How quickly can production be increased so that there are no bottlenecks for customers in the EU?
Critical Raw Materials Act
Ambitious aims
The list of critical raw materials compiled by the European Union (EU) currently comprises 34 different substances, from A for antimony to V for vanadium. There is a risk of supply bottlenecks for half of them in the course of the energy transition. To mitigate this risk, the EU has passed the Critical Raw Materials Act (CRMA). Yet do these new provisions really help European companies to secure the critical supplies they need?
With three weeks’ notice, China announced last summer that exporters would have to apply for new licenses for the critical raw materials germanium and gallium. Prices for these metallic and metalloid elements have since risen considerably, not least because China dominates the world market for both materials. The People’s Republic supplies the EU with 71% of the gallium and 45% of the germanium consumed each year. Since exporters will also have to state the recipients and the intended use in order to obtain a license in the future, European companies fear that they will no longer be able to obtain material if the Chinese government finds the respective purpose problematic and halts exports.
The European Commission clearly also fears this scenario. Accordingly, it has approached the few European mine operators and processing companies that can provide these materials to ask how quickly they can ramp up production so that there are no bottlenecks for customers in the EU. The sobering answer: it will take at least a year for the required capacity to be expanded, built up, or reactivated. It is therefore to be hoped that China will interpret the new export conditions liberally until then.
Specific targets for European production
To prevent such scenarios from occurring in the future, the EU introduced the CRMA. The act was formally passed just before Christmas. The governments of the Member States now have two years to transpose the regulations into national law.
Acceleration versus stakeholder involvement
However, it is questionable whether citizens, activists, and environmental protection organizations will be able to keep up with the ambitious pace. To date, mining companies in Europe have needed patience, with mine operators expecting to wait 12 to 15 years from the project application to the extraction of the first ore. What’s more, many assessments lead to projects literally never getting off the ground. Mining experts estimate that out of 100 investigations, only one leads to the opening of an active mine.
With so little time left to meet the targets set out in the Paris Agreement, we can no longer afford fruitless assessments and licensing procedures that drag on for years. Nor does it make sense, however, to want to save the climate while ignoring legitimate concerns in matters relating to the protection of residents and the environment. The EU and its Member States must find fair solutions to achieve the target of 10%. Europe currently produces just 2% of the raw materials it uses.
Europe is rich in raw materials
Contrary to what the figures suggest, Europe is rich in raw materials. However, many deposits are not being used – partly because companies have thus far been able to obtain the materials at any time on the world market, but also because mines in Europe usually cost more to operate than elsewhere and are therefore not competitive. In order to close this gap, the EU must adopt further measures to accompany the CRMA. The first, the Carbon Border Adjustment Mechanism (CBAM), has already been passed by Parliament. Companies that import products such as steel, aluminum, or fertilizers with a large carbon footprint into the EU have been required to declare them since last October. From January 2026, they will need to buy and surrender carbon certificates, with the cost calculated on the basis of the latest prices for those products. This is designed to compensate for the cost disadvantage of European production.Turning back the wheel of globalization
In terms of processing the ores, too, EU Member States are currently far from hitting the target of 40% for most critical raw materials. Many plants have given up in the course of globalization over the past 20 to 30 years. However, world markets for a number of raw materials – such as magnesium – have been thoroughly undermined by highly subsidized Chinese producers supplying them at unbeatably cheap prices, thus taking global control of many strategic raw materials.Recycling of critical raw materials often still in the testing stage
Recycling capacity and expertise also need to be improved. Europe has excellent structures in place for the classic industrial metals. The situation is different for critical raw materials. They are more difficult to extract than metals. Many processes are currently still in the research and testing phase, so it will probably be a few years before components from old batteries, for example, can be processed and reused on a large scale. It is nonetheless necessary to gradually switch to a circular economy, both in the fight against climate change and in terms of guaranteeing a secure supply of materials in Europe. Companies can support this necessary change by taking recyclability into account in line with the cradle-to-cradle principle when designing their products.
What needs to happen?
The revival of Europe’s mining sector will only succeed if politicians at all levels – from the EU to regions and municipalities – communicate plans openly and responsibly, and win the trust of citizens. It is equally important to strike a fair balance of interests, which has not always been achieved in the past, as shown by disputes over various open-pit mining projects in Europe.
Since the EU will not be completely self-sufficient even if the CRMA achieves all its aims, it is necessary to conclude agreements with potential partner countries. However, last year’s failed negotiations with Australia show that even agreements with countries that share the Western value system are not a certainty.
Another aspect of the CRMA concerns the establishment of a European-wide raw materials procurement agency. It is intended to bring together the various needs of companies and thus act on the world market with greater bargaining power than any individual company could.
Proactively secure the raw material base
Rather than wait until everything is politically regulated, companies should be proactive in securing their supply of raw materials. Buyers should approach specific operating companies to diversify their supplier portfolio with European partners. Binding commitments on purchase quantities should be agreed to give mining or refining companies planning security. It may be advantageous to cooperate with competitors to generate necessary purchase quantities. Companies should also involve regional and local authorities and organizations. Otherwise, there is a real risk that the customer and supplier will be in agreement, but a project will fail due to the mood at the local level.
Authors
Lars-Peter Häfele
Managing Director
is Managing Director at the Munich office and an expert in raw materials. He advises major global companies in the industrial goods and automotive industries.
Lina Tilley
Principal
is a Principal at Inverto’s London office. She has extensive procurement experience and advises companies from the industrial goods sector on transformation issues and raw materials procurement. She also has a particular interest in promoting diversity within Inverto and continuing to develop the team in our UK office.