Trade Finance TV: why are rare earth metals pivotal to global trade?

Rare earth metals (REMs) are essential raw inputs used to manufacture more than 200 different commercial products, as well as everyday consumer goods such as mobile phones, cameras, computer drives, floodlights and microwave filters.

The global supply chain for these rare earth metals is fragile and vulnerable to geopolitics.  Our guests on Trade Finance TV take a closer look at geopolitical choke points, supply risks, and what is being done to manage this by governments, producers and financiers.

These metals play a key role in the clean energy transition but does extraction exacerbate global warming? It does not need to.  As the EU’s Peter Handley puts it, “Today’s fossil fuel economy is about digging stuff up and burning it and what you have got left is CO2 emissions that contribute to global warming. Compare that with extracting and processing metals which go into products – you get the use of the product but then you can recover the metals and minerals and you don’t have to assume that mining and processing are done in a dirty way.”

Tune into this insightful show to hear more from Peter and also from our two economists, Dr Rebecca Harding and Dr Marion Laboure

This particular episode, being recorded in the morning for all participants saw the introduction of our Trade Finance TV coffee mugs and included a plate of French macaroons in honour of our French guest Marion Laboure, and also that it happened to be the Presenter’s birthday…

Participants

Dr Marion Laboure, Director and Strategist, Deutsche Bank Research

Dr Rebecca Harding, Independent Trade Economist

Peter Handley, ‘Energy Intensive Industries, Raw Materials, Hydrogen (video link)

Note that Marion Laboure references the Deutsche Bank Research Chartbook: Rare Earth Metals 101 (published 27 March 2023, available to subscribers)  

Presenter

Clarissa Dann, Editorial Director, Deutsche Bank

Transcript of Interview

Clarissa Dann: Rare earth metals are essential raw inputs used to manufacture more than 200 commercial products, and the global supply chain for these rare earth metals is very fragile and vulnerable to geopolitics. So our guests on Trade Finance TV today will take a closer look at what is being done to manage this by governments, producers and financiers.

Rebecca Harding: There’s a distinction between rare earth elements which have exotic names like Yttrium and Cerium and all sorts of names like that. And there are 17 of those, and they basically make things faster or they improve efficiency or they make capacity to do things on a smaller scale. So they’re incredibly important to our modern life. Now there’s also something called rare earth metals and critical metals and minerals. And those include things like lithium and tungsten and all of the things that we hear about all the time as being critical for our supply chains, and managing our transition actually away from dependency on fossil fuels towards something that is more sustainable and uses a lot more electric power and electronics.

Clarissa Dann: And Marion, you did a Deutsche Bank research paper on this. What were the points you brought out?

Marion Laboure: First, rare earth metals are much rarer, and if we look at where they are produced, the top three countries are basically China, Japan and Russia and they are non-US allies, so it creates like a lot of pressure. So China is producing 70% of our earth metals and actually the EU is importing 98% of earth metals from China and the US is 74% from China. We also see companies trying to decrease or remove the use of rare earth metals, for example Tesla, but it’s also true for many other carmakers.

Peter Handley: The European Union, and I think this is also true for the UK, has tended to let other parts of the world take care of the mining and processing of these things. And we’ve let ourselves into a strategic dependency on just 1 or 2 suppliers. That’s a potential threat to our own economic security, and that’s why the European Union and I know also the United Kingdom are taking steps to reduce these strategic dependencies, to diversify their external sourcing, and also to do more with the resources we have inside our own land.

Rebecca Harding: China has a very dominant power at the moment, but Japan and Germany actually have trade surpluses in this area. And the reason why is because Japan was particularly exposed to China in 2014, because of the Senkaku Islands dispute, and China just shut down access at that point for Japan. So it developed its own processing, its own relationships with Vietnam. Australia is coming in as well. Australia is big in this market and you’ve also got South America and Africa as well. So you’ve got things like cobalt and nickel which are also being produced, fx in DRC, Democratic Republic of Congo. So you’ve got this very complicated global supply chain. The US also has its critical supply chain act and it’s got critical supply chain strategies as well. So to try and shift procurement to distribute supply chains, if you like, because that is a big issue for supply chain resilience.

Peter Handley: Well, if you look at any map of Africa, you will see Chinese companies throughout the continent, and that’s largely due to the West itself deciding to withdraw. So now we’re trying to engage afresh with African countries who haven’t always had the best deal. When they’ve been working with Chinese companies, they often don’t get many jobs for their skilled people. They don’t get the midstream processing because it all get shipped to China. So there is a potential to actually offer something which is better for the welfare and economic development of those countries in Africa.

Marion Laboure: We are also seeing discoveries of rare earth metals, so it happened in Sweden, but also happened in the UK, in the US and many other countries. So they are discovered in Sweden, there are like 11 million tonnes but it’s not ready yet. 10-15 years minimum, assuming everything is going well and it’s not easy, because extracting, producing, refining with metals comes with health issues and mental issues, so it’s not yet there.

Rebecca Harding: What’s really important here is that some of the practices that go on in these mines are actually against all of the ESG considerations that are becoming very important in a European supply chain context as well. The processing pollutes, you know, huge quantities of water, huge quantities of chemicals that need to go into the whole processing thing. Somebody has got to pay for the infrastructures to do the cleaning itself and the processing itself in a more sustainable way.

Peter Handley: Today’s fossil fuel economy is about digging stuff up and burning it. Okay? And what you’ve got left is CO2 emissions which contribute to global warming. If you compare that with extracting and processing metals, which then go into products, you get the use of the product, but then you can recover the metals and minerals. Some of these metals can be recycled infinitely, things like copper fx, and you don’t have to assume that mining and processing have to be done in a dirty way as they have been done in the past.

If you replace use of fossil fuels for the mining process with renewable energy and automated vehicles using batteries, you can already clean up the mining side a lot. And if the processing you’re not using a coal-based energy system, but you’re using one source or other of clean energy, you can get your performance and benefits without having to have the same level of environmental implications as you’ve had in the past.

The legal and political framework needs to make sure that companies take more responsibility for looking into their supply chain vulnerabilities and taking the necessary investment actions in response. The Governments try to do some de-risking and indicate the strategic importance of all this. We have actually set the direction through our Critical Raw Materials Act where we said by 2030 we want to be able to source domestically at least 10% of our consumption needs for these materials. At least 40% processing of these materials and at least 15% recycling of these materials. So we are really sending a strong signal both to national governments, industry and the financial sector that this is an area where investment is crucial.

Clarissa Dann: I’d like to thank Rebecca, Peter and Marion for joining me here in the studio today at Trade Finance TV.

Published on May 30, 2023

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