25th May 2022 – As metals procurement becomes a fundamental determinant of future economic success, Deutsche Bank recommends a reduction in dependency of German and other European economies on a few exporting countries

Germany and other EU countries should strive to invest in new and more sustainable strategies for securing long-term critical commodities supply, according to a new white paper from Deutsche Bank. The paper argues that it is vital to understand the current supply and demand dynamics and particularly the growing concentration risk entailed by the bloc’s current metal procurement strategy.

One reason for this, the paper notes, is that the global sustainability agenda is changing the commodities market from both sides – increasing demand and lowering supply for certain raw materials. What’s more, sustainable innovation in products such as batteries, semiconductors, wind power plants, solar panels, and electrolysis are massively increasing the demand for certain (refined) metals.

“New strategies regarding metals procurement will become crucial to economic growth, as metals will continue to play an essential role in major economies’ sustainable and digital transformation, as demand hits new highs and supply remains restricted to a few geographies,” says [Name, Title] at Deutsche Bank.

Demand is still far from peaking for certain metals. By 2050, it is expected to have grown 215% for aluminium, 140% for both copper and nickel, 86% for iron, 81% for zinc and 46% for lead relative to 2010 levels.

According to the paper, Germany currently depends heavily on commodities imports from a handful of countries that control concentrated deposits as well as refining capacity. Of the 30 critical raw materials that the European Commission identifies, 60% are largely sourced from China or the African continent, where China increasingly invests in commodity-related infrastructure. Russia is also the source of more than 40% of Germany’s refined nickel imports.

For other commodities, such as cobalt, the concentration risk lies in the raw material mining location (in this case, Congo). This commodity is considered “high risk” as it is produced in politically unstable regions (driving weighted country risk) where the commodity offer is limited to relatively few players (contributing to concentration risk). Lithium, by contrast, is only considered “medium risk” because it is sourced in countries that are considered more stable, such as Chile and Australia.

The report recommends that Germany, and other European economies should start to consider new strategies for metal procurement, refining and recycling. Any new strategy should bring together stakeholders in the German economy, political decision-makers and other parties such as trade associations.

According to the white paper, focus areas for innovation could include:

A strategic approach to inner-European sourcing and mining. This requires a thorough analysis of natural resources on the European continent and corresponding studies regarding the environmental impact and economic feasibility of potential exploitation. Apart from commodities security, this also addresses sustainability requirements regarding European working conditions and substantially reduced transportation distances.

Germany and other EU members should secure commodity partnerships with countries in South America and Africa as well as with Australia to diversify the supplier base for raw and refined materials. Bilateral or multilateral government agreements could pave the way for private sector initiatives. The private partnerships could either be set up via traditional long-term supply agreements, or by creating a stronger link between the partners through e.g., direct (equity) investments.

Recycling capacities should be built up in Germany and elsewhere in the European Union. A further pillar for a new commodity strategy should be the increase of recycling capabilities as well as the recyclability of the product. For a few materials, such as platinum group metals and cobalt, which are both needed for electric car engines, the EU already recycles more than 20%. This share should be raised for other raw materials, such as lithium and iridium, where the EU recycling rate is close to zero.

“The increasing demand for geographically concentrated commodities will require strategic and coordinated approaches to ensure long-term supply”, says Stefan Hoops, Head of Corporate Banking at Deutsche Bank. “Ultimately, commodities security is key to economic resilience as well as digital and sustainable transformation – and this means rethinking commodities strategy.”