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THE NEW POLITICAL ECONOMY OF RARE METALS
Critical Metals Investment Symposium
Vancouver, January 21, 2011.
JAAKKO KOOROSHY
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TRATEGIES
INTRODUCTION
The Hague Centre of Strategic Studies (HCSS)
•Independent think-tank providing strategic orientation and
navigation services
•Clients range from national governments, transnational
organizations to private companies & NGOs
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organizations to private companies & NGOs
•Young, rapidly growing organizations with excellent European
and trans-Atlantic ties
•“The political economy of resource markets among key topics
•Focus on rare metals with much in-house expertise, an excellent
track-record and strong networks
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INTRODUCTION
The Hague Centre of Strategic Studies (HCSS)
Why focus on the political economy of natural resources?
•One of the central ‘new’ strategic issues in a multipolar world
•Multiple linkages to a number of other strategic themes of our
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•Multiple linkages to a number of other strategic themes of our
time (e.g. climate change, the Return of Asia, the energie
transition)
•A central policy challenge of our times
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INTRODUCTION
The Hague Centre of Strategic Studies (HCSS)
•Scenario development for the national risk assessment of the
Netherlands and advising of other ministries
•POlicy on NAtural RESources (POLINARES) large 7th Framework
Programme project with 12 European partners
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Programme project with 12 European partners
•Watch Out: “Conflict, Coltan, & Congo”
•Partnering with Oakdene Hollins for assessing rare metal supply-
chain bottlenecks in priority low carbon technologies for the JRC
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SCARCITY: AGE OLD FEAR & FASCINATION
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I looked, and there before me was a black horse! Its rider was holding a pair of scales in his
hand. Then I heard what sounded like a voice among the four living creatures, saying, "A
quart of wheat for a dinares, and three quarts of barley for a dinares”
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WHY COMMODITIES MATTER AGAIN-
• “new economy” (1995-2001) >> “revenge of the old economy” (2004)
>>“revenge of the old political economy” (2008) >> “new normal” (2009-?)
• Commodities key part of the story, with
• high price levels and strong volatility
• tight markets and supply side constraints
• states and their proxies (SWFs, SOEs, regulatory bodies) as key actors
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• states and their proxies (SWFs, SOEs, regulatory bodies) as key actors
in markets
• added factor Climate Change debate
� Intense politicization and securitization of commodity markets
�Emerging nexus of environmental, economic & security policy
Demand Side
Fast Demand Growth
Price Increases
HISTORICAL EPISODES OF HIGH COMMODITY PRICES
Supply Side
Slower Supply Growth
Increases
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SUPERCYCLES???
+For rare metals:
•Technology-driven demand spikes
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Source: Cuddington & Jerrett (2008), Super Cycles in RealMetals Prices, IMF Staff Papers, Vol 55, no. 4; p. 558.
+ demand spikes
•High concentration of supply
Fast Demand Growth
Securitization
Price Increases
Market Distortions& Supply
A SIMPLE MODEL: THE POLITICAL ECONOMY OF RESOURCE PRICE HIKES
Slower Supply Growth
Politicization
Increases & Supply Disruptions
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GOVERNMENT INTERVENTION IN RARE METAL MARKETS
•Rare metals are especially prominent in the resource debate due to:
•Western import-dependence & crucial role of China
• indispensability for high- & green-tech applications
• inelasticity & concentration of supply
• fast-growing & highly volatile demand
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fast-growing & highly volatile demand
� This creates supply security concerns and makes (some) metals
into “strategic” resources!
� The strategic value & political economy of each metal is
unique, evolving rapidly, and …
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GOVERNMENT INTERVENTION IN RARE METAL MARKETS
•In response to supply security concerns, importing countries
• designate particular rare metals as “critical”
• actively monitor supply and demand
• create stockpiles & develop domestic supply
• diversify & secure supply
• regulate trade and consumption
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•Authorities of exporting countries seek to
• increase profits through taxation, licensing, nationalization
• control valuable downstream industries through preferential supply
or export restrictions
• use rare metals as strategic bargaining chips.
� … this can matter greatly for the success of business ventures
and investments in the market for a given rare metal!
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THE CHALLENGE OF POLICY RESPONSE
•In the context of historical price hikes, there is little new about current
policy responses
•Case studies demonstrate that perceptions and responses differ
considerably and are shaped strongly through national policy ‘prisms’
•Different policy approaches impact different aspects of the price/politics
nexus
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nexus
•National policy responses can sometimes be counterproductive...
Fast Demand Growth
Securitization
Price Increases
Market Distortions& Supply
A SIMPLE MODEL: THE POLITICAL ECONOMY OF PRICE HIKES
Slower Supply Growth
Politicization
Increases & Supply Disruptions
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•Raw Materials Initiative (RMI) led by DG Enterprise & Industry
resulted in the 2008 Communication with focus on non-energy
mineral resources:
•Ensure equal access for European industry globally
•Promote supply expansion from European sources
•Boost resource efficiency and recycling
EUROPEAN POLICY RESPONSE TO RARE METALS DEBATE
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•Follow-up EU criticality study released June 2010:
•Examines 41 minerals and metals with 14 labeled as “critical”
•Recommends to tailor policy responses for each critical material
•Extensive consultation process has just been wrapped up
•Watch out! A new Commission Communication on latest
developments and the progress of the RMI at the end of this year
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•Raw Materials Initiative (RMI) led by DG Enterprise & Industry
resulted in the 2008 Communication with focus on non-energy
mineral resources:
•Ensure equal access for European industry globally
•Promote supply expansion from European sources
•Boost resource efficiency and recycling
TWO EXAMPLES : EUROPEAN POLICY RESPONSE TO RARE METALS DEBATE
TRATEGIES& POLICY
•Follow-up EU criticality study released June 2010:
•Examines 41 minerals and metals with 14 labeled as “critical”
•Recommends to tailor policy responses for each critical material
•Extensive consultation process has just been wrapped up
•Watch out! A new Commission Communication on latest
developments and the progress of the RMI coming any moment
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EUROPEAN POLICY RESPONSE TO RARE METALS DEBATE
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Source: European Commission, DG Enterprise and Industry “Critical Raw Materials for the EU” Brussels, 2010.
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• EU is stepping ahead with member states’ responses still
fragmented:
•Germany is in the lead
•Strong French response has been somewhat delayed
•UK is still looking to develop a coherent policy
•Compared to US and Japanese efforts to ensure supply security:
CONCLUSION: WHERE DOES EUROPE STAND ON RARE METALS?
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•Compared to US and Japanese efforts to ensure supply security:
•No stockpiling
•No establishment of domestic / Western supply chains for
rare metals
•Little government investments as of yet
�This might change very fast!
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EU MEMBER STATE RESPONSES: GERMANY
�A driving force behind the EU
Raw Materials Initiative (RMI)
�Following ongoing
“Rohstoffdialog”, the German
government is currently finalizing
its new “Rohstoffstrategie”. Key
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•Close cooperation between various ministries, BGR & corporations, with
a new “Rohstoffagentur” as central actor
•Strengthening of bilateral cooperation with resource-rich developing
countries
•International engagement to lower market distortions and promote
global investments through “ungebundene Finanzkrediete” (UFK)
its new “Rohstoffstrategie”. Key
elements are:
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•So far the US policy response has been focused on REEs and the
national security aspects of rare metals supply.
•Growing list of legislation:
�H.R. 4866 RESTART Act
�S.3521 RESTART Act
�H.R. 6160 Rare Earths and Critical Materials Revitalization Act of 2010
P.L. 111-84, the Fiscal Year 2010 National Defense Authorization Act
TWO EXAMPLES : US POLICY RESPONSE TO RARE METALS DEBATE
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�P.L. 111-84, the Fiscal Year 2010 National Defense Authorization Act
�H.R. 5136 Fiscal Year 2011 National Defense Authorization Act
•Policy response has mainly consisted of stockpiling initiatives and calls for
government support to domestic mining activities, with DoD as principal
actor.
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•Independently hereof the DoE has followed its
own trajectory and recently published major
criticality report
•The report provides the outlines of a new policy
strategy. Considered options include:
•Selective financial assistance most likely as loan
guarantees
TWO EXAMPLES : US POLICY RESPONSE TO RARE METALS DEBATE
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guarantees
•simplified permitting for mines and
manufacturers
•increased recycling
•international diplomacy
•Also an extensive new R&D plan
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TWO EXAMPLES : US POLICY RESPONSE TO RARE METALS DEBATE
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Source: DoE “Critical Materials Strategy” Washington, 2010.
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SHORT RECAP
•Like other commodity markets, the markets for metals have
become subject to intense politicization and securitization
•In times of the “new normal”, the unique political economy of
each metal market creates specific threats and opportunities for
miners, manufacturers & investors
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•Grasping, anticipating and navigating this political economy is
rapidly becoming a key determinant to business success in the
world of mining
•HCSS is a reliable partner in strategic orientation & navigation
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SHORT RECAP
•Questions???
•Please get in touch!
�www.hcss.nl
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