China’s power shortages and their impact on the European critical raw materials industry
Since September 2021, the world has been experiencing global supply-chain bottlenecks, which are leading to shortages of components and surging prices of critical raw materials (CRMs). There are several reasons that explain the current international supply-crisis.
Part of the problem is the aftermath of the Covid-19 pandemic, which has led many factories and retailers in Western countries to desperately search for finished products, raw materials and other components coming from countries that are still undergoing lockdowns and other restrictions (e.g. China).
Another reason is China’s unofficial ban on imports of Australian coal, which has provoked a rising demand in the fuel which provides 73% of Chinese electricity. This has resulted in rationing electricity supplies, including those of factories.
However, at the center of the global supply-bottle necks, especially for CRMs, is the Chinese Government’s “dual control” energy policy. In September, the province of Shaanxi ordered many producers to stop or reduce production to meet the region’s 2021 targets for limiting energy usage.
This is hugely problematic for the EU due to its dependency on China, for example for magnesium supply needs (95%). Not only does this affect the European aluminium and magnesium, iron and steel producers and their raw materials suppliers, it also has far-reaching consequences for key end-use sectors such as the automotive industry, construction and packaging. According to the Association of German Chambers of Industry and Commerce, more than a quarter of companies have had to reduce or even stop production as a consequence of the magnesium supply shortage in the EU.
At the moment, the Chinese Government’s energy policy of rolling blackouts does not seem like a sustainable solution considering the damage it will inflict on industry nationally and worldwide. Therefore, there is an urgent need for the European Commission to take action with China to mitigate the short-term critical shortage issue in Europe.
Long-term solutions must also be explored where minimizing the adverse regulatory burdens that impede advancement or the continued availability of critical raw materials must be of high priority. Improving the conditions and incentives for sustainable access of sourcing of CRMs in the EU will also aid in guaranteeing supply of these materials in the EU.
In conclusion, the CRM Alliance calls on the European Commission and Member States to urgently adopt actions to mitigate the supply shortage of certain CRMs in the short-term while exploring new solutions to guarantee a continued and sustainable supply of CRMs in the long-term.