Europe balks at strategic stockpile for critical green metals

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The European Union isn’t planning to stockpile battery metals and other critical commodities as part of new measures to ensure supplies — rowing back a previous suggestion — after some major manufacturers opposed the move.

Securing resources for the energy transition and aerospace and defense sectors has become key for authorities after the pandemic and invasion of Ukraine disrupted supply chains. A December study for the European Parliament recommended that the EU follow nations like Japan and South Korea by creating a strategic stockpile with the private sector that could be tapped if imports are interrupted.

That could involve buying between €6.5 billion ($7 billion) and €26 billion of reserves, the study concluded.

But draft legislation seen by Bloomberg and due to be presented to politicians this week shows the EU will instead monitor nations’ inventories and make non-binding “opinions” about strategic purchases if needed. The proposals may still change and also include plans to boost mining, processing and recycling of key materials used in renewables, electric vehicles, aerospace and defense.

It’s a softer approach than authorities have taken in the US and China, where strategic stockpiling programs were set up decades ago. For Beijing, the State Reserve Bureau has become a particularly influential force in industrial metals markets, making massive purchases when prices are low, and releasing stocks when they rally too far.

The fear among some European industrial firms is that rather than acting as a relief valve for buyers, a central stockpile purchases risk exacerbating the kind of frenzied buying seen in several key commodities markets in recent years.

The energy crisis has hurt production of several key industrial commodities, exacerbating worries about supply and accelerating a years—long decline in regional output. That has prompted EU states including Germany and Italy to strike deals with commodities traders to secure energy and base-metal supplies.

When unveiling plans for the Critical Raw Materials Act last year, European Commission President Ursula von der Leyen indicated it would include measures to boost strategic reserves of several critical raw materials including lithium and rare earths.

“We will identify strategic projects all along the supply chain, from extraction to refining, from processing to recycling,” she said at the time. “And we will build up strategic reserves where supply is at risk.”

The draft legislation listed more than 30 materials it will target as critical, including lithium, cobalt, rare earths and platinum metals.

The commission has a policy of not commenting on draft documents.

Read More: US, EU to negotiate critical minerals agreement

Pushing back

While plans to bolster supplies through measures like expanding local mining and trade with other producing countries have won support, some major industrial companies in Europe have pushed back on the idea of a stockpiling program.

“Centralized storage of strategic raw materials is the wrong strategy,” a group representing Volkswagen AG and the broader German auto industry told the commission in a letter last year. “Central stockpiling only puts additional pressure on the supply, which is already scarce.”

Johnson Matthey Plc, which supplies products containing precious metals, urged “extreme caution” to avoid unintended consequences and potentially moving prices significantly, especially in smaller and less liquid markets. Chemicals giant BASF SE said it would support a voluntary stockpiling initiative.

British engineering firm Rolls-Royce Holdings Plc said stockpiling should only be considered after thorough analysis of needs and likely unwanted impacts, particularly the potential to further pressure already strained supply chains.

China is the dominant supplier for two-thirds of the raw materials that the EU identified as critical in 2020. For magnesium, it was responsible for almost 90% of global production at the time.

Industrial importers of such materials are in many cases small and mid-sized firms. Under the proposed new law, the EU will aim to create a pooled purchasing system to strengthen their commercial bargaining power, the draft shows.

(By Mark Burton, Alberto Nardelli and Ewa Krukowska)


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