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Reset for critical raw mineral trade

EU Commission president Ursula von der Leyen is crystal clear on the direction of travel for critical raw mineral supply in the bloc. She has publicly stated that lithium and rare earths “will soon be more important than oil and gas”. European Union demand for rare earths alone is anticipated to increase fivefold by 2030, while EU demand for the lithium used in electric vehicle batteries and energy storage is expected to increase twelve-fold by 2030.

We must avoid becoming dependent again, as we did with oil and gas,” Von der Leyen said, a statement that was the springboard for the EU’s Critical Raw Materials Act. Published in March, the Act addresses the EU’s dependency on imported critical raw materials by diversifying and securing a domestic and sustainable supply of critical raw materials. There will be implications, both positive and negative, for shipping.

The Act, Von der Leyen said, significantly improves the refining, processing and recycling of critical raw materials in Europe, materials that are vital for manufacturing key green technologies such as wind power generation, hydrogen storage and batteries. In tandem, the Act also sets out to strengthen co-operation with “reliable” trading partners globally to reduce the EU’s current dependencies on just one or a few countries.

“It’s in our mutual interest to ramp up production in a sustainable manner and at the same time ensure the highest level of diversification of supply chains for our European businesses,” Von der Leyen said.

The latest, 2023, list of 34 Critical Raw Materials published by the EU includes aluminium/bauxite, coking coal, lithium, phosphorus, cobalt, and light rare earth elements.

Supply chain absence

While Europe is responsible for more than a quarter of global electric vehicle (EV) assembly, it does not house much of the supply chain apart from cobalt processing at 20%, according to the International Energy Agency.

The Act sees the EU set targets for the region to mine 10% of the critical raw materials it consumes, including lithium, cobalt, and rare earths, with recycling adding a further 15%, and increased processing to 40% of its needs by 2030. According to analyst ING, China processes almost 90% of rare earths and 60% of lithium. The EU has stated that no more than 65% of any key raw material should come from a single third country.

Increasing EV battery demand alone will require 50 new lithium projects, 60 nickel mines and 17 cobalt developments by 2030 to meet global net carbon emissions goals, according to the IEA, assuming an average annual mine production capacity of 8,000 tonnes for lithium, 38,000 tonnes for nickel and 7,000 tonnes for cobalt.

The Act is realistic in acknowledging that the EU will never be self-sufficient in supplying raw materials and will continue to rely on imports for most of its consumption. “Imports are and will remain essential: we are intensifying our efforts at international level,” said Margrethe Vestager, executive vice-president for a Europe Fit for the Digital Age.

Regarding trade, the EU is working on tools to facilitate trade, investment and co-operation, all designed to increase the security and affordability of critical raw materials. This includes the establishment of a critical raw materials club with partners to strengthen supply chains and diversify sourcing; continuing efforts to sustain and strengthen the World Trade Organization; and expanding the network of strategic raw materials partnerships with resource-rich countries, to the mutual benefits of Europe and its partners.

“Our recently concluded trade agreements with Chile, and the future agreements with Australia or Indonesia will help support sustainable and resilient supply chains. Closer and more diverse trade ties are the way to reduce our dependencies and the vulnerabilities that result from them,” said Valdis Dombrovskis, EU executive vice-president and commissioner for trade.

A Transport & Environment analysis of the project pipeline until 2030 shows that around 10% of Europe’s needs in cobalt and nickel can be met. For lithium, Europe can secure up to half its needs this decade. Over two-thirds of the refined lithium needed can come from local projects by 2030. Europe could also refine 16% of the required nickel by then and almost a quarter of the cobalt demand.

Dependency risks

ING’s commodities strategist Ewa Manthey gave an example of the dangers of critical raw mineral dependency to Europe. “In 2021, magnesium prices skyrocketed amid supply shortages after China’s production curbs to limit power consumption. The shortage of magnesium in China threatened European industry, including the automotive, construction and packaging sectors. Magnesium is an essential raw material for the production of aluminium alloys, which account for about 50% of the total magnesium consumption.

“This has shown how a power crisis in China can trigger a magnesium shortage in Europe which can cause a shortage of aluminium in Europe, which in turn can hit European car production. The risk of depending on Chinese imports is what the EU’s Critical Raw Materials Act is trying to avoid by strengthening the bloc’s raw materials strategy.”

More than 80% of the world’s lithium is mined in Australia, Chile and China, which also controls more than half of the world’s processing and refining.
China also dominates many elements of the downstream EV battery supply chain, from material processing to the construction of cell and battery components, noted Manthey. And while China only accounted for about 15% of global lithium raw material in 2022, around 60% of the battery metal is refined there into specialist battery chemicals.

The Act follows in the footsteps of US legislation to encourage green tech research and development. The US Inflation Reduction Act has allocated $369bn of subsidies to green tech manufacturers and supports large scale investments into US battery manufacturing. In contrast Manthey criticises the EU’s legislation for its lack of clarity on funding.

The Act now enters a process of discussion by the European Parliament and the Council of the European Union before it can be adopted and enter into force.
Source: Baltic Exchange

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