Europe’s Critical Raw Material Supply Chains Under the Spotlight

- May 13th, 2021

Europe continues to make moves to take greater control over its raw material supply chains to meet an expected surge in demand.

Even though COVID-19 has brought challenges to every market, the pandemic’s impact on the global economy has also accelerated the push toward green energy, with Europe taking steps to secure a leading place as it plans its recovery. 

The region has stepped up its efforts to become climate neutral by 2050, with the EU developing policies to achieve this goal — a goal that will require significant mining and processing of critical raw materials.

At a global scale, a recent World Bank report estimates that the production of minerals such as graphite, lithium and cobalt could increase by nearly 500 percent by 2050 to meet the growing demand for clean energy technologies.

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Meeting this demand surge will not happen without challenges, and Europe continues to make moves to take greater control over its supply chains. But can the region be self-sufficient in mining raw materials to supply increasing demand from the electric vehicle (EV) space? Read on to learn what experts had to say.

Critical raw materials in Europe: Europe’s EV supply chain

The EV revolution is driving demand for key raw materials used in batteries, and future demand for these metals is only expected to grow, especially given that Europe reported record EV sales in 2020.

With EV sales expected to heat up throughout this decade, Europe has been moving forward with plans to build out its domestic supply chain — both for security and economic reasons, among others. From European carmakers moving to electrify their fleets to the growth in battery megafactories, the region has been taking sound steps.

At present, it is clear Europe’s key advantage is its established vehicle manufacturing expertise and capacity, which is the last step in the supply chain, said Jake Fraser of Roskill.

“As such, a key story for European OEMs is determining how they will need to participate in the mid- to upstream segments in future, and how to implement such change from today’s internal combustion engine business model,” he told the Investing News Network (INN). We are already seeing signs of such change, where large supply agreements with battery makers have incentivized the ‘decentralization’ of cell manufacturing in Asia toward establishing local gigafactories.”

That said, Roskill sees a need for further integration upstream to cathode/precursor materials in order to help drive supply chain optimization, and above all else cost efficiencies. Currently there are only four main companies planning to considerably scale this capability within Europe: Umicore (OTC Pink:UMICF,EBR:UMI), BASF (ETR:BAS), Johnson Matthey (LSE:JMAT) and Northvolt.

The good news about the EV story is that because battery cells are extremely difficult to transport long distances, cell manufacturing, and subsequently EV manufacturing as a whole as well, will have to be regionalized in scope, George Heppel of CRU Group told INN.

“This will be a ‘win’ for every region worldwide which sees an increase in EV sales, but it will make export opportunities for EVs limited, aside from in higher-value premium segments,” he added.

China remains a key market for European automotives, especially within the premium and executive segments like BMW (ETR:BMW), Mercedes, Audi and others.

“That is unlikely to change in the wake of the e-mobility transition, provided these firms can keep up with Tesla (NASDAQ:TSLA) in terms of their offerings,” Heppel said. “So the premium EV segment represents a potential ‘win’ for Europe, although it’s more like a continuation of the current status quo in the automotive sector than a ‘win’ per se.”

 

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Critical raw materials in Europe: Demand for key elements to surge

When looking at the raw material demand expected from the European EV market, numbers for battery metals grow exponentially, in particular for lithium and nickel.

According to CRU, based on the firm’s forecast for European EV sales, nickel supply will need to increase from 57,055 tonnes in 2020 to 146,650 tonnes by 2025. For lithium, supply will need to jump from 42,188 tonnes in 2020 to 130,249 tonnes in five years.

“There is no doubt that Europe is set to enter a transformative period with regards to its demand profile for battery raw materials,” said Fraser. “And it is the rise of domestic gigafactories in the construction/potential development pipeline that are set to drive such at the local cell manufacturing level.” Based on announced plans, Roskill forecasts that demand for each raw material could quadruple between 2020 and 2025 at minimum.

Nickel is positioned to be the largest beneficiary, with demand potentially increasing from 26,000 tonnes in 2020 to 213,000 tonnes in 2025. Lithium demand could exceed 340,000 tonnes of lithium carbonate equivalent by 2025, representing an increase of 407 percent compared to the expected level in 2020.

It is important to note, however, that this assumes all plants are constructed, commissioned and ramped up in a timely manner. Roskill considers this unlikely to happen over the next five years.

“This is due to the range of technical and financial challenges faced by industry, which are likely to generate some winners and some losers,” Fraser said. “On the technical front, it has historically taken 10 to 20 years for experienced battery makers to fine tune their operations to optimize production yields, standardize quality, develop competitive technologies or reach profitability.”

Additionally, on the financial side, sizeable investments in the magnitude of billions of dollars need to be made in order to foster domestic industry development.

Critical raw materials in Europe: Mining key materials

The escalation of geopolitical tensions paired with the pandemic has amplified concerns over the security of critical raw materials needed for the green future Europe is trying to build.

Last year, the region’s critical raw materials list included lithium for the first time. Of the 27 materials/material groups designated as critical raw materials as of March 2020, the EU is over 95 percent import reliant for 15, and over 60 percent import reliant for an additional seven.

It comes as no surprise that China is the EU’s most important supplier, accounting for 62 percent of its total imports. Other key suppliers include the US, Russia, Brazil and Nigeria.

When looking specifically at lithium, cobalt and natural graphite, the reliance of Europe on other regions for mined and/or processed material is clear. But is it feasible for the region to start mining its own supply of key minerals?

 

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Commenting on mining self-sufficiency, Fastmarkets’ William Adams told INN this is a goal worth pursuing. That’s because the market has seen with the US/China trade war, and more recently with COVID-19, that long supply lines, or supply lines that can be affected by diplomatic disputes, increase the risk of disruptions that could damage domestic industries.

“(However), self-sufficiency is only really possible if you have the raw materials in the ground,” he said. “Being self-sufficient could, however, increase the cost of the raw material if the project is not (at the) low end of the cost curve.”

Roskill’s Fraser agreed, saying there is certainly potential for Europe to establish a level of self-sufficiency at the upstream level. “Although the degree of local raw material endowment, project suitability and existing industry establishment does vary for each respective battery material,” he added.

For example, Europe does have an established nickel and cobalt mining and/or refining industry, with operations such as Terrafame in Finland soon to commission a chemicals plant to produce sulfates for use in lithium-ion battery precursor manufacturing, Fraser pointed out.

“This could help alleviate some of the forecast gap in domestic raw material supply and demand,” he said. “Whereas on the lithium front the main challenge at present is establishing local industry and generating organic large-scale growth.”

For Heppel, there are plenty of economic and environmental reasons why mining self-sufficiency in Europe is a goal worth pursuing.

“It would create jobs, allow Europe to capture much more of the mineral value chain, lower carbon emissions associated with mineral freight and the mining projects themselves would be subjected to much stricter environmental controls than they would be in some other jurisdictions,” he said.

But Heppel is not so convinced about the geopolitical reasons to achieve this goal, finding it highly unlikely that China would repeat a move like the export ban seen in 2011 for rare earths anytime soon.

“Relations between Europe and China would have to weaken significantly before this would become a reasonable risk in my eyes,” he added.

Don’t forget to follow us @INN_Resource for real-time news updates.

Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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One response to “Europe’s Critical Raw Material Supply Chains Under the Spotlight

  1. Hello! Couple of points…lots of prospective junior exploration companies in Canada looking for capital for basically all critical metals in the EV future market. Already have an established cobalt company in Northern Ontario to supply cobalt hydroxide for the EV battery market. Note, im only a minor shareholder in First Cobalt.
    Secondly, “ Climate Neutral”? Thats a new one to me. Ive heard of carbon neutral or net zero carbon emissions but Climate Neutral?

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