Critical minerals are vital components in today’s rapidly growing clean-energy industry. They’re used in advanced technologies like electric vehicles and batteries, wind turbines, solar panels, fibre-optic cables and semiconductor chips. But the supply chain for critical minerals could now be at risk.
Global supply chains are a complex system of suppliers and customers, and are extremely delicate under pressure. They can be easily disrupted by major events like conflicts, natural disasters and pandemics.
Critical minerals are being consumed in greater volumes than ever before, and the level of demand will only increase over the next 10 to 20 years, and beyond. Critical minerals are in high demand in industries such as the automotive sector that are making modern batteries, by governments searching to secure supplies of rare-earth metals, and by renewable-technology manufacturers searching for necessary inputs, but there is much that needs to happen to build supply chains.
Mineral resource projects are largely at the early stage of commercialisation, and significant investment is needed to strengthen processing and manufacturing capabilities to meet demand.
The governments of Japan and the Five Eyes countries (Australia, Canada, New Zealand, the United Kingdom and the United States) are aware that critical minerals, including rare-earth elements, will be increasingly needed as the world shifts from fossil-fuel systems to renewable energy sources. The partner nations are also clear about the challenges and opportunities, especially given that the supply chains for several critical minerals have only one or few dominant key players.
Australia is fortunate to possess some of the world’s largest recoverable resources of cobalt, lithium, vanadium, manganese and zirconium. Australia and Canada are known for efficient processes and upstream resource extraction and production. Japan has the technology, and the US wants more critical minerals to supply its ever-expanding high-tech industries.
We must now think bigger than unilateral supply chains. The good news is that this model doesn’t require a whole new set of skills or capabilities. In a recent Forbes article, Deloitte Australia discussed the critical steps needed for taking action on opportunities and establishing whole value chains by working more closely together.
The renewable energy supply chain, for example, is at risk because it relies on a small number of countries. The production and use of solar energy are dependent on three primary value chains: collection, conversion and storage—with the latter critically dependent on lithium-ion batteries and subject to a concentrated supply chain.
Currently, 50% of the raw material for lithium-ion battery production comes from Australia. Around 90% of the processing occurs in China, and 53% of the battery assembly is done in Japan. In addition to supplying raw material, however, Australia is capable of processing an estimated 42% of global lithium. South Korea and Japan manufacture around 20% of global lithium-ion related products, and there’s potential for them to use existing infrastructure to expand their production capacity. The US, Japan and South Korea collectively account for 50% of global battery cell production. They are also responsible for nearly 82% of the global battery assembly production, of which 53% is done in Japan.
To capitalise on this immense potential, expand lithium-ion production facilities and reorchestrate the renewable energy supply chain, it’s imperative that Japan and the Five Eyes coordinate and blend their complementary and critical capability together. By shifting from unilateral to multilateral value chains, the partners can reduce risk and collectively help to sustainably meet the growing demand.
An alliance can effectively build a resilient supply chain network at every value-added stage by leveraging the competitive strengths and expertise of each partner and region. That would provide not only benefits from diversification, but also enable shared risk-sensing, multi-tier demand forecasting, and supply planning and optimisation. Additional benefits include shared risk exposure and aligning trading rules among partner nations.
Getting this network up and running will require a thorough assessment of supply networks and value chains; analysis of risks to help define the partners’ requirements; integrated planning and supply assurance among the partners; and development of efficient governance and trade vehicles to make the task of reorchestrating value chains simpler.
If this endeavour is approached in an orchestrated way, a powerful critical minerals industry and associated supply chains can be unlocked, presenting a more reliable and secure value proposition and laying the foundations for a strong, prosperous and sustainable future.