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The New Political Economy of Rare Metals
 

The New Political Economy of Rare Metals

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Mr. Jaakko Kooroshy, Policy Analyst, The Hague Centre for Strategic Studies, presents at the Critical Metals Investment Symposium, Vancouver, Canada, Jan. 21, 2011

Mr. Jaakko Kooroshy, Policy Analyst, The Hague Centre for Strategic Studies, presents at the Critical Metals Investment Symposium, Vancouver, Canada, Jan. 21, 2011

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    The New Political Economy of Rare Metals The New Political Economy of Rare Metals Presentation Transcript

    • THE NEW POLITICAL ECONOMY OF RARE METALS Critical Metals Investment Symposium Vancouver, January 21, 2011. JAAKKO KOOROSHY
    • RESOURCES, STRATEGIES & POLICYINTRODUCTIONThe Hague Centre of Strategic Studies (HCSS)•Independent think-tank providing strategic orientation andnavigation services TRATEGIES•Clients range from national governments, transnationalorganizations to private companies & NGOs•Young, rapidly growing organizations with excellent Europeanand trans-Atlantic ties•“The political economy of resource markets among key topics•Focus on rare metals with much in-house expertise, an excellenttrack-record and strong networks
    • RESOURCES, STRATEGIES & POLICYINTRODUCTIONThe 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 TRATEGIES •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
    • RESOURCES, STRATEGIES & POLICYINTRODUCTIONThe Hague Centre of Strategic Studies (HCSS)•Scenario development for the national risk assessment of theNetherlands and advising of other ministries TRATEGIES•POlicy on NAtural RESources (POLINARES) large 7th FrameworkProgramme 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
    • RESOURCES, STRATEGIES & POLICYSCARCITY: AGE OLD FEAR & FASCINATION TRATEGIESI looked, and there before me was a black horse! Its rider was holding a pair of scales in hishand. Then I heard what sounded like a voice among the four living creatures, saying, "Aquart of wheat for a dinares, and three quarts of barley for a dinares”
    • RESOURCES, STRATEGIES & POLICYWHY 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 TRATEGIES • tight markets and supply side constraints • 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
    • HISTORICAL EPISODES OF HIGH COMMODITY PRICES Demand SideFastDemandGrowth Price Increases Slower Supply Growth Supply Side
    • RESOURCES, STRATEGIES & POLICYSUPERCYCLES??? For rare metals: TRATEGIES + •Technology-driven demand spikes •High concentration of supplySource: Cuddington & Jerrett (2008), Super Cycles in RealMetals Prices, IMF Staff Papers, Vol 55, no. 4; p. 558.
    • A SIMPLE MODEL: THE POLITICAL ECONOMY OF RESOURCE PRICE HIKESFastDemand SecuritizationGrowth Market Price Distortions Increases & Supply Disruptions Slower Politicization Supply Growth
    • RESOURCES, STRATEGIES & POLICYGOVERNMENT 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 TRATEGIES • inelasticity & concentration of supply • fast-growing & highly volatile demand This creates supply security concerns and makes (some) metalsinto “strategic” resources! The strategic value & political economy of each metal isunique, evolving rapidly, and …
    • RESOURCES, STRATEGIES & POLICYGOVERNMENT 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 TRATEGIES • diversify & secure supply • regulate trade and consumption•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 venturesand investments in the market for a given rare metal!
    • RESOURCES, STRATEGIES & POLICYTHE CHALLENGE OF POLICY RESPONSE•In the context of historical price hikes, there is little new about currentpolicy responses•Case studies demonstrate that perceptions and responses differconsiderably and are shaped strongly through national policy ‘prisms’ TRATEGIES•Different policy approaches impact different aspects of the price/politicsnexus•National policy responses can sometimes be counterproductive...
    • A SIMPLE MODEL: THE POLITICAL ECONOMY OF PRICE HIKESFastDemand SecuritizationGrowth Market Price Distortions Increases & Supply Disruptions Slower Politicization Supply Growth
    • RESOURCES, STRATEGIES & POLICYEUROPEAN POLICY RESPONSE TO RARE METALS DEBATE•Raw Materials Initiative (RMI) led by DG Enterprise & Industryresulted in the 2008 Communication with focus on non-energymineral resources: •Ensure equal access for European industry globally TRATEGIES •Promote supply expansion from European sources •Boost resource efficiency and recycling•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 latestdevelopments and the progress of the RMI at the end of this year
    • RESOURCES, STRATEGIES & POLICYTWO EXAMPLES : EUROPEAN POLICY RESPONSE TO RARE METALS DEBATE•Raw Materials Initiative (RMI) led by DG Enterprise & Industryresulted in the 2008 Communication with focus on non-energymineral resources: •Ensure equal access for European industry globally TRATEGIES •Promote supply expansion from European sources •Boost resource efficiency and recycling•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 latestdevelopments and the progress of the RMI coming any moment
    • RESOURCES, STRATEGIES & POLICYEUROPEAN POLICY RESPONSE TO RARE METALS DEBATE TRATEGIES Source: European Commission, DG Enterprise and Industry “Critical Raw Materials for the EU” Brussels, 2010.
    • RESOURCES, STRATEGIES & POLICYCONCLUSION: WHERE DOES EUROPE STAND ON RARE METALS? • EU is stepping ahead with member states’ responses still fragmented: •Germany is in the lead •Strong French response has been somewhat delayed TRATEGIES •UK is still looking to develop a coherent policy •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!
    • RESOURCES, STRATEGIES & POLICYEU MEMBER STATE RESPONSES: GERMANY A driving force behind the EU Raw Materials Initiative (RMI) Following ongoing “Rohstoffdialog”, the German TRATEGIES government is currently finalizing its new “Rohstoffstrategie”. Key elements are: •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)
    • RESOURCES, STRATEGIES & POLICYTWO EXAMPLES : US POLICY RESPONSE TO RARE METALS DEBATE•So far the US policy response has been focused on REEs and thenational security aspects of rare metals supply.•Growing list of legislation: H.R. 4866 RESTART Act TRATEGIES 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 H.R. 5136 Fiscal Year 2011 National Defense Authorization Act•Policy response has mainly consisted of stockpiling initiatives and calls forgovernment support to domestic mining activities, with DoD as principalactor.
    • RESOURCES, STRATEGIES & POLICYTWO EXAMPLES : US POLICY RESPONSE TO RARE METALS DEBATE•Independently hereof the DoE has followed itsown trajectory and recently published majorcriticality report•The report provides the outlines of a new policy TRATEGIESstrategy. Considered options include:•Selective financial assistance most likely as loanguarantees•simplified permitting for mines andmanufacturers•increased recycling•international diplomacy•Also an extensive new R&D plan
    • RESOURCES, STRATEGIES & POLICYTWO EXAMPLES : US POLICY RESPONSE TO RARE METALS DEBATE TRATEGIES Source: DoE “Critical Materials Strategy” Washington, 2010.
    • RESOURCES, STRATEGIES & POLICYSHORT 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 TRATEGIES each metal market creates specific threats and opportunities for miners, manufacturers & investors •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
    • RESOURCES, STRATEGIES & POLICYSHORT RECAP •Questions??? •Please get in touch! jaakko@hcss.nl TRATEGIES www.hcss.nl