The future will be powered by metals, but fenced in by iron curtains. Metals and critical minerals such as lithium, cobalt and nickel are crucial for the green transition, used for everything from electric vehicles to wind turbines. The market has doubled in size over the past five years, reaching USD320bn in 2022, according to latest IEA estimates, and is set to at least double by 2040 amid surging demand from EVs and battery storage, as well low-emission power generation and electricity networks. But competition for critical raw materials and their concentration among a small number of countries could create geopolitical risks, including potential cartelization.
From OPEC to OMEC? China dominates the field of critical raw materials, controlling nearly all of heavy rare earth elements, 91% of magnesium and 76% of silicon metal supplies worldwide. Similarly, the Democratic Republic of the Congo commands over 60% of the global cobalt market, while South Africa holds a share of 71% for platinum and Russia 40% of palladium. Should these mineral-rich countries decide to form an Organization of Metal-Exporting Countries, it could manipulate prices, disrupt supply and further restrain international trade, posing risks to countries highly dependent on imports, including the EU, Japan and South Korea. Production concentration around leading supply-chain firms, in which Europe is less present compared to the US or China, could also create dependencies and expose Europe to trade wars between third countries.
In this context, can Europe’s Critical Raw Materials Act close the gap? Ensuring a stable supply of critical raw materials and diversifying import dependencies is crucial for Europe. The CRM Act proposes a 10% target for EU sourcing, but we find that seven out of the 18 materials listed do not meet the requirement at the mining stage (antimony, borate, manganese, natural graphite, rare-earth elements, tantalum and titanium). For all of these, the EU27 is highly dependent on sourcing from third countries (more than 94%). Moreover, 21 out of 24 materials do not meet the requirement that at least 40% of the EU27 annual consumption has to stem from EU refining. Third-country sourcing shares of the EU range from 61% for aluminum to 100% for baryte, beryllium or niobium. The CRM Act also targets at meeting at least 15% of annual consumption via recycling. However, out of 16 strategic raw materials, only four meet the target. Half of the remaining 12 will not be able to meet the target as they are either consumed or converted in the industrial process, or there are simply no meaningful scrap quantities available for the quickly growing demand, as is the case for lithium.
To increase independence, the EU should support a favorable trade-policy environment and diversify global supply chains through strategic partnerships with resource-rich countries. They way forward should also focus on sustainable extraction practices, becoming the critical shareholder of industry frontrunners and reinforcing recycling.