SMI 11 | Raw Materials

In the fight against climate change, we find ourselves in a dilemma: On the one hand, we must achieve the energy transition within a few years; on the other hand, we need vast quantities of raw materials for this, which are not always found in regions of the world with strong environmental protection or fair living and working conditions. How can we succeed therefore in purchasing raw materials based on sustainability criteria?

path to a clean and carbon-neutral future often begins in the ground: Many raw materials needed in the switch to renewable energies still need to be brought to light – in complex mining or opencast mining, with the help of water and chemicals, by melting or evaporation. These measures are often not environmentally friendly. But in view of the global climate crisis, a rethink has begun. In the past, the environmental damage and emissions that occurred in other regions of the world were mostly ignored by industrialized nations. Today, however, politicians, companies and consumers have understood that climate neutrality cannot simply stop at national borders.

The demand for key materials for the energy transition – such as lithium – will rise sharply in the coming years. The challenge lies in meeting the growing demand while at the same time extracting the raw materials in the most environmentally and climate-friendly way possible. For increasing numbers of companies, it is also becoming mandatory to identify and remedy possible violations of environmental protection and human rights in their supply chains: Several European countries have already passed legislation to this effect, and the EU is also planning regulation. From that point on, raw material extraction that meets ethical standards will no longer be a purely strategic decision, but a legal requirement.

The production of tried-and-tested raw materials will also have to be increasingly converted to low-carbon processes in the coming years. The technologies for green steel for example, have long existed. However, the green energy needed to apply them at scale is still lacking. In view of the urgency of the problems, we therefore need to tackle both tasks – the switch to renewable energies and the use of environmentally friendly industrial processes – in parallel.

Security of supply and cost increases top the most important current issues

Nevertheless, for many procurement managers, sustainability remains just a topic for the future. In our latest raw materials study, the massive cost increases for raw materials and energy as well as security of supply dominate the agenda. 77 to 90 % of the study participants see these as the greatest risks to corporate success.

The Ukraine war has exacerbated shortages, but it is leading to higher prices and instability rather than real shortages. The companies we surveyed complain of delays and poorer planning ability, but not of defaults on goods already ordered.

The study participants do not expect the situation to ease in the next two years. In fact, 80 % expect prices to continue to rise. In contrast, the World Bank expects commodity prices to stabilize at a high level in its October analysis: As global growth is slowing, demand is falling. This will put the brakes on price increases. In fact, many industrial raw materials are now trading at lower prices than in early summer. A survey by the IFO Institute in November nevertheless proves the price skeptics in our survey right: 50 % of the companies surveyed revealed that they would pass on increased prices in the coming months.

Two thirds (69 %) of the respondents of our raw materials study also want to pass on price increases. To benefit from any future price reductions, a majority of almost 60 % now agree contracts with price escalation clauses, which were still the exception just a few years ago. Solutions for the use of recycled materials or substitutes as well as general material savings are considered sensible by half of the study participants, but only used by about one third. Companies should work more intensively on these initiatives because substitutes and the use of recycled materials are generally associated with cost savings.

/ Additional material consumption for batteries, fuel cells, wind turbines and photovoltaics in 2050 compared to current EU consumption of the material in all applications

rostoffe
Lithium	58
Cobalt	15
Graphit	14
Dysprosium	13
Neodymium	5
Nickel	4
Praseodymium	3

Source: European Commission, unit of measurement: increase by x

EU strategy: Reduce dependence on raw material-producing countries

An intensified use use of recycled materials would also reduce Europe’s dependence on the countries where the raw materials are stored or refined. Currently, the EU produces only three % of the raw materials it consumes. China has built up a central position of power: For rare earth, for example, almost 100 % of imports come from China, and for magnesium, the figure is just under 90 %. Around two-thirds of cobalt come from Congo, despite criticism of the human rights protections in the Central African country. Lithium is mainly supplied from Latin America – but because of the environmental damage, more and more inhabitants are fighting against existing and planned plants.

For rare earth, cobalt and lithium, recycling is not yet a real option. For cobalt, the raw material required for batteries, more and more customers – such as car manufacturers – are choosing individual solutions by concluding contracts directly with mine operators operating in ESG-compliant countries such as Australia or Canada. Lithium, on the other hand, is not actually a rare commodity. Currently, there are pilot and research projects in many European countries to develop the deposits. However, local protests have been staged in each of these countries – from Portugal to Finland to Serbia.

Politicians and operating companies therefore still need to build up trust before the first lithium is extracted from European soil. The advantages are obvious: in Europe, it is easier to monitor whether companies are complying with labor and environmental protection laws, additional requirements could further curb environmental risks and, last but not least, transport routes are significantly shorter. Europe could thus create models for sustainable mining. The expertise is there, after all, the continent boasts a centuries-old mining tradition, and environmental protection has also long played a role in the EU. However, it is doubtful that there will be any short-term success here: When even a wind turbine quickly becomes a political issue, companies need transparency, good arguments and staying power to implement projects.

An intensived use of recycled materials would also reduce Europe’s dependence on the countries where the raw materials are stored or refined. Currently, the EU produces only three percent of the raw materials it consumes.

Levers for sustainable raw material sourcing

Instead of waiting for ESG-compliant raw material procurement right on their doorstep, procurement departments need faster solutions. Support for this comes from organizations such as the Responsible Minerals Initiative. Companies from all over the world have joined forces here to identify and certify reputable sources of mineral raw materials. The organization is guided by

globally applicable governance standards. Similar associations exist for many raw materials, and the OECD and the EU also provide guidance. The most sustainable approach, however, is to extract as few raw materials as possible from the earth and instead rely on recyclates or renewable substitutes. In the case of metals, the use of secondary raw materials - i.e. melted-down scrap metals - is now very successful: In the EU, according to the European Recycling Association, 90 % of stainless steel and aluminum is collected, processed and reused, for example. Compared to new production, the reuse of scrap metal can save anywhere from 50 to over 90 % of CO2 emissions. Metals, however, have properties that make recycling relatively easy. This is not true for plastics and many minerals. Recyclates may have different characteristics than virgin materials. The same applies to substitutes made from renewable raw materials. Companies that want to switch to recyclates or bio-based materials should therefore test them early on in pilot projects to see whether they have the desired capabilities and whether their machinery can work with these products.

CONCLUSION

To create a truly sustainable and carbon-neutral economy, growth must be decoupled from resource consumption. The use of recyclates and the establishment of a genuine circular economy are necessary prerequisites for this. In addition, recycling should be thought of directly at the outset of product design and the life cycle of products should be extended. Companies that take this path now are laying the foundation for long-term success: not only from a reputational standpoint, but also because it gives them the chance to secure access to valuable secondary raw materials and primary products.

Authors

Justus Brinkmann

is a Principal at INVERTO in Cologne and is an expert in raw materials within Industrial Goods and has been and has been in charge of our annual study for several years. Brinkmann mainly supports clients from the chemical and metal processing industries.

justus.brinkmann@inverto.com

Theresa Schwämmlein

is Project Manager at INVERTO’s Munich office. The mechanical engineer mainly works with companies in the mechanical and plant engineering sector. She is responsible for Climate and Sustainability within Industrial Goods.

theresa.schwaemmlein@inverto.com