Strategically important metals - Science and Technology Committee Contents

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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Prepared 17 May 2011