Bernd Schäfer, CEO of EIT RawMaterials and Head of the European Raw Materials Alliance, stresses the need for an overarching strategy and urgent action to secure the future of the strategic raw materials sector in Europe and ensure it can master the transition to a green and digital twin.
In terms of raw materials, Europe is at an epochal turning point. The COVID-19 pandemic has disrupted global supply chains and led to shortages of a wide range of commodities that are of strategic importance for the implementation of the European Green Deal. The war in Ukraine has compounded the impact on the sector’s global competitiveness due to rising energy prices. These more immediate challenges come against a background of worrying and increasing long-term over-reliance on imported commodities.
Europe was late to realize that certain raw materials are indeed critical – critical because of their scarcity, but increasingly also because of their relevance to European sustainability and industrial leadership ambitions.
Raw materials are the foundation on which much of Europe’s industry and prosperity is built, and without access to affordable, sustainable raw materials, the European Green Deal cannot be achieved.
To illustrate some of the causes and consequences of our over-reliance on imports and the dangers this entails, you need only look at the recent supply crisis in the magnesium industry and its troubling snowball effect on related sectors.
Magnesium is an important alloying material for the aluminium, steel and die-casting industries. Aluminum containing magnesium, for example, is mainly used in the automotive and construction industries, but also in everyday products such as packaging. In the 1990s, China began dumping cheap magnesium illegally. By 2001, the last European magnesium plant was closed and the European value chain was undermined. With over 93% of its demand now dependent on Chinese imports, Europe is in a position of near total dependence. When production is curtailed in China, Europe has no control over escalating price hikes, and it is China that decides how disruptive this will be for our manufacturers.
That’s exactly what happened. Due to the Chinese government’s efforts to curb domestic electricity consumption, supplies of magnesium from China have either been halted or drastically reduced since September 2021, leading to an international supply crisis of unprecedented proportions. China massively curtailed its magnesium production and within days magnesium prices rose to levels five to seven times higher than already expensive post-Covid market prices. The industries in Europe were not only confronted with skyrocketing prices, but suddenly had no more offers at all.
The issue has become increasingly relevant for Europe, which consumes a fifth of the world’s magnesium supply, since the West imposed sanctions on Russia in the wake of the invasion. To mitigate the effects of the current crisis and avert future supply shortages, the European Union has launched a campaign to restart domestic production of magnesium, used in aluminum and steel products, with at least three organizations working on projects. In a European Commission working document made available to Reuters in May 2022, she stated that the EU should aim to meet 15% of its magnesium needs domestically by 2030.
This is good news because the potential to produce and recycle more magnesium for the energy transition is significant and untapped. The recycling potential of aluminum is also impressive. European aluminum is already the clear leader with recycling rates of 76% for beverage cans and 90% for automotive, transportation and construction applications. This is in stark contrast to the 1% baseline, which is recycled for more rare earth elements.
At the legislative level, too, the EU is making increasing progress towards strategic autonomy for critical raw and primary materials. The European Commission’s Action Plan, the creation of the European Raw Materials Alliance and the European Parliament’s Report on a European Strategy for Critical Raw Materials represent a series of actions that can make a significant contribution to the provision of sustainable and safe raw materials for Europe.
Diversification of supply, strengthening of existing EU-based value chains
It is important to look at the aluminum sector. As one of the most complete European value chains in the raw materials sector, the sector today creates 1 million direct and indirect jobs and generates an annual turnover of 40 billion euros in Europe. As a key component for renewable energy, batteries, power transmission and resource and energy efficient construction or mobility, European aluminum is essential for the development of clean technologies and the circular economy: thanks to its durable properties, it is inherently circular and it has a carbon footprint of only one third of the Chinese average. It has been shown that the Green Deal cannot be implemented without a healthy and dynamic European aluminum sector, but this sector is increasingly facing an existential threat.
Aluminum, like magnesium, is subject to the same Chinese dominance made possible by generous government subsidies and tax exemptions. State-subsidized overcapacity, under-pricing and resource reallocation are the means by which China has been eroding Europe’s industry for more than two decades. In no case is there reciprocity for any of these conditions or for their current environmental, social and governance standards. Therefore, this situation needs to be addressed with great urgency so that a fairer competitive environment can be allowed.
Since 2008, Europe has lost more than 30% of its primary aluminum production, a trend that has worsened in recent months, leading to a further 900,000 tonnes of aluminum production being halted or shut down between autumn 2021 and now. Increasing import dependency on Chinese aluminum is also jeopardizing Europe’s decarbonization efforts.
Europe’s efforts to secure raw materials – from rare earths to base metals – and the quest for strategic autonomy must be at the heart of our sustainability and industrial strategy. Materials like aluminum or magnesium are too strategically important to be left to third countries with weaker sustainability and questionable trade practices.
We as EIT RawMaterials, as well as European industry and policy makers, must continue to develop a holistic, long-term and overarching strategy that recognizes the strategic importance of materials like aluminum by mobilizing funding for investments to accelerate European industry now. We need to ensure strong and coherent trade and industrial policies that protect and stimulate EU production and enable long-term investment to be accelerated. And we must continue to facilitate access to affordable green energy, which is necessary for a largely energy-intensive resource sector.
Both industry and policymakers must work together to create a level playing field between national and international operators if we are to reverse the damaging trend of carbon and investment leakage and ensure that import dependency does not undermine the Green Deal.
Today in Europe we can mine underground, have state-of-the-art operations and electrify entire supply chains. Europe is admired worldwide for its leadership in the circular economy – these factors have accelerated the great potential for the primary and secondary raw materials industry.
A promising future for Europe is therefore in full swing and within reach. But we must address these critical challenges now.