Opinion | The Netherlands is sleepwalking towards a shortage of raw materials

They are the basis of our economy, but you don’t see them. And they are quickly becoming more important than oil and gas, said EU President Ursula von der Leyen. We are talking about ‘critical’ or essential or strategic raw materials such as lithium, neodymium, silicon, graphite and gallium. They are essential because they enable our digital society and sustainable ambitions in the short and long term. They can be found in the entire communication infrastructure, in medical equipment and defense equipment, and in electric motors, batteries and wind turbines. Essential raw materials are therefore a necessary condition for communication, health, physical safety and energy transition.

However, the current raw materials market is not yet equipped for the demand explosion that is imminent. Calculations show that the demand for some essential raw materials in 2050 will greatly exceed the current level: for example, the demand for cobalt and lithium in 2050 is predicted to be 15 and 60 times greater than today, respectively. It is doubtful whether the mining and refining of essential raw materials can scale up fast enough to meet that rising demand – not only scarcity but physical shortages are looming.

In this context, the European Commission announced in March the Critical Raw Materials ActOn. Hopefully, in ten or fifteen years’ time, this European law will contribute to preventing shortages of ‘critical’ raw materials. But there are serious doubts about the availability of essential raw materials in this decade.

Fortunately, we now regularly hear about new supplies of these raw materials being mined in Europe or Canada.

Depends on China

That is good news, because the EU is almost entirely dependent on China for the supply of essential raw materials. That’s no coincidence. More than 30 years ago, then leader Deng Xiaoping said: “The Middle East has oil, we have rare earths.” Since then, China has invested in mining ores for essential raw materials, both domestically and in many other countries. In addition, it has developed into a specialist and more or less a global monopolist in the refining of these raw materials.

When China indicates that it is considering an export ban, all alarm bells should go off. In 2010, such an export ban was already imposed by China against Japan following a territorial dispute. As a result, the Japanese car industry and high-tech sector had to stop production.

It is undeniable that geopolitical tensions are rising. For example, geopolitical players use raw materials and other technology as a means of political pressure.

The alarm bells do not seem to be heard, certainly not in the political and policy towers in The Hague

See, for example, the government’s recent announcement that ASML is no longer allowed to export the most modern chip machines to China for safety reasons. A response was not long in coming. China is considering banning the export of certain critical raw materials. And at the beginning of this month it was announced that China is imposing export restrictions on the raw materials gallium and germanium, essential metals for the semiconductor, telecommunications and electric vehicle industries. It is uncertain how this battle will end, but it is clear that there are major risks to security of supply, as was also warned in mid-July by the International Energy Agency. But the alarm bells seem not to be heard, certainly not in the political and policy towers in The Hague. The fact that the government is now caretaker only exacerbates the situation.

Read also: Cabinet restricts ASML export to China

At the end of June, the House of Representatives debated the National Raw Materials Strategy of December 2022. The strategy and the debate are excellent times to think about physical shortages of critical raw materials. But that doesn’t happen. There is talk of geopolitical vulnerability and scarcity, but mainly about the consequences of high prices for the energy transition. High on the agenda is also the question of how shortages can be avoided, for example through savings, circularity, substitution and diversification of supply chains.

Earning power

But that is of a different order than thinking through how to deal with a Chinese export ban on strategic raw materials. What does this mean for the earning capacity of the Netherlands? Are there sectors that should be prioritized to use the last essential raw materials? Who will decide on this, and on what basis? How to deal with the goals surrounding the energy transition and the digital ambitions? And what to do if ASML is forced to stop the production of chip machines? These are the questions that may soon come to us. We have not yet seen a political response to this.

How is the Netherlands preparing for a possible shortage of essential raw materials? This can be done, for example, by building up a strategic stock of rare metals. This may seem far-fetched, but in practice it is already being done for certain raw materials. Take our own gas storage. Few people would argue that this is a bad idea, especially with the gas crisis still fresh in their minds. The US also has a strategic stock of raw materials for the defense industry. A logical step is therefore to build up strategic stocks for certain essential raw materials, in order to prevent extreme shortages and also to maintain control over these raw materials if the supply actually ceases.

A version of this article also appeared in the newspaper on July 19, 2023.