Bypass a dangerous complacency to secure future success
Much has been said about the fall back in metals prices. With mining capacity having grown and trade barriers taken apart, prices across the global market have dropped significantly in the last few years, boosting the profitability of the European tech industry - a major importer.
There is a danger that the current environment will make miners jaded, and the rest of the value chain lazy. The low prices are masking long-term challenges that are facing manufacturers.
Yes, the urgency for investment may have faded – but there is a great opportunity. Manufacturers can take advantage of this low price window, and increased profitability, to invest in strategies that create a more efficient supply chain. A more robust supply chain that can cope with the trials ahead.
A burgeoning middle class in Asia has spiked the need for raw metals, with demand for aluminium in China growing five-fold over the past decade – representing more than 50% of global demand. There will be a point that low prices and existing metal reserves give way to longer term environmental, regulatory and societal pressures. Such as declining ore grades, with increased resulting ‘waste’, and increased water stress in mining.
It’s difficult to predict exactly when this will bite – but those companies that have most efficiently organised their metal use through the supply chain are, naturally, going to be the least vulnerable.
Powerful trends are also causing the demand for specific metals to rise. The transition to sustainable energy supply and reduced harmful emissions has stimulated the demand for wind turbines, LED lights, solar panels and electric vehicles.
For the tech industry, demand for rare earth metals such as gallium, which is used in LED lamps, is expected to be at a level of nearly 400% by 2030 compared to current production. Greater quantities of these metals need to be extracted from recycling or reuse to enable existing reserves to cope.
The good news is that suppliers are beginning to employ various strategies for saving materials, such as recycling scrap, substitution of metals and improvements in processes.
But for links further down the supply chain, such as mechanical engineering and transport equipment, the situation is different. Development and software costs are high, while material costs remain relatively low. Competition for consumers often means that price and ease of use come first, with recyclability a distant second. There is more to be done.
For end manufacturers, there is a crucial role to play in elevating the whole value chain to a higher level of resource efficiency. The design phase is critical – a culture shift towards creating products that are easily recycled or remanufactured will take us one step closer to a desirable circular economy.
Price incentives for this are currently limited, yet there is a promising trend that will gradually change this, namely “from ownership to use”. This trend doesn’t stem directly from the ‘concept’ of sustainability, but rather from the growing need for flexibility and focus on core competencies by users of machinery and other equipment.
Nevertheless, this trend creates new business opportunities to adjust product design and redeployment of equipment. It’s a more holistic approach and a big step towards greater efficiency.
As significant importers of rare metals, European tech companies can really drive greater efficiency across the supply chain, leading to a more sustainable economy and reduced supply risks associated with imported metals. These are opportunities that shouldn’t be missed.
Jurjen Witteveen, senior economist, ING
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