and international conflicts. Producers and exporters of CRMs are confronted as ‘rentier states’ with traditional challenges of a ‘resource curse’ and unprecedented international attention to their mining practices and conditions. The more the world expands to ‘green technologies’ and becomes dependent on a rising and stable supply of CRMs, the more the international focus will be directed towards their environmental standards and energy efficient production methods. Mining companies, driven by fear for their international reputation, are already increasing the share of renewables in their energy mix of production and endeavour to reduce negative environmental side effects.

In developed countries, environmental pollution might decrease thanks to EVs and an expanded battery use for EVs and renewable energy sources (RES). But the opposite might be true in developing countries producing the raw materials for the rich world due to environmental and social costs. These countries may face more water shortages, rising emissions, toxic pollution and other environmental challenges, and may have to cope with human rights abuses and international labour standards. Supply chains from mining to end products are often not fully transparent, despite many efforts to improve industry practice for responsible and ethical sourcing. International certification schemes – such as the ‘OECD Due Diligence Guidance’ and conflict-free sourcing initiatives – offer instruments for more transparency and international collaboration.

The future supply security of CRMs depends largely on timely investments, which in turn depend on adequate investment conditions, and alternative strategies such as the re-use and reduced use, substitution and recycling of CRMs. Using these strategies for decreasing the rising imports of CRMs might allow a reduction of imported and produced CRMs in the mid- and long-term. In the EU, these response strategies have already become integral parts of the development of ‘circular economies’, which use CRMs more economically, efficiently and environmentally by reducing their mining demand and import in order to strengthen security of supply. 

While these strategies for ‘circular economies’ may help in the mid- and long-term, they do not offer a real short-term solution to the rising import dependence on REs and other CRMs. In the mid-term, such efforts might only have a marginal impact on broadening the global supply basis for REEs and other CRMs. Raw material intensity and efficiency (comparable to energy intensity and efficiency) and life-cycle analyses will become even more important factors and instruments for analysing and differentiating within mining and manufacturing industries. 

At present, recycling options are also limited due to a lack of sufficient data on both current and future recycling rates and insufficient profitability for the private industry. While substitutes are available for many applications, they are often less efficient and/or require more energy in return. In this regard, and in order to create sustainable as well as commercially profitable ‘circular economies’, many more investments in research and the development of new technologies for recycling, re-use and substitution are needed.

Prospects for Enhancing EU-Australian Cooperation on a Stable Worldwide Supply of CRMs 

The EU’s extended list of defined CRMs highlights rising concerns about supply security of CRMs and China’s domestic and foreign raw material policies. The list was officially extended from 14 CRMs in 2010 to 20 in 2014 and to 27 in 2017. 

In the mid- and long-term, it is of utmost importance that the EU (following the example of the US) strengthens its cooperation with Australia to develop a long-term sustainable counterstrategy to China’s raw material and industrial-technology policies. In the light of environmental policies and climate warming as well as the overall mounting waste challenges, the EU should fully implement the concept of a ‘circular economy’ and recycling, substitution, re-use, and reduced use strategies. The EU’s approach offers Australia and other Asian countries such as New Zealand (as producers and consumers of CRMs) a strategic concept for addressing their own challenges, including their rising demand for, and consumption of, CRMs as well as related environmental, ethical, social, technological and economic issues.

Similar to the US government, the EU should support non-Chinese CRM mining and refining projects to diversify and stabilise its domestic and global supply. The prospects for opening new mines outside of China has often been hampered and delayed by numerous environmental challenges and standards. Western companies have often shunned the dirty work or given up due to high costs and failing competitiveness towards state-owned Chinese companies and their subsidised raw material projects inside and outside China. Western strategies for diversifying REEs production and imports have often proved to be unprofitable in the last years. Moreover, opening new mines and refining facilities around the world requires lead times of at least 7 years on average, in Western countries often 10 to 20 years. Facing mounting public resistance in many OECD countries, it has become ever more challenging to find private Western investors for long-term mining projects due to rising political risks (i.e. public acceptance). The EU and its member states’ governments need to explain and publicly support their raw material policies and projects for economic, environmental and climate protection reasons as imports result in higher GHG-emissions as life-cycle analyses have highlighted.

The Australian government has recently offered 15 REs and other CRMs projects as part of a joint Australian-US cooperation to challenge China’s monopoly. The plan provides for the Northern Minerals company to develop REs mines in Western Australia. The company has already signed an offtake agreement with the German Thyssenkrupp Materials Trading company. Western Australia’s minister for mines, Bill Johnston, has explicitly invited the EU and European companies to join these projects as the EU plans to open 26 giga-factories for battery production by 2025. It requires a stable supply of significant amounts of lithium and other CRMs for this purpose. The projects would also offer greener supply chains for European car-making companies as Australia has an enormous potential for solar and wind energy. In this regard, the EU and Germany can offer and share with Australian partners high-technologies, management skills and best practices in regards to renewable energies as well as experiences and ‘lessons learnt’ from the German and EU ‘Energiewende’ (energy transition).

In January this year, a new ‘Raw Material Strategy’ of the German government, which has revised the older one of 2010, has been published. It envisages an action plan with 17 concrete measures and new initiatives. According to this strategy, the German government also plans to consider the creation of a ‘competence centre’ in Asia (in addition to an already existing one in AHK South Africa and another new one in Ghana). Given Australia’s status as a leading CRM producer and exporter, its excellent bilateral economic relations with Germany and as a democratic OECD country, the new competence centre in Asia should be located in Australia for strengthening further the bilateral relationship.

Endnotes

  1. Frank Umbach, ‘Energy Security in a Digitalized World and its Geostrategic Implications’, Study of the Konrad Adenauer Foundation (KAS)/Regional Project: Energy Security and Climate change Asia-Pacific (RECAP), Hongkong, September 2018.
  2. Frank Umbach, ‘Rare Earth Minerals Return to the U.S. Security Agenda’, Geopolitical Intelligence Service (GIS), 1 August 2019.
  3. European Commission, ‘On the List of Critical Raw Materials for the EU. Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions’, Brussels, 13 September 2017 COM(2017) 490 final.
  4. Bundesministerium für Wirtschaft und Energie (BMWi), ‘Rohstoffstrategie der Bundesregierung‘, Berlin, 14 January 2020.
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Dr Frank Umbach

Research Director of the European Centre for Climate, Energy and Resource Security (EUCERS), King‘s College

Biography

Dr Frank Umbach is the Research Director of the European Centre for Climate, Energy and Resource Security (EUCERS), King‘s College in London. He is also an Adjunct Senior Fellow at the S. Rajaratnam School of International Studies (RSIS) at the Nanyan Technological University (NTU) in Singapore; a Visiting Professor on “EU Energy (External) Policies and Governance” at the College of Europe in Natolin/Warsaw (Poland) and an Executive Advisor of Proventis Partners GmbH, Munich (a M&A company). He also works as an international consultant for governments, international organisations (i.e. NATO), energy, consulting and investment companies (i.e. Gerson Lehrman Group/(GLG) on international energy security, policies and markets, geopolitical risks, cyber security and critical (energy) infrastructure protection/CEIP, as well as (maritime) security policies in Asia-Pacific.

Moreover, he is the author of more than 500 publications in more than 30 countries worldwide. He has published regularly for the Geopolitical Intelligence Service (GIS), Liechtenstein since 2011, and is the author of the study “Energy Security in a Digitalized World and its Geostrategic Implications”, Study of the Konrad Adenauer Foundation (KAS)/Regional Project: Energy Security and Climate Change Asia-Pacific (RECAP), Hongkong, September 2018, 171 pp. (kas.de/wf/doc/kas_53447-1522-2-30.pdf).

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