Europe looks to cut dependence on Chinese commodities

The European Union has issued a plan to cut its dependence on Chinese supplies of rare earths, lithium batteries and solar-cell components, as it tries to build a green-energy economy that isn't largely made in Beijing (reports the Fin Review))
11th September 2020
Resources Rising Stars

The European Union has issued a plan to cut its dependence on Chinese supplies of rare earths, lithium batteries and solar-cell components, as it tries to build a green-energy economy that isn't largely made in Beijing (reports The Australian Financial Review).

Brussels will bring industry, governments and NGOs into a "European Raw Materials Alliance", which will refashion the continent's supply chains for up to 30 critical products - including those used to make wind turbines, fuel cells, solar panels, magnets, drones and batteries for electric vehicles.

Lithium appears on the EU's critical list for the first time, in a fillip for the clutch of Australian listed companies looking to mine and process it within Europe.

"We cannot afford to rely entirely on third countries - for some rare earths, even just one country," said the EU's Internal Market Commissioner Thierry Breton, as he launched the Action Plan on Critical Raw Materials on Thursday (AEST).

"By diversifying the supply from third countries and developing the EU's own capacity for extraction, processing, recycling, refining and separation of rare earths, we can become more resilient and sustainable."

Brussels will look to "build sustainable and responsible strategic partnerships with resource-rich countries", the Action Plan said, name-checking Australia as one of its priorities.

The strategy isn't overtly aimed at China - there are also dependencies on Turkey, the Democratic Republic of the Congo, and South Africa - but the European Commission's analysis shows that in most cases the Asian behemoth is the critical risk factor.

The Action Plan's risk assessment notes "major concerns" about China's "quasi-monopolistic role" in rare earths used to produce magnets for wind turbines, and its dominance of lithium battery production.

The Europeans' concern has accelerated since the onset of COVID-19, according to Mike Deeks, Western Australia's Agent-General in London.

"So many businesses got caught out by the sudden lockdown in China which, in many cases, completely halted their only source of supply," he told a trade webinar on Thursday.

"This could happen again, without warning, due to another pandemic, a natural disaster, let alone political unrest and trade disputes."

Europe is also increasingly waking up to the strategic threat from China, as Beijing pursues its own interests more aggressively and explicitly.

In a policy shift Brussels has dubbed "open strategic autonomy", the EC has encouraged member states to screen major Chinese investments more rigorously and to fight unfair trade practices more trenchantly. The involvement of Chinese telco Huawei in 5G networks across the continent is also in question.

This past week, European leaders have hardened their rhetoric with Beijing after Foreign Minister Wang Yi's five-nation tour of the continent descended into acrimony.

Mr Yi said the Czech Senate President Milos Vystrcil would pay "a heavy price" for his visit to Taiwan, which "crossed a red line". Germany's foreign minister, France's foreign ministry and Slovakia's president all upbraided Mr Yi for his remarks.

The next big test will be a formal phone conference between Chinese President Xi Jinping and German Chancellor Angela Merkel, flanked by key EC bosses from Brussels, in mid-September.

Beside the strategic challenge lies a simple supply-demand problem: in some cases, Chinese production simply won't be enough to meet soaring European appetite as the continent implements its shift to net-zero emissions by 2050.

Although lithium isn't a short-term worry, for example, "in the medium-term, large investments are needed to avoid a significant market deficit beyond 2025", the EC said. The report estimates the continent will need 18 times its current demand for battery-grade lithium by 2030, and up to 60 times as much by 2050.

That's attracted ASX-listed players such as European Metals Holdings, Vulcan Energy Resources, European Lithium and Infinity Lithium, which have mining and processing projects on foot in countries such as Austria, the Czech Republic, Germany and Spain.

The EC said it would identify mining and processing projects across the rare earths and other materials that could be up and running by 2025, and would be looking particularly closely at potential projects in what are now coal-mining regions.

Recycling raw materials from used kit will form a separate part of the strategy. ASX-listed Neometals is hoping to jump on this trend, last month announcing a 50-50 joint venture with German company SMS to recycle materials from used lithium-ion batteries.

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