3E Intelligence

EU Commission Vice-President Günter Verheugen warned on 5 June that Europe’s manufacturing industries are facing increasing challenges in ensuring access to the raw materials for their production. Many metallic minerals have to be imported into the EU and with the accelerating industrialisation of China, India and other developing countries, a global battle (for now mostly diplomatic) for oil, gas as well as raw materials has started.

A comprehensive report published by the commission services gives a good overview of the current situation of the EU’s industry’s access to raw materials.

Although Verheugen refused to answer any questions on potential concrete policy measures the EU might take to deal with this globalisation challenge, he underlined that the commission will not give up social, human rights or environmental standards when looking at how to secure future supply for its industries.

It is questionable whether the EU will be able to deliver on this promise when new industrial giants like China are less concerned about these principles when providing themselves in Africa and other continents with the materials needed for its further economic growth. It could even be asked whether the EU’s international “soft power” will be enough to secure supplies once the global war on resources really gets into its hot phase.

The commission’s internal document itself already seems to indicate that environmental rules could come under review when looking at the materials resource scarcity issue. In chapter 7.3 on access to land and the sustainability of the industry, it hints at the possibility to review the current exclusion of land now being protected under the Natura 2000 scheme: “it would seem to be justified to reconsider the balance between the need for the mineral and the importance of the conservation area“.

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  1. The markets for most raw materials are transparent, liquid, fungible and global – the prices and contracts are set at global commodity exchanges. The exceptions are products whose transport infrstructure is fixed (such as gas that travels through pipelines).

    This leads to two conclusions. First, the price that companies have to pay for their raw material is the same, whether they’re European, Chinese or Indian. This means that the game will be won on design, innovation and productivity – just like it is today.

    Second, China’s push into distateful African countries will, if anything, lead to a reduction in the prices European manufacturers have to pay for raw materials, since Chinese investment will expand supply. The effect could be noticeable if the Chinese successfully develop big extractive operations in countries Western companies choose not to deal with, such as Sudan, Congo or Iran. Once out of the country, the minerals extracted from those places will depress prices of the same minerals on the world market.

    Finally, a rising global price for raw materials is no bad thing. Doing more with less is the mantra of responsible growth in a finite world.

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