Written evidence submitted by Chatham
House (SIM 21)
1. Is there a global shortfall of in the supply
and availability of strategically important metals essential to
the production of advanced technology in the UK?
Much of the answer to this and following questions
depends on time-horizon (short-term, mid-term, long-term); assessments
of what constitutes a strategic metal (for military applications
or for broader industrial development, eg low carbon technologies);
and global trends in economic growth and technological development,
as well as developments in global politics and openness of trade.
The potential difficulties arising in the short-term,
medium-term and long-term are qualitatively different. In the
short-term the question is principally one of security of supply,
stocks, price and possible restrictions on exports on the part
of a major exporter, which becomes acute in a situation where
there is insufficient diversification of suppliers. In the medium-term
the principal question is one of whether sufficient investments
will take place to support supply, and whether these will be sufficiently
diversified. Short-term resource scarcity (eg REMs) may not be
permanent if other sources are brought on-line—but this
takes time (10-15 years at least). There is also the question
of investment in potential substitutes, alternative technologies/processes
and the construction of political and other alliances to achieve
a reasonable confidence that the market power of any single producer
has been reduced to a reasonable level. In the long-term, genuine
issues of physical scarcity apply, and the key objective becomes
substitutes/processes should the problem be one of actual scarcity
and, above all, the maintenance of the principle of open markets
on the other, should the problem be more related to concentration
of supply.
On a global scale there is no short-term geological
scarcity of metals that might be termed strategically important.
Over the longer-term, in recognition of natural global resource
consumption patterns that are not sustainable, there are broader
challenges relating to geological scarcity that come into play
for different metals over radically different time horizons.
However, as EU and US agencies have identified in
recent reports, and as Japan has directly experienced, there is
a fundamental generic problem that arises from market concentration
of production or processing of particular minerals. This risks
politicisation, or the perception of politicisation.
The exemplar here is the apparent Chinese restriction
of exports of Rare Earth Minerals (of which China is responsible
for 97% of exports) to Japan. However, it is unclear whether this
was a political decision in the midst of an interstate disagreement,
or whether it simply reflected a lack of supply for Chinese manufacturers,
or whether it is part of a broader long-term strategy to persuade
manufacturing companies to move their operations to China in order
to avoid any supply interruption risk. The answer may be a combination
of all three. The bigger issue may not be China deliberately using
market dominance as a political tool in other areas, but simply
the shift of China up the manufacturing value chain with the consequent
reduction of minerals available for export.
As with Russia's supply interruptions of natural
gas to Ukraine, it may be hard to determine a single strand of
intentionality—whether genuinely geopolitical or simply
commercial—in such cases. And while this matters in the
short-term it may not matter in the longer-term. Supplier countries
may ultimately lose out from supply interruptions, however motivated,
if their actions are perceived to justify diversification of suppliers,
or renewed investments elsewhere, or enhanced recovery and recycling
programmes.
2. How vulnerable is the UK to a potential
decline or restriction in the supply of strategically-important
metals? What should the Government be doing to safeguard against
this and to ensure supplies are produced ethically?
Britain is no more directly exposed to a potential
decline or restriction in strategically important metals than
other advanced economies. Indeed it may be marginally less exposed
in the sense that it has a smaller advanced manufacturing sector
than Germany or Japan—though this may change in the future
if an economic strategy of developing low-carbon technologies
and industries is successful. Most strategic metals are imported
into the United Kingdom embedded in components or finished products.
The enmeshment of global supply chains and production
creates both a strength and weakness. The strength is that Britain
is unlikely ever to be alone in terms of being exposed to a shutdown
in the supply of strategically important metals. A politically
driven shutdown would tend to involve a large number of consumer
countries. The weakness of global supply and production chains,
from a British perspective, is that it may be difficult to reliably
identify vulnerabilities—particularly where it is not the
mineral itself which is used by British manufacturing, but a mineral
embodied in a component manufactured elsewhere.
On a political level, Britain would do well to build
awareness and alliances within the European Union context, help
craft legislation to encourage better resource use and recycling
(at home and in the EU) and support diversification of supplies
of minerals, particularly from reliable market-based economies
(US, Canada, Australia, Greenland) with neither political incentive
nor likely economic incentive to restrict supply. Monitoring of
natural resource dependencies at the European level would be useful,
as would coordinated stockpiling. Britain may want to be active
in establishing firmer global protocols on trade in minerals and
natural resources, including those deemed strategic/sensitive.
The UK/EU should develop scenarios to better understand the second
and third-order consequences of supply shutdowns, for whatever
reason.
But a political/policy response should be complemented
with facilitation of investment in materials' innovation, support
for recycling, and scientific research into possible substitutes.
Britain's long-term economic future—and its relationship
to many resource-exporting countries—is linked to it scientific
and technological capacities.
3. How desirable, easy and cost-effective
is it to recover and recycle metals from discarded products? How
can this be encouraged? Where recycling currently takes place
what arrangements need to be in place to ensure that it is done
cost-effectively, safely and ethically?
The desirability of recovery and recycling depends
on the metals, the costs (both economic and environmental) of
recovery and recycling, the perceived criticality of the metal,
and its perceived scarcity.
Some recycling and recovery may happen in the UK,
but it may be equally or more important to build recycling and
recovery in at the EU level, creating broader EU regulations and
incentives. The Japanese approach is far ahead of the EU in this
area.
4. Are there substitutes for those metals
that are in decline in technological products manufactured in
the UK? How can these substitutes be more widely applied?
Metals used for specific purposes are generally used
because they are either the best metal to use (at that price),
or because their qualities are hard to replicate or indeed unique.
In some contexts substitution may be fairly easy, or may result
in only minor losses in performance, which may in turn be compensated
for by shifts in product design. In advanced contexts where performance
has to be maximised there may be no substitutes. Research is key,
not only as a means of improving UK resilience but also as a means
of capturing potential economic opportunities arising from materials'
scarcity.
5. What opportunities are there to work internationally
on the challenge of recovering, recycling and substituting strategically
important metals?
The exchange of information on critical materials
within the context of multi-lateral organisations (NATO, EU) would
appear central. Establishing broader trade protocols for natural
resources offers another multi-lateral approach, particularly
through the WTO. Knowledge-sharing in recycling techniques and
regulations could prove useful.
The scale of the EU economy offers the opportunity
to create a substantial market for recovered or recycled materials.
At the higher end of advanced manufactured products, where it
is quality and technology rather than price that affects the competitiveness
of specific products it seems unlikely that additional regulation
would have a strong negative impact on European competitiveness,
but this would have to be substantiated by specific impact research.
Charles Emmerson
Senior Fellow
Chatham House
10 February 2011
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