The bottleneck in the supply chains

Smelters and refineries have enormous geopolitical importance. In order to reduce dependencies on countries such as China, the EU is planning to further expand its domestic capacities. In doing so, Europe must not ignore the industrial policy interests of resource-rich partner countries and regions, but make them attractive offers.

While the first stage of the raw materials supply chain – the mining of metallic raw materials – receives a lot of attention, the second stage – the smelting or refining – often remains unexamined, even though it is a crucial element with regard to supply security and the traceability of supply chains. Ore concentrates from raw material mining are refined in smelters and refineries using various metallurgical processes. Only then can they be processed further into semi-finished products such as sheets, wires or pipes. These semi-finished products, in turn, are then integrated into end products such as vehicles, renewable energy systems and more.

Minerals supply chains are not only organized along these technical processing steps, but also structured geopolitically. While the extraction primarily takes place in countries of what is generally referred to as the Global South, the second stage of processing in particular tends to be located in China. According to data from the German Mineral Resources Agency (DERA), 50.4 percent of global refinery products in 2017 came from China. The PRC has strategically expanded its dominance in metals supply chains over the past twenty years and invested in the development of processing capacities.

German and European companies primarily deal with the third stage of the metals supply chain (see graphic) and are heavily dependent on imports of processed metals. This makes them vulnerable to supply bottlenecks resulting from export restrictions, trade conflicts, transportation and logistics problems and other events that affect supply chains. The Critical Raw Materials Act (CRMA), which was introduced by the EU in March 2023, is intended to address these risks. The draft bill, which is still in the consultation and pre-legislative phase, includes, among other things, the development of processing capacities within the EU. By 2030, at least 40 percent of the annual consumption of strategic metals is to be processed within the EU, and import dependencies on individual third countries should not exceed 65 percent at any relevant processing stage.

More smelters in Europe may lead to more recycling

Shortening supply chains can make the supply of metals required for the energy and mobility transitions more secure and help increase transparency and traceability. Direct supply relationships offer the opportunity to more effectively increase sustainability in both mining and processing. In addition, by siting smelters in Europe, the recycling of metals can be promoted as local smelters can also process materials from products at the end of their life cycle, which would be a contribution to the development of the circular economy. The goals listed in the CRMA are very ambitious, however, and whether they can be achieved is an open question. .

Moreover, too strong a focus on the development and expansion of processing in Europe carries the risk of ignoring the interests of resource-rich countries. In view of the current geopolitical upheaval, these countries hope to become more integrated into global raw materials supply chains. By establishing and expanding processing capacities, they want to increase local value creation and thus advance domestic economic development. The African Union (AU) is currently exploring what an African raw materials strategy could look like, for instance.

Support for the exploration and monitoring of raw material deposits

The EU should thus not focus solely on Europe but also support resource-rich countries in building up local value creation; particularly given the fact that many metallic raw materials are mined there in the first place and/or are not stored in Europe in the quantities required. Realizing value creation potentials involves much more than increasing smelting and refining capacities. The European Union must focus not only on its own supply security, but make attractive offers that take into account the industrial policy interests of its partner countries and regions, while specifically promoting sustainable approaches. These need to be tailored to the respective local context and can provide support in different ways. They can include, for example, financial and technical support for the exploration and monitoring of raw material deposits and for carrying out feasibility studies to identify regional and local potentials for value creation, as well as creating a sustainable energy and transportation infrastructure and strengthening technical cooperation. If this approach succeeds, international raw materials cooperation can become a central element of strategic and sustainable raw materials diplomacy.

Schematic representation of the supply chains of metallic raw materials. Source: El Observatorio de Conflictos Mineros de América Latina,
Schematic representation of the supply chains of metallic raw materials. Source: El Observatorio de Conflictos Mineros de América Latina,

Dr. Melanie Müller is a scientist with a focus on South Africa/southern Africa at the German Institute for International and Security Affairs (SWP) in Berlin. She also leads the Transnational Governance of Sustainable Commodity Supply Chains research project and is co-head of the Research Network Sustainable Global Supply Chains.

Lea Strack works as a research assistant at the German Institute for International and Security Affairs (SWP) for the Sustainable Global Supply Chains Research Network, which is run by the SWP in cooperation with the German Institute of Development and Sustainability (IDOS), the German Institute for Global and Area Studies (GIGA) and the Kiel Institute for the World Economy (IfW).

Further reading

This article is licensed under Creative Commons License