Rethinking Europe’s commodities strategy
Metals play a critical role in Europe’s sustainable and digital transformation. Commodities procurement will therefore be a fundamental determinant of future economic growth. A new flow special white paper outlines why and how Europe needs to rethink its sourcing strategies
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The Russian invasion of Ukraine in February 2022
has put a spotlight on Europe’s uncomfortable dependencies. While many European economies have immediately reassessed energy security in the light of the conflict and looked for alternatives to Russian gas and oil, the procurement of key metals has not been the subject of equal focus in public debates. This is quite surprising given
that Germany in particular sources many raw materials such as iron ore, aluminium, copper, refined nickel and titanium from Russia – supplies that are no longer secure since the outbreak of the war in Ukraine. Moreover, it is not only Russia that leading European economies are dependent on when it comes to commodity imports: while mining is relatively diversified globally, and mainly in private hands, most final refining takes place in China (see Figure 1). “These dependencies and concentration risks need to be understood and addressed, given that securing access to important commodities is key for Europe’s sustainable and digital transformation,” says Hauke Burkhardt, Global Head of Lending at Deutsche Bank Corporate Bank. Over the next few years, batteries, semiconductors, wind power plants, solar panels and electrolysis will massively increase the demand for key metals such as lithium, cobalt and rare earths. So, how can access to these raw materials be ensured
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in times of geopolitical conflicts and decarbonisation commitments which affect mining and refinery output? In the flow special white paper ‘Commodities security in a volatile world’, which was published in April 2022, experts from Deutsche Bank Corporate Bank have analysed challenges to Germany’s commodities security and suggested six new sourcing strategies.
No commodities, no transition To develop new sourcing strategies, the paper starts out by identifying seven key commodities that have particular relevance for leading economies’ ambition to become carbon-neutral and more digitised. According to the paper, these are: cobalt, germanium, heavy rare earths
(HRE), iridium, light rare earths (LRE), lithium and ruthenium. While cobalt, lithium and
ruthenium are, for example, needed when it comes to producing batteries for energy storage, iridium and rare earth metals are required for green hydrogen applications. At the same time, all seven of these metals are essential for automating and connecting industrial processes (‘Industry 4.0’) as they are needed for sensor technology, chip performance or 3D printers, the report outlines. Given the importance of these
seven metals for enabling a digital and decarbonised industry, global demand for these commodities is expected to spike significantly over the next two decades – with the gap between supply and
demand becoming bigger if countries ramp up their sustainability goals (‘ESG path’, see Figure 2). As the paper stresses,
the sustainability agenda is changing the commodities market from both sides – increasing demand and lowering supply for certain raw materials. China, for example, is aiming to reduce energy and emissions intensity (per unit of GDP) by 3–4% per annum over the next five years, which will be supported by the reduction of metals refining and concentration on domestic consumption rather than exports. According to Deutsche Bank Research, “these targets should still limit output growth over the medium-term” as steel, metals, minerals and chemicals account for approximately 25% of electricity consumption and related emissions.
Six suggestions for new sourcing strategies The increasing demand for geographically concentrated commodities requires a strategic approach to ensure long-term supply. “Such a commodities procurement strategy should bring together
Figure 1: Comparison of the globally leading mining and refining countries India Canada
South Africa Peru USA Chile Russia Brazil
Australia China
0 5 10 3.2
4.0 4.1 4.2
5.1
5.8 5.9 6.5
Shares in % of the largest countries in global mine production by value
Indonesia Turkey
Germany Brazil
South Korea USA
13.4 18.0 15 20
Russia Japan India China
0
1.3 1.6 1.8 2.0 2.9 3.3 3.5 3.8 5.6
10 20 30
Shares in % of the largest countries in global refinery by value
50.4 40 50 60 Source: Data taken from Deutsche Rohstoffagentur, Rohstoffliste 2021; illustration by Deutsche Bank
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