The European Commission is utilizing the economic instruments of the single market to establish a series of strategic partnerships aimed at diversifying and enhancing the resilience of Europe's supply chains for critical raw materials.
Faced with looming deficits for the critical raw materials such as lithium, cobalt, manganese, graphite and copper -- considered critical to the global energy transition -- the EU along with other developed economies is seeking to diversify its supply away from China by establishing strategic partnerships with mineral-rich countries.
Critical raw materials have subsequently moved to the center of EU diplomacy as the bloc seeks to reinforce its supply chains amid surging demand and growing international competition for resources.
In its draft Critical Raw Materials Act published in March, the EU acknowledged the shortfall in its domestic supplies of critical raw materials and emphasized the importance in establishing strategic partnerships covering raw materials with "third countries".
According to the Commission's proposal, not more than 65% of the EU's annual consumption of each strategic raw material at any relevant stage of processing should come from a single third country.
"The Union's strategic priority to diversify its critical raw materials supply needs to become a priority of the Union's external action and diplomacy in the framework of the Team Europe approach and in line with its energy and climate external policy," it said.
Europe currently relies heavily on imports of critical raw materials from a narrow band of third-country suppliers, creating supply chain risks for European manufacturers of electric vehicles and battery storage systems.
In the case of lithium, global production is dominated by a handful of countries, with Australia, Chile and China collectively accounting for 92% of lithium supply in 2022, according to the US Geological Survey.
In addition, an EC report published in May estimated that China currently controls almost 60% of the world's capacity for processing raw lithium products into battery-grade chemicals.
New strategic partnerships
In a recent exchange with S&P Global Commodity Insights, an EC spokesperson said the EU needed to mitigate the risks for supply chains related to such strategic dependencies in order to enhance its economic resilience, as highlighted by shortages in the aftermath of the coronavirus pandemic and the energy crisis following Russia's invasion of Ukraine. A failure to do so risks derailing the EU's efforts to meet its climate objectives, he said.
In support of this agenda, the EC has established strategic partnerships on critical raw materials with Canada (June 2021), Ukraine (July 2021), Kazakhstan (March 2020), Namibia (November 2022), Argentina (June 2023) and Chile (July 2023).
The EC spokesperson said these strategic agreements were also being facilitated as part of the EU's Global Gateway strategy, which seeks to meet infrastructure development needs in emerging markets and developing countries by strengthening investment ties and establishing economic partnerships.
According to the EC, these partnerships enable both parties to advance their trading relationship and create investment opportunities for companies into "secure, sustainable and resilient raw materials value chains.
"The EU is working with reliable partners to promote their economic development in a sustainable manner through value chain creation, while also promoting secure, resilient, affordable, and sufficiently diversified value chains for the EU," the spokesperson said.
Building on this strategy, free trade agreements are currently under negotiation with Australia and Indonesia, both of which are expected to contain energy and raw material chapters.
A specific critical minerals agreement is currently under negotiation between the EU and the US, in response to the US Inflation Reduction Act, with a final agreement due to be announced on Oct. 20.
On 31 July, EC president Ursula von der Leyen and the president of the Philippines announced their intention to start a scoping study for a possible free trade agreement.
In addition, the EC has an ongoing dialogue with the Democratic Republic of Congo aimed at establishing a partnership on sustainable raw material value chains. The negotiations are currently ongoing, with a view of signing a memorandum of understanding.
The dialogue comes after the EU announced in March that it would invest Eur50 million in the DRC's critical minerals sector and infrastructure projects.
According to the EC spokesperson, the strength of the EU's offer of partnership is its commitment to support these countries in moving up the value chain and extracting more value from their mineral resources.
"Through the Global Gateway, the EU's strategy to deliver sustainable and secure links that work for people, prosperity and the planet, we are committed to deliver concrete benefits to our partners, for instance by building clean and green infrastructure for the transformation of mineral resources locally," he said.
In Africa alone, the EU has pledged Eur150 billion for investment under the Global Gateway, part of which will be dedicated to the critical raw materials sector.
Critical raw materials club
In addition to its bilateral engagement with third-party countries , the EU is working to establish a critical raw materials club whereby consuming countries and resource-rich countries work together in ramping up and diversifying the sourcing of raw materials.
Participants would co-operate to invest more in a sustainable manner, foster sustainability and resilient supply chains, and to assist resource-rich countries in their ambition to develop local processing capacities, the EC spokesperson said.
The Commission is in the process of collecting support for the club in selected third countries, the spokesperson said.
Platts, part of S&P Global, on Oct. 18 assessed seaborne lithium carbonate and lithium hydroxide at $23,100/mt CIF North Asia and $22,700/mt CIF North Asia, respectively, down 68% and 70% since the start of the year.