EU should develop strategic reserves of key raw materials – Cefic exec

Tom Brown

24-May-2022

LONDON (ICIS)—The European Commission should look to increase storage capacity for key raw materials to build up resilience in the wake of the Russia-Ukraine crisis, an executive director for the Europe-wide chemicals trade group Cefic said on Tuesday.

With numerous vulnerabilities in EU supply lines exposed as a result of the war in Ukraine and ensuing sanctions levied on Russia, policymakers should move to develop strategic stores of vital raw materials in the style of oil and gas reserves, according to Frans Stokman, Cefic’s executive director for petrochemicals.

Addressing supply issues and sourcing for key products and investing in greater capacity to stockpile reserves are key to improving resilience along value chains within the EU, he added.

“I think it’s about short term, medium term and long term [planning],” he said, speaking at a Cefic event on Tuesday.

“We need to identify the key bottlenecks for these key products in the crisis mode; it means that we need to look at logistics, we need storage, and we need to look at creating strategic storage like we do with oil and other strategic reserves … That means we need storage capacity.”

VULNERABILITIES
The three months since Russian forces first invaded Ukraine have exposed the vulnerabilities in European supply chains, with the highest-profile being natural gas, where the EU relies on Russia for almost half of its imports.

An increasingly total prohibition on purchasing materials from Russia and the increasing strain the conflict has placed on supply chains has highlighted wider interdependencies.

Russia stands as the EU chemicals sector’s fourth-largest export market and fifth-largest source of imports, according to Stokman.

The EU is extremely exposed to the loss of orthoxylene (OX) and paraxylene (PX) supplies from Russia, according to Cefic data, as well as a huge swathe of fertilizer chemicals, which make up nearly half of the 20 chemicals products where the EU is most exposed to supply shocks from Russia.

Oscar Guinea, a senior economist at the European Centre for International Political Economy (ECIPE), estimated that chemicals make up around a quarter of the 233 products that the think tank classifies the EU as having a high import dependency on, meaning that over 75% of the inputs are sourced from outside the 27-country bloc.

“The question is: what can the EU European firms do to lower this dependency?” he said.

“Three general strategies, which have pros and cons: you can stockpile these goods for which you have dependencies; you can produce these goods domestically; or you can diversify your sources of supply so you are not dependent on a particular company or geography.”

NEW SUPPLY LINES
Hubert Gambs, deputy director general at DG Grow, an entity within the  European Commission, said the EU’s executive body’s priorities for manufacturing at present include large-scale deployment of renewable energy, prioritising access to raw materials, and strengthening supply chains.

Part of the plan to accomplish this envisages the development of greater domestic manufacturing capacity, as well as brokering new strategic partnerships.

The Commission agreed a new trade agreement with Canada in mid-2021, as well as a partnership with Ukraine on raw materials and battery technology that has stalled in the wake of the war.

Negotiations are expected to begin with Namibian lawmakers on a sustainable raw materials partnership and talks with representatives of other African countries may also be in the pipeline, said Gambs.

The new renewable energy targets set out by the Commission last week also place a greater focus on establishing partnerships on raw materials, he said.

“Part of the [REPowerEU] package… strengthens our mandate to establish these mutually beneficial raw material value chain partnerships,” said Gambs.

The need to strike new deals should not lead to a replication or past over-reliance on a particular country or source for a raw material.

“The EU needs to avoid replicating dependencies of the past,” he said.

Focus article by Tom Brown

READ MORE

ICIS Premium news service

The subscription platform provides access to our full range of breaking news and analysis

Contact us now to find out more

Speak with ICIS

Now, more than ever, dynamic insights are key to navigating complex, volatile commodity markets. Access to expert insights on the latest industry developments and tracking market changes are vital in making sustainable business decisions.

Want to learn about how we can work together to bring you actionable insight and support your business decisions?

Need Help?

Need Help?