Report on the European Commissions Critical Raw Materials Strategy

Draft
165th June 2011

Commercial in confidence

Report submitted to Companhia Brasileira de Metalurgia e Minerao by Beta Technology

Strictly confidential to Companhia Brasileira de Metalurgia e Minerao and Beta Technology Limited

Page 2 of 17

Strictly confidential

DRAFT

Report on the European Commissions Critical Raw Materials Strategy

For: Tadeu Carneiro, Chief Executive (CARNEIRO@cbmm.com.br ) Marcos Stuart, Technical Director (MARCOS.STUART@cbmm.com.br ) Companhia Brasileira de Metalurgia e Minerao Avenida das Naes Unidas, 12.901, 23 andar - Torre Oeste Brooklin Novo, So Paulo SP, CEP 04578-910.

Prepared by Richard Wrigley

Signature: Date: 16th June 2011

Contact: Richard Wrigley Managing Director Beta Technology Ltd Barclay Court Doncaster Carr Doncaster DN4 5HZ UK Tel: +44 (0) 1302 322633 Fax: +44 (0) 1302 388800 Email: richard.wrigley@betatechnology.co.uk

Page 3 of 17

Strictly confidential

DRAFT

Website: www.betatechnology.co.uk

Page 4 of 17

Strictly confidential

DRAFT

1. SUMMARY RECOMMENDATIONS AND DISCUSSION POINTS

The European Commission (EC) is working to ensure, as much as it is able, that Europes industry has access to the raw materials necessary for it to continue to grow and develop. This stance is in common with other nations including the United States of America and Japan. This has been, in part, initiated through the trading stance taken by China on its control of the rare earths that it mines. Niobium is one of 14 critical raw materials that have been identified by the EC as being essential for the competitiveness of European industries. Niobium is a key component in high performance steels used in a range of applications including line-pipe and automotive. The main source of niobium is from outside Europe (Brazil), and from one commercial company CBMM (Companhia Brasileira de Metalurgia e Minerao), which also influences its status as critical. The EC strategy on critical raw materials has identified the following generic options for mitigating the risk for supply: i. ii. iii. iv. Political trade agreements. Development of substitution materials. Recycling of products within the EU. Exploration of new materials sources ideally within the EU.

Implementation of this strategy could influence the market demand for niobium within the EU. Policy makers are already developing research programmes to identify substitution options for the 14 critical materials. This is a long term issue which CBMM needs to address to reduce the impact of this evolving EC policy on its future growth. This report outlines the current policy positions of both the EC and UK Government and how they intend to address the critical raw materials issue, through analysis of policy documents and meetings with key officials. Based on the intelligence gathered, we recommend the following key points for consideration by CBMM: i. ii. The need to develop relationships with policy makers and trade officials in Europe and Brazil. Communicate key messages about niobium and CBMM effectively to policy makers by increasing the relevance and amount of publically available information.

Page 5 of 17

Strictly confidential

DRAFT

iii. iv.

Understand better the risk(s) that the EC critical raw materials policy may or may not have on CBMMs growth strategy. Consider increased participation by CBMM in European research and development projects (public and privately funded) to access new knowledge and raise the profile of CBMM outside its current technical network.

To begin implementing the recommendations we have identified a number of short and medium term actions which are listed in the table below. Activity: Invite EC representatives to the Charles Hatchett seminar in July 2011 Organise meetings with additional EC and UK Government policy officials (e.g. EC trade representatives) Provide CBMM with relevant contacts in Brazil who engage with EC and UK policy officials Review current public information on niobium and CBMM, and make recommendations on appropriate messages and additional requirements to inform and influence policy makers Ensure the CBMM video currently in production includes some key messages about niobium and CBMM, to inform and influence a non-technical audience (including policy makers) Provide support to CBMMs Niobium Development Programme to translate research results and communicate them to a non-technical audience, including policy makers, to further promote CBMMs technical and environmental credibility Identify opportunities for CBMM to participate in relevant European research and development projects Provide regular technical reviews on European research projects addressing substitution options for niobium Provide feedback directly to the EC via the current public consultation on a possible Innovation Partnership on Raw Materials Richard Wrigley Richard Wrigley Richard Wrigley (consultation closes on 20th June 2011) Richard Wrigley / Richard Ball Marcos Stuart Jayne Evans Action by: Richard Wrigley (invitationes have already been sent) Richard Wrigley Richard Wrigley Richard Wrigley

We propose a short meeting, lasting no longer than one hour, is arranged at an appropriate point during the visit to London in July by CBMM, to provide an update on the activities listed above.

Page 6 of 17

Strictly confidential

DRAFT

CBMM already has a well-established mechanism of working with its supply chain through to the OEMs in all its main sectors of operation: automotive, line-pipe, construction and shipping. The approach has an Open Innovation culture allowing the supply chain to develop new and innovative products that use increasing amounts of niobium. This is generally achieved through personal relationships. The interaction with policy makers is less obvious and perhaps not a focus for CBMM as it has been less of a requirement. The international focus on critical raw materials and the report generated by the EC has raised the issue of informing and influencing increasing awareness at a governmental level. This includes providing publically available information via appropriate channels (e.g. CBMM website), tailored to the needs of a non-technical audience. This will inform desk based researchers and could ultimately influence key decision makers. This information needs to be augmented by personal relationships in the EC and within other influential governments, including Brazil. There is also a growing emphasis on instigating research and development to reduce the impact of critical raw materials on European industries including substitution, mining and recyclability. This presents an opportunity for CBMM to become involved in informing European policy via participation in research projects. This will help to reinforce the current understanding of the benefits of niobium by policy makers and the potential to reduce its critical status.

Page 7 of 17

Strictly confidential

DRAFT

2. EUROPEAN POLICY
In 2008, the European Commission (EC) launched its Raw Materials Initiative 1, an attempt to ensure European industrys access to resources from within and outside the European Union (EU) and to address Europes vulnerability related to reliance on imports of raw materials. This vulnerability was identified as stemming from increasing demand for materials, particularly from emerging economies, the inherent scarcity and uneven concentration of certain materials, and concern over measures designed by countries to protect their reserves of resources. In June 2010, an Expert Working Group convened under the auspices of this initiative, published a report identifying materials that are critical to the EU2. The report analysed a selection of 41 minerals and metals and listed a total of 14 critical materials. Specifically, the report highlights Europes dependence on importing high-tech metals which play a critical role in high value manufacturing, including energy efficient and innovative green technologies. The methodology adopted by the Expert Working group to identify the 14 critical raw materials is based on a relative concept of criticality. This means that the raw materials are labelled critical when the risks for supply shortage and their impacts on the economy are higher compared with other raw materials. Two types of risk are considered: Supply Risk, taking into account the political-economic stability of the producing countries, the concentration of production, the potential for substitution and the recycling rate. Environmental Country Risk, which assesses the risks from measures taken by countries with the intention of protecting the environment and by doing so endangering the supply of raw materials to the EU. The 14 critical materials are those falling within the top right cluster of the diagram in Figure 1. This is due to their high relative economic importance and high relative supply risk. Significantly niobium falls well within this cluster:
Raw
1

Main producers

Main sources of

Import

Substitutabi

Recycling

Commission of the European Communities, The raw materials initiative meeting our critical needs for growth and jobs in Europe, (COM(2009)699) Final, Brussels, 04/11/2008.
2

Critical raw materials for the EU, Report of the Ad-hoc Working Group on defining critical raw materials, European Commission Enterprise and Industry, European Commission, June 2010.

Page 8 of 17

Strictly confidential

DRAFT

material s Niobium

(2008, 2009) Brazil 92% Canada 7%

imports into EU (2007, or 2006) Brazil 84% Canada 16%

dependency rate 100%

lity 0.7

rate 11%

Note: The substitutability index for a specific raw material is an aggregate of substitutability indices for each of its uses. It is at the level of each use that substitution has been evaluated for each raw material. Four values have been given "on the basis of expert opinion" by Fraunhofer ISI to measure the various degrees of substitutability: a value of 0 would mean that substitution is possible at no cost; 0.3 means that substitution is feasible at relatively low cost; 0.7 means that substitution is possible at high cost; and 1 means that substitution is not possible or very difficult.

Figure 1. Analysis of raw materials. The EC published a further communication in February 2011 on what has been achieved and lays out a plan to take the work forward3. This report re-iterated the concerns over recent volatility in the commodity markets aligned with a series of changes in global supply and demand patterns. The increase in demand for raw materials will be reinforced through the continuing industrialisation of countries such as China, India and Brazil. The increase in financial investment flows into commodity derivative markets has, amongst other factors, led to increased calls for policy responses to mitigate the negative effects of such movements on both producers and consumers. This is now receiving attention at the highest political level including the G20 summits.

Communication from the Commission to the European Parliament, Council, the European Economic and Social Committee of the Regions, Tackling the Challenges in Commodity Markets and on Raw Materials, COM(2011) 25 Final, 2.2.2011.

Page 9 of 17

Strictly confidential

DRAFT

The report details an approach based on three pillars of activity (detailed fully in Annex 1), to improve access to raw materials for Europe. These pillars are: i. ii. iii. Fair and sustainable supply of raw materials from international markets. Fostering sustainable supply within the EU. Boosting resource efficiency and promote recycling.

3. UK GOVERNMENT POLICY
The UK Government House of Commons Science and Technology Committee published its report Strategically Important Metals on the 17th May 20114. The report addressed the strategic importance of metals in particular the rare earth elements, and those specialist metals that are vital to the advanced manufacturing, low-carbon technologies and other growing industries. From the evidence received by the Committee there is limited likelihood of most strategic metal reserves running out in the foreseeable future. They believe that new technology, alternative materials and the discovery of new reserves will ensure accessibility, but this may have price implications. The main concern is about UK users having access to necessary raw materials. One of the interesting findings of the report was that they felt there is a lack of information on the strategically important metals contained in finished and semi-finished imports. The UK Government believes the UKs focus should be on developing good design to minimise resource usage and the development of recovery and recycling technology for these metals. The UK Materials KTN (Knowledge Transfer Network) is a body established at arms-length from the UK Government and is administered by a consortium including the IOM3 (Institute of Materials Minerals and Mining). At their Annual General Meeting held on 18 May 2011 the topic was Combating Materials Scarcity. The meeting addressed the issues of materials scarcity, substitution, designing for dis-assembly, recovery and recycling, and processes for minimal use of materials. The meeting tended to echo the UK Government report that had been published the previous day, in that the UK emphasis is around design, recycling and substitution.

House of Commons Science and Technology Committee, Strategically important metals, Fifth report of session 2010-12, HC 726. Published on 17th May 2011.

Page 10 of 17

Strictly confidential

DRAFT

The Materials KTN has also published a draft report in June 2011 entitled A Study of the Recycling and Recovery Infrastructure for Materials Critical to the UK5. This includes a short section on niobium which covers its background, applications, and recycling in the UK and Europe.

A Study of the Recycling and Recovery Infrastructure for Materials Critical to the UK. Materials Knowledge Transfer

Network

Page 11 of 17

Strictly confidential

DRAFT

4. MEETING REPORTS

UK Materials AGM 18 May 2011

Richard Wrigley attended the AGM to understand further the UKs approach on the raw materials question. The UK had been in part stimulated into some action by the concerns of Japan who had visited the UK in mid-2010 to discuss the impact of the Chinese approach to controlling the supply of rare earths in particular. The UK is very dependent on materials for growing its manufacturing sector. Renzo Tomellini, Head of Materials Unit Directorate General (DG) Research, European Commission presented at the event. He has a metallurgy background and spent some time at the Italian Steel Research Centre. He made the following main points: i. ii. iii. iv. Products need to be sustainable and competitive. The use of more diverse range of different elements to deliver what we require. The need for alternative solutions. Further development of mining in Europe. This will involve going deeper and developing new technologies. Also the increased use of robotics. The development of a new mine takes about 8 12 years which is about the same time to develop a material substitution route. v. vi. A European Innovation Partnership on Raw Materials will be established later in 2011 (see below). The European Framework Programme 7 (FP7) for research will contain call topics associated with material substitution, mining and recyclability. Note: Richard Wrigley has an on-going dialogue with Renzo Tomellini and he will be invited to the Charles Hatchett Seminar on the 13th July. One of the break-out sessions considered critical materials sourcing and substitution strategies. The following points were made: i. ii. iii. iv. Manufacturers are forming partnerships with materials suppliers. The UK still has expertise in geology, mining and processing. New primary sources of materials need to be investigated. Substitution of critical materials needs to be developed.

Page 12 of 17

Strictly confidential

DRAFT

v.

Some potentially viable quantities of niobium have been discovered in the South West of England.

EC Directorate-General for Enterprise and Industry 9 June 2011

Richard Wrigley and Dr Richard Ball (Beta Technology Consultant) met with Paul Anciaux, (Policy Officer Metals, Minerals, Raw Materials) to discuss issues around the EU report on critical raw materials and how CBMM could support the EC in its work going forward. Paul Anciaux coordinates the ECs activity on the topic of critical raw materials. He works closely with colleagues in other Directorate-Generals including Renzo Tomellini in DG Research and Peter Klein in DG Trade. Paul Anciaux clearly understood the topic and niobium, and was very pleased to have been visited to discuss CBMMs position. There is an openness to discuss the topic and listen to ideas on the ways forward for Europe. The main points that came out of the discussion are: i. There are three pillars that support the ECs strategy (Annex 1): a. Fair and sustainable supply of raw materials from global markets b. Fostering sustainable supply within the EU c. Boosting resource efficiency and promoting recycling ii. iii. The current list of 14 critical materials is not limited to this number. Raw materials diplomacy with other countries, including Brazil, is a way of helping to secure supply. The visit of European Commission Vice-President Tajani to Chile, Argentina and Brazil on 9th to 13th June was highlighted. This should result in a signed agreement between the EU and Brazil Paul Anciaux indicated he would forward a copy of the signed agreement when it is available. iv. v. vi. The issue of raw materials had been raised at an international level and was being considered by the G20. There is a need to exchange best practice around exploration. The EC is proposing to establish an Innovation Partnership across Europe on raw materials. There is currently a public consultation on the proposal which closes on 20th June, which Paul Anciaux encouraged Beta to respond to6. Innovation Partnerships are part of the ECs Europe 2020 Strategy to support competitiveness and innovation. These partnerships will be challenge led, will act across the whole
6

http://ec.europa.eu/enterprise/policies/raw-materials/public-consultation-ip/index_en.htm

Page 13 of 17

Strictly confidential

DRAFT

research and innovation chain, and thirdly will streamline, simplify and better coordinate existing funding programmes and initiatives. The Board membership of these partnerships will include high level representatives of Members States (Ministers), members of Parliament, industry leaders, researchers and other key stakeholders. This Board will be supported by operational groups, composed of private and public sector experts, practitioners and users. The Innovation Union is defined in a communication from the Commission in October 20107. vii. The critical list of raw materials will be reviewed every three years. The process for obtaining information on individual raw materials has so far been predominantly using desk based research or publicly available information. There would be a new activity commissioned in 2012 to start collecting new information and this may go beyond purely desk based activity. Paul Anciaux did ask if there was an international niobium association as a potential source of information. viii. In terms of trade policy and arrangements between Brazil and the EU, then it would be worth having a conversation with Peter Klein, Directorate-General Trade, Head of Unit Industrial Sectors.

Communication from the Commission to the Europen Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, Europe 2020 Flagship Inititive Innovation Union, SEC(2010) 1161, 6.10.2010.

Page 14 of 17

Strictly confidential

DRAFT

ANNEX 1
Three pillar approach to improving access to raw materials for Europe. Pillar 1 Fair and sustainable supply of raw materials from global markets The EU will actively pursue a "raw materials diplomacy" with a view to securing access to raw materials, in particular the critical ones, through strategic partnerships and policy dialogues. The EC intends to reinforce the Raw Materials Trade Strategy so that the EU: continues to develop bilateral thematic raw materials dialogues with all relevant partners, and strengthen ongoing debates in relevant fora (including e.g. G20, UNCTAD, WTO, OECD); carry out further studies to provide a better understanding of the impact of export restrictions on raw materials markets, and foster a dialogue about their use as a policy tool. further embeds raw materials issues, such as export restrictions and investment aspects, in ongoing and future EU trade negotiations in bilateral, plurilateral and multilateral frameworks. pursues the establishment of a monitoring mechanism for export restrictions that hamper the sustainable supply of raw materials, and continues to tackle barriers distorting the raw materials or downstream markets with dialogue as the preferred approach, but using dispute settlement where justified. encourages in OECD activities the inclusion of relevant nonOECD members in the work on raw materials, and explore further multilateral and plurilateral disciplines including consideration of best practices. use competition policy instruments to ensure that supply of raw materials is not distorted by anti-competitive agreements, Pillar 2 Fostering sustainable supply within the EU mergers or unilateral actions by the companies involved. In line with the Europe 2020 Strategy, the EC will promote investment in the EUs extractive industries through: defining a National Minerals Policy, to ensure that mineral resources are exploited in an economically viable way, harmonised with other national policies, based on sustainable development principles and including a commitment to provide an appropriate legal and information framework.

Page 15 of 17

Strictly confidential

DRAFT

setting up a land use planning policy for minerals that comprises a digital geological knowledge base, a transparent methodology for identifying mineral resources, long term estimates for regional and local demand and identifying and safeguarding mineral resources (taking into account other land uses) including their protection from the effects of natural disasters.

putting in place a process to authorise minerals exploration and extraction which is clear, understandable, provides certainty and helps to streamline the administrative process (e.g. the introduction of lead times, permit applications in parallel, and one-stop-shop).

In the short term the EC proposes to assess with the Member States the scope for increased synergies between national geological surveys, that would allow for economies of scale, reduced costs and increased potential to engage in joint projects (e.g. harmonised minerals database, European Raw Materials Yearbook). In the medium term, any synergies would contribute to an improved Pillar 3 Boosting resource efficiency and promoting recycling European raw materials knowledge base. The EC considers that higher recycling rates will reduce the pressure on demand for primary raw materials. The EC will present in 2011 a roadmap for a resource efficient Europe. It will set out a vision of structural and technological changes required to move to a low carbon, resource efficient and climate resilient economy by 2050 and how to make this transition happen through policies delivering most benefits for the EUs growth, jobs and energy security. The barriers which prevent recycling that the EC considers need to be addressed fall into three broad categories: 'leakage' of waste to sub-standard treatment inside or outside the EU; obstacles to the development of the recycling industry; and inadequate innovation in recycling. The EC proposes therefore to: review the Thematic Strategy on waste prevention and recycling in 2012 to develop best practices in collection and treatment of

Page 16 of 17

Strictly confidential

DRAFT

key waste streams, in particular those which contain raw materials with a negative impact on the environment. When necessary, the availability of recycling statistics will be improved. support research and pilot actions on resource efficiency and economic incentives for recycling or refund systems. review the action plan on sustainable consumption and production in 2012 to identify what additional initiatives are necessary in this area; analyse the feasibility of developing ecodesign instruments (i) to foster more efficient use of raw materials, (ii) ensure the recyclability and durability of products and (iii) promote the use of secondary raw materials in products, notably in the context of the Ecodesign Directive; and develop new initiatives to improve the competitiveness of EU recycling industries notably by introducing new market based instruments favouring secondary raw materials.

Page 17 of 17