EU mulls central purchasing of critical raw materials
The EU announced its intention to set up a central purchasing agency in charge of buying critical raw materials, outlined in the proposed Critical Raw Materials Act (CRMA) published yesterday.
The proposal, in chapter 2 article 24 of the legislation, would see the EU set up and operate a system to "aggregate the demand" of consumers of critical raw material (CRMs) in the bloc and set up a purchasing system for the entire bloc. While details will emerge in the coming months as the European Parliament and Council ratify the deal, it could resemble similar functions in other markets, such as the Chinese State Reserve Bank (SRB) and the US national defence and strategic stockpiles.
The SRB has periodically entered the Chinese domestic market to buy CRMs such as cobalt metal, used in batteries. Recently, the administration of US president Joe Biden said it would increase and update the list of CRMs used in its federal stockpiles.
Metals listed in the EU CRMA include battery metals such as cobalt, lithium, manganese and battery-grade nickel, as well as natural graphite, magnesium, titanium and rare earth elements. Depending on the level of engagement the new EU agency has with the markets, this could put significant upward pressure on prices, as has been the case in the past when the Chinese SRB enters the market.
"Raw materials are vital for manufacturing key technologies for our twin transition — like wind power generation, hydrogen storage or batteries," EU president Ursula Von Der Leyen said.
It is a step towards further integration of European member states' resources, which could face opposition from eurosceptic voices in parliament, especially when attempting to aggregate demand. The EU already has some systems in place that aggregate demand across energy markets as an example.
Paying attention to supply chains
The CRMA is an indication that the thinking behind these materials has evolved in the EU from a lean management approach to a more strategic view.
The central purchasing body will also stress test EU supply chains every three years and release publicly available data on the CRMs.
As part of the plans, the EU will set up a monitoring body for CRMs, including monitoring trade flows, demand and supply, stockpiles and concentration of supply.
The CRMA highlights the bloc's overreliance on single sources for certain materials.
"The EU sources 97pc of its magnesium in China. Heavy rare earth elements, used in permanent magnets, are exclusively refined in China. 63pc of the world's cobalt, used in batteries, is extracted in the Democratic Republic of Congo, while 60pc is refined in China. This concentration exposes the EU to significant supply risks," the act reads.
Industry figures have heralded the plans as a step in the right direction, pointing out the EU has not engaged with this level of supply chain management, unlike other geopolitical rivals.
"Today's announcement marks a positive step forward for European Critical Raw Materials supply security and independence, amid its rapid transition to electrification and net zero," Vulcan Energy Resources chief executive Francis Wedin told Argus. "Very recent history in Europe has shown that it is naive to rely on external supplies of energy and critical raw materials."
The move comes at a time of increasing nationalism, protectionism and attention on global resources needed to transition towards a greener economy. The act references several events that have spurred its development.
"Disruption in the supply of essential goods during the Covid-19 crisis and the energy crisis sparked by Russia's war of aggression against Ukraine have highlighted the EU's structural supply dependencies and their potentially damaging effects in times of crisis."
The EU also aims to catch up with China and the US in terms of recognising the importance of these materials. The US Inflation Reduction Act has been of particular worry in the EU, where industry bodies have warned that it could disadvantage the EU in the green transition. US president Joe Biden and EU president Ursula Von Der Leyen met to discuss the act on 10 March.
The act will now go before the European Council and European Parliament before it passes into law.
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