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Competitiveness of the EU Non-ferrous Metals Industries

FWC Sector Competitiveness Studies


Final Report

Client: European Commission, Directorate-General Enterprise and Industry Disclaimer: This report presents the vision of the consultants and is not necessarily in line with the analytical understanding or policy views of the European Commission.

Rotterdam, 5 April 2011

KR/NZ FN97624_Final Report 5 April

Authors and contributors

Koen Rademaekers, Ecorys Netherlands Project Team Leader Dr. Floor Smakman, Ecorys Netherlands Huib Poot, Ecorys Netherlands Dr. David Regeczi, Ecorys Netherlands Jeroen van der Laan, Ecorys Netherlands Sahar Zaki, Ecorys Netherlands Lars Meindert, Ecorys Netherlands Graham Hay, Cambridge Econometrics Unnada Chewpreecha, Cambridge Econometrics Richard Lewney, Cambridge Econometrics Ben Gardiner, Cambridge Econometrics Professor Tony Cockerill, expert Sir George Russell, expert Kevin Norrish, expert Martin Theuringer, expert Jan Maarten Devet, Ecorys Brussels Office Quality Manager

ECORYS Nederland BV P.O. Box 4175 3006 AD Rotterdam Watermanweg 44 3067 GG Rotterdam The Netherlands

T +31 (0)10 453 88 00 F +31 (0)10 453 07 68 E netherlands@ecorys.com W www.ecorys.com Registration no. 24316726

ECORYS Macro & Sector Policies T +31 (0)10 453 87 53 F +31 (0)10 452 36 60

KR/NZ FN97624_Final Report 5 April

Table of contents

Preface Executive Summary The EU NFM Industry in a Global Context Competitiveness Issues for the EU NFM Industry Future Directions of the EU NFM Industry List of Abbreviations and Conventions 1 Description of the Study 1.1 Objectives and purpose of the study 1.2 Definition of the NFM industry 1.3 Structure of this report 2 The EU NFM Industry in a Global Context 2.1 Production and use patterns in NFM 2.1.1 Global NFM production and usage patterns 2.1.2 NFM production and usage patterns in the EU 2.2 NFM Trade patterns 2.2.1 Trade patterns 2.2.2 Recent global investment trends 2.3 Price mechanisms in the NFM industry 2.4 Cost structures in the NFM industry 2.5 Value chains in the NFM industry 2.5.1 The value chains of selected NFM sub-sectors 2.5.2 Integration and diversification 2.6 EU NFM industry structure 2.6.1 Turnover, value added and employment 2.6.2 Size distribution of companies in the NFM sector 3 Competitiveness issues for the EU NFM industry 3.1 Environmental policies 3.1.1 Introduction 3.1.2 Impact and international comparison 3.2 The EU ETS and other climate change policies 3.2.1 Introduction 3.2.2 Impact and international comparison 3.3 Energy policy and markets 3.3.1 Introduction
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7 9 9 13 17 21 25 25 25 28 31 31 32 43 47 47 52 55 57 64 65 83 84 84 85 89 89 89 92 94 94 95 100 100

3.3.2 Impact and international comparison 3.4 Trade related issues 3.4.1 Tariff issues 3.4.2 Non-tariff issues 3.4.3 Emergence of China and its impact on international markets and trade 3.4.4 Direct and indirect impacts of trade related issues on the EU NFM industry 3.5 Recycling 3.6 Research, development and innovation policies 3.6.1 Research under the Framework Programmes 3.6.2 Innovation in the NFM value chain 3.6.3 Innovation bottlenecks at a policy level 3.6.4 International comparison 3.6.5 Labour costs and skills 3.7 EU - NFM Competitiveness: Summary and conclusions 4 Future Directions 4.1 SWOT analyses for selected sub-sectors 4.1.1 Aluminium 4.1.2 Copper 4.1.3 Nickel 4.1.4 Zinc 4.1.5 Precious and minor metals 4.1.6 Recycling 4.2 Outlook and vision on future of the EU NFM industry 4.3 Strategic and policy choices 4.3.1 Stable decision making energy environment 4.3.2 Leveraging trade policy and dialogue to achieve an international level playing field for EU NFM producers 4.3.3 The role of import tariffs Annex A Annex B Annex C Production and Use of NFM Trade in NFM List of Main Companies with Production in EU

106 110 110 113 118 119 120 121 124 125 126 126 127 128 131 131 131 134 136 137 139 140 142 144 145 146 148 151 173 179

Annex D Assessment of the Impact of Tariff Removal for Unwrought Aluminium Annex E Annex F List of Interviewees Data Sources

183 203 209

Preface

This is the Final Report on the competitiveness of the EU-Non-ferrous metals industries. It is based on various comments received from the Commission and key stakeholders on the Draft Final Report and interviews conducted with industry representatives. The chapters of the report cover the following: basic industry facts, key issues relating to the competitiveness of the industry, and a strategic outlook and policy options. The Final Report takes cognisance of comments made about the Draft Final Report by the Commission and industry stakeholders and associations, and additional documentation that was provided. Also considered are in-depth discussions held with industry experts, who also proofread some sections of the Final Report. The report was written by Ecorys and Cambridge Econometrics. Several people within each of these organisations contributed to this report. Important contributions were made by Professor Tony Cockerill, Sir George Russell, Kevin Norrish and Martin Theuringer in their capacity as industry experts. Professor Cockerills contribution to this study was supported in part by Leverhulm Trust Research Award EM/20239. We would like to thank the representatives of industry associations and companies who shared their views and provided valuable information to the team in a number of telephone and face-to-face in-depth interviews. The report was commissioned and financed by the Commission of the European Communities. The views expressed herein are those of the Consultant and do not represent an official point of view of the Commission.

FWC Sector Competitiveness Studies EU NFM Industries

Executive Summary

Objectives of the study The purpose of this study is to provide the Commission with a clear and up-to-date understanding of the competitiveness of the EU NFM industry; as it is now, how it might develop and how it could be improved. Definition of NFM The NFM industry incorporates a range of productive activities along various stages of the value chain including mining, smelting recycling and refinery upstream and second processing and fabrication of intermediaries further downstream. For the purpose of this study mining is not included in our analyses. The various sub-sectors that make up the NFM industry include primarily: Base metals (aluminium, copper, zinc, lead, nickel, tin). Precious metals (silver, gold, palladium, other platinum group metals). Minor metals including refractory metals (e.g. tungsten, molybdenum, tantalum, niobium, chromium) and specialty metals (e.g. cobalt, germanium, indium, tellurium, antimony, gallium). NFM are non-magnetic and are typically more resistant to corrosion than ferrous metals; many NFM conduct electricity well. Given these and various more specific characteristics of individual NFM, they are a strategic input for a wide variety of products and sectors, ranging from chemical processing, catalytic processes and engineering to transport equipment, automotive, electronics, packaging, and construction and to jewellery, aerospace, lasers, lighting, medical equipment, fibre optics transmission, military radar and missile guidance, solar energy and many more.

The EU NFM Industry in a Global Context


Key characteristics of a global industry Any attempt to characterise the NFM industry necessarily involves some degree of generalisation. There are important variations in characteristics, competitiveness issues and impacts of framework conditions between the various sub-sectors and segments. Generalised characteristics include the following: EU NFM industries are part of a global industry, which is open and highly competitive. International trade in raw materials, primary metal and, to a lesser degree, fabricated metals are an important aspect of this global industry. The highly globalised nature of the industry is reflected clearly in price setting mechanisms: prices for raw material inputs and NFM primary products are set or

FWC Sector Competitiveness Studies EU NFM Industries

referenced through the London Metals Exchange (LME), the Shanghai Metals Exchange or the Chicago Exchange. On the contrary, cost factors (outside raw material inputs, for which prices are set globally and which are passed on to customers) are usually determined locally, making them important determinants of competitiveness, especially for upstream segments. The drivers of competitiveness of the NFM industry are further conditioned by the fact that the sector is capital-, resource- and energy-intensive. The latter makes the sector susceptible to high energy (especially electricity) prices and in the case of the EU NFM industry, in particular, to EU policies linked to the energy sector, such as the EU ETS. Secondary raw material sources (scrap including industrial waste and end-of-life products) are increasingly important as energy efficient raw material input for most NFM sectors and for aluminium, lead and precious metals in particular (e.g. for aluminium it makes up an estimated 30% of the sectors annual global output flow, while for lead recovery rates are more than 50%). The European recycling industry is among the most advanced in the world even compared to developed countries such as the US, Canada and Japan, with high recovery rates. Thus for aluminium, for instance, the average share of re-cycled metal in Europe is higher than the global average (30%) and stands at around 40%.

Global production & trade patterns: Overall, EU usage accounts for between one-sixth (for aluminium) and one-quarter (for nickel) of world demand; EU production patterns for non-ferrous metals (NFM) have varied in recent years. Over 2000-2007, aluminium production increased while nickel and tin production remained relatively flat. Copper, zinc and lead all saw production declines over the same period. Copper production did pick up in 2008, but most NFM sub-sectors experienced declines due to the recession in 2009; China has emerged as a dominant global producer in NFM industries. However, China tends still to be concentrated on primary and, to a growing extent, secondary production and less so on activities further downstream. Recent trends suggest the country is increasingly becoming involved in these activities as well; While China may be among the biggest producers, it also uses most of its own production and net exports of China in the three major NFM sub-sectors aluminium, copper and zinc, were in fact negative in 2009; The EU is heavily reliant on non-ferrous metal imports; e.g. primary aluminium supplies only 25% of EU domestic demand in 2008. Similarly, for copper upstream capacity, on average between 2000 and 2008, refinery production (offer) met only 62.5% of refined usage (demand). To satisfy domestic demand completely, the EU must import large amounts of ores, concentrates and refined metals; The EU thus has a net trade deficit in most NFM sub-sectors, which increased over the years, although cutbacks in imports of, for example, aluminium and copper reduced the deficit during the recession. In the aluminium and copper sub-sectors, the EU does have a small trade surplus for semi manufactured goods, while the trade deficit is largely in primary production and for most metals, in secondary raw materials. For precious metals the deficit is smaller and the EU has even seen a modest trade surplus in some years (e.g. 2005 and 2008);

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For many metals, the EU is a net exporter of scrap, with China and India being the main destinations. These exports are driven by high demand from China, in particular, which is also driving up scrap metal prices; Trade patterns thus seem to suggest the NFM sector still has a strong international competitive position, although it has weakened for primary activities, in particular, where the EU has substantial trade deficits, while in secondary production emerging economies such as China are catching up.

Investment trends The most important investments made by the key global industry players were assessed over the past few years and in the near future. Some of the trends that could be derived from this assessment include the following: Investment in aluminium smelting or primary production is flowing to locations that can offer long-term energy contracts or those based on hydro-power, nuclear or coal. In this context, stranded power (without transmission links) generation facilities are attractive because they provide a dedicated power source. The policy emphasis in the Middle East to diversify economic activity by attracting energy-intensive industrial activity is a related driver. In upstream segments, in particular, there is little evidence of major new investments in the EU. Modern large scale best-practice smelter installations were set-up in emerging markets such as the Middle East, Russia and China that are rapidly becoming dominant global players. Recent investments in the Middle East, in particular, include joint ventures and Greenfield investments by European companies, and were encouraged principally by access to relatively low cost and plentiful energy sources. Many of the new large-scale sites have the benefits of energy cost savings per tonne of output, good infrastructure and transport facilities, including harbours for receiving bulk raw materials such as bauxite and alumina. China is building large-scale best-practice smelters swiftly and effectively. Among the other metals, access to secure infrastructure arrangements including power supplies is also important. However, the investment decisions noted above here tend to relate to decisions by integrated producers to develop smelting capacity close to the site of their mining activities and/or foreign customers in these countries. Supply shortages of precious and minor metals, due to limited primary and secondary raw materials sources and surging demand, are driving investments in the exploration and/or development of new or existing raw material sources. Examples of investments within the EU relate to recycling and secondary production of metals, including facilities to process increasingly complex materials. This is consistent with the availability of new and old scrap from the well-developed collection system and the smaller proportion of energy costs in secondary compared with primary processing. Sub-sectors such as precious metals continue to invest in Europe as environmental requirements for their client industries increase. This prompts the need for new processes and product application, which are often developed in cooperation with companies in the NFM industries. This is relatively more important in downstream segments, which tend to be less standardized and more tailored to individual client needs.

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Cost structures: The data on cost structures (excluding costs of raw materials, so focusing only on the so-called conversion costs) for EU NFM producers collected by the study team demonstrates that energy costs are substantial for all sub-sectors especially in primary production, which are most energy intensive. High energy costs are also a key driver of the value of recovery and recycling, which are substantially less energy intensive than the smelting of ores. For primary aluminium energy costs are estimated to be over 68% of total conversion cost, while for secondary aluminium this share is only an estimated 22%. In the other NFM sectors energy costs account for anything between 13% to 36% of total conversion costs; Labour costs can be equally or more important. It typically accounts for a quarter of conversion costs. In the case of nickel, however, it amounts to over half the cost. In the case of copper labour accounts for 23-36% of total operating costs for refining and even a higher proportion for further processing down the value chain (fabrication); Estimates presented by INSG in April 20091 suggest that the electricity costs of new nickel pig-iron electric furnaces currently being built in China will account for 40% and fuel coal for 13% of conversion costs. This indicates that energy costs constitute an above average proportion for the EU; Copper production in the EU is a mix of primary and secondary production, and company accounts do not provide sufficient information for estimates of the cost structure for each type of production; The prices of refined metals are determined in the global market, as a result of which the erosion of profit margins affects high-cost producers, generally located in more mature market economies, more severely than suppliers located in regions with abundant resources and energy; Other costs (including items such as administrative costs, environmental costs, transports costs, consumables, external services, onsite services, maintenance costs) constitute another factor. Their share in the conversion cost varies across sub-sectors. In the case of primary aluminium and nickel, they account for just 12-14%; in the case of lead and zinc, however, the share is much higher. For industry stakeholders and policymakers, therefore, the key issues relate to the following: Energy and related costs (e.g. EU ETS) for primary aluminium, copper, zinc and nickel production: Primary aluminium, copper and zinc producers are especially sensitive to differences in energy prices in comparison with non-EU countries. The volatility of energy prices further undermines investment decisions; Labour costs, given their equal or greater weighting in the cost structure (when compared to energy costs) of some metal sub-sectors; and Environmental compliance cost, especially in comparison with third countries, where the industry often is subjected to less regulation and does not face similar costs especially in emerging economies such as China, India and Russia.

Lennon, J., Layton, M., Liu, B. (2009), Nickel Pig Iron Update, Presentation to INSG 2009.

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NFM value chain: The value chain for each of the NFM studied here has its own unique characteristics, and would generally include the following: o Mining and beneficiation of ore into concentrates or intermediate raw materials for refining; o Refining of the latter and/or refining of scrap into unwrought metal (unalloyed or alloyed); o Processing of unwrought metal into semi-manufactured products (plate, sheet, strip, foil, bar, rod, profile, tube) or processing into pure chemical compounds, for use by the manufacturing industry. The EU NFM sector has traditionally been characterised by strong value chain integration which has contributed to the strength of the sector. However, this excludes mining activities as the EU NFM has traditionally sourced the bulk of its raw materials from outside the EU; The main suppliers of primary (mined) and secondary (recycled) raw materials to the EU NFM industry are the mining (specifically the mining of metal ores) and recycling industries. Mineral ore mining and processing is commanded by a small number of multinational enterprises: BHP Billiton, Vale, Rio Tinto, Anglo American and Freeport-McMoRan. These are vertically integrated into subsequent stages of production in various ways; NFM production provides key inputs to many other traditional and emerging hightech manufacturing industries and construction; Close proximity of clients and suppliers throughout the various stages of the supply chain up to the client industries enables NFM producers to react quickly and adequately to the demands of its main customers. Some of the most demanding global users of NFM products (in terms of quality and specialised material needs) are based in the EU (e.g. car manufacturing industries, aerospace, and other transport sector), as a result of which EU NFM producers had to develop tailored, high quality and technologically advanced solutions, often in close cooperation with their clients. Such demands have been translated backwards through the supply chains, where e.g. fabricators work with refiners to develop special alloys; Processed scrap and residues, and old scrap (from end-of-life products) enter the value chain at the refining and processing stages. This is a source of significant energy and resources savings, environmental benefits and increased competitiveness; In recent years these value chains have been disintegrating or disaggregating as a result of primary production expanding to outside the EU.

Competitiveness Issues for the EU NFM Industry


Environmental and climate change policies: Multiple environmental policies have an impact on the EU NFM industry: o Environmental standards (e.g. IPPC Directive (IED recast), Ambient Air Quality Framework Directive, Water Framework Directive); o Waste regulation (e.g. Waste Framework Directive, WEEE, Waste Shipment Regulation); o REACH (Registration, Evaluation, Authorisation and restriction of Chemicals Regulation).

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Generally speaking, the mean impacts lie in the administrative burden, compliance costs and correct implementation and enforcement of the environmental policies, while insufficient harmonisation of environmental policies and policy interpretations at Member State level creates inefficiencies; Internationally the EU environmental regulations are the most far reaching and ambitious compared to other developed and developing economies. There are no comparable environmental regulations in place in developing countries. These are generally still setting up their environmental framework (e.g. SEPA in China) and their environmental policies tend to focus on other environmental topics (e.g. water and air pollution in India).

The EU Emissions Trading Scheme (EU ETS) is an important factor for energy intensive NFM sub-sectors and segments in the EU. It will be directly applicable to the sector by 2013, but is already affecting the sector indirectly through increased electricity prices. In summary, the EU ETS applies to and affects the sector as follows: All sub-sectors of the NFM industry are listed on the carbon leakage list (COM decision 2010/2/EC), meaning partial free allocation of emission allowances subject to the benchmarking methodology and/or referring to historical activity level; The criterion for being listed on the carbon leakage list is based on direct and indirect EU ETS costs and the sectors gross value-added, in combination with the (in)ability to pass through costs to downstream users, resulting in a significant loss in market share to less carbon efficient installations outside the EU; The European Commission has recently decided on the benchmarks for the NFM subsectors. The aluminium sector will face a product benchmark of 1,514 kg CO2eq./tonne aluminium for which it should hand over EU credits. A fallback approach (fuel mix benchmark and historical emissions) was applied to other NFM sectors. This amounts to 56.1 tCO2/Terra Joule, based on natural gas usage. The fuel benchmark will also harm specialised processes (e.g. recycling complex scrap) where it is better to use oil or coal than natural gas; It is difficult for producers in the NFM industry, especially upstream producers, to transfer costs (e.g. costs of the EU ETS) to downstream end-users as prices are set at global level (LME). However, the costs of EU producers are determined at the local level and are not reflected in the global (LME) metal prices; From 2013 onwards the EU ETS will affect the sector directly through the costs of CO2. Higher electricity prices have indirectly been affecting the sector indirectly since 2005. However, guidelines as foreseen by the European Council for financial measures to compensate for indirect electricity costs (environmental state aid guidelines) are currently being discussed by the Commission services; For the time being, the EU ETS has no international equivalent and will give non-EU producers, which do not have to bear the costs, a competitive advantage. Energy markets and policies: Electricity prices in the EU are among the highest in the world. Aluminium

smelters based in the EU (thus excluding Norway and Iceland) pay often more than twice the price for their power compared to their international competitors. The most important reasons for these high electricity prices are the market domination of the electricity incumbents coupled at the marginal pricing system (as wholesale electricity markets in Western Europe focus on

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the marginal cost of the most expensive power plant in one of the coupled national markets), the partially liberalised internal market, the EU's position as a net importer of energy sources and the introduction of EU ETS;

Energy prices are a key factor which impacts on the competitiveness of more energy intensive sub-sectors and segments, mainly aluminium, zinc and copper producers (primary and cathodes); The NFM industries in the EU are already highly energy efficient, e.g. the copper sector managed to achieve 50% energy savings from 1996 to date; The NFM industry will benefit from more stable electricity market prices and a less volatile production environment (including climate change policy). In our opinion, the EU should continue to pursue its policy of competition in a single electricity market and in this context also find a constructive solution to the fact that a shortterm marginal price based market will not lead to internationally competitive power prices for the industry. Solutions which tackle profoundly the problems in the energy markets are not straightforward. We could think to increase the transparency requirements in the wholesale power markets. Probably more efficient will be the introduction of governance rules among power exchanges (and thus to prevent them of forming cartels). More drastically, will be to oblige every member state to organise his power exchanges by cost-of-service regulated or in other words, the power exchanges will become not-for-profit or regulated-profit institutions with their fees approved by the regulator. The most far-reaching solution is the creation of a system with more players in each market (minimum 5) each with a reasonable percentage of generation capacity (>10% and max 20%). Or, if all these solutions are not possible in the short term, the Commission should think at providing tailored solutions to the industry (cf. EU ETS).

Trade and EU trade policy Trade and trade policy involve two main concerns: tariffs placed on various products and non-tariff measures. The latter includes export restrictions and quality or safety requirements that prevent goods from moving freely across borders. These factors all impact the competitiveness of the EU NFM industry. Trade and trade related issues that influence NFM include: Access to secure and sustainable supply of raw materials. The EU NFM industry is highly dependent on imported raw materials (especially primary) due to the lack of appropriate ores in the EU. EU access is further restricted by export restrictions, tariffs and taxes in place in important raw material producing countries like China and Russia, which creates an unequal international playing field. The EU is also highly dependent on the accessibility of EU urban mines (recyclable materials) where it is currently facing fierce competition from abroad (China, India); Increasing import penetration from regions with lower costs of production inputs. The best illustrations of this trend are the increasing imports levels of primary products from both Russia and the United Arab Emirates (UAE), countries where dual pricing for energy is applied, and from China, where export of value added products is indirectly encouraged through e.g. industrial policy aimed at keeping input prices low by providing direct or indirect subsidies;

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Rising importance of recycling. This is a response to higher prices, less secure access to primary raw materials, and environmental policies and regulations. Europe has a well-developed recycling sector which is complementary to primary raw materials transformation. In addition recycling saves energy and CO2 emissions; Investments in new raw material sources development. Despite the increased recovery rates for most NFM sectors, imports of primary raw materials will remain an essential and major source of supply to the European markets for technical and structural reasons (e.g. long term stock and rising demand). Mining operations and the raw materials projects are being developed even within the EU in response to restricted access to raw materials from China; Increased prices and export of scrap in the EU: The export restrictions on raw materials imposed by supplying countries, has increased pressure on available sources of scrap and demand for these inputs from the EU has risen sharply. In addition, the ineffective enforcement of trade related aspects of environmental regulations related to waste shipment resulted in growing losses of valuable raw material inputs.

Research, development and innovation policies The industry tends to focus on the cost side of the business equation and it could be useful to emphasise also the potential of the European metal industry for innovation. The Lisbon Agenda and the newly minted Strategy 2020 document, give prominent place to innovation as an important component of economic growth and for good reason. In a high-cost labour environment innovative ways to provide goods and services allow industries to remain competitive. Low cost and low-added value activities are seeded to other jurisdictions. When compared to low-wage developing countries, innovation is a clear advantage for European industry. Innovative activities and clusters remain strong, a point confirmed by stakeholders. Europe has no clear lead with respect to innovation in comparison with other developed regions. Despite this it must be emphasised that innovation in NFM remains an important factor in competitiveness. Labour cost and skills Labour costs constitute a high share of the total conversion cost for the EU NFM industry. Labour costs in the EU do not appear (no specific data exists) to be higher than those in e.g. the US and Japan. However, costs in emerging markets like China and India are still substantially lower, reflecting lower levels of development. Labour costs are determined not just by wage levels, but also by cost of complying with health, safety and related labour regulations. As with environmental compliance costs, these are substantially lower in countries such as China and India. The overall extent to which higher labour costs in the EU are off-set by higher productivity / skills is not entirely clear. China, in particular, is rapidly catching up technologically, which implies also increased productivity. Rising awareness of bad labour conditions and the continued high economic growth rates in China, will likely lead to increased labour costs over time. From an EU perspective, the continued access to high-skilled labour resources may become an issue for the industry, tied in part to existing education and research facilities and enrolment rates in technical education.

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General assessment of key competitiveness issues The impact of the high cost EU environment on the NFM industry is exacerbated (and may become prohibitive) by an uneven global playing field and distorted markets. This is the case in a number of areas relevant for the EU NFM, including notably: (1) the unilateral introduction of very strict environmental and energy policies (including ETS); and (2) third country (State interventionist) industrial and trade policies to support NFM industries through e.g. export restrictive measures (raw materials), direct and indirect subsidies, dual pricing of energy, import measures, etc. The latter can be observed especially in countries such as China, Russia, India, and the Gulf States. Cost factors and the uneven global playing field are fostering investment shifts towards upstream activities in countries with better access to raw materials and/or lower energy costs. Industry data shows that the number of NFM operators in the EU has decreased since the early seventies. Further relocation of the NFM industrys primary production segments would lead to job losses and a decrease in R&D.

Future Directions of the EU NFM Industry


Strategic outlook The EU NFM industry has a long history and strong links to other industries. With age, however, came competitive pressure as the rise of emerging economy producers and resource scarcity are squeezing the industry from both sides. Scarce resources come in all forms, whether we speak of primary materials or a skilled labour force. Political realities in the EU generate further pressure on the industry. The European Union has chosen to take the lead on environmental protection and sustainability. Environmental legislation generally generates the added benefit of helping new and emerging industries. The same can not be said of the more traditional commodity based manufacturing that takes place in upstream production segments of the NFM industry, which will experience less benefits and more pressure from high regulatory compliance demands and energy cost. This trend is likely to continue in the medium- to long-term. Energy prices are likely to increase and environmental regulations will remain important. Chinas emergence as a global player with increasing technological capacity and subsequent pressures on raw materials and scrap is set to continue, as is the emergence of a number of other key players such as Russia and countries in the Middle East. Expansion of productive capacity in upstream activities for aluminium, copper and zinc, in particular, is likely to occur outside of the EU, while import penetration for these segments will likely increase further. However, the EU NFM industry has strong roots and substantial capacity in the EU. It can still build on a highly qualified and skilled labour force; the relatively stable market in the EU (compared to e.g. China or Russia); the high productivity rates of European smelters; high recycling rates and recovery rates for recycling processes, with emergence of closed loops; and its strong linkages with its client base in the EU, which sets high requirements with regard to quality and technology.

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Many NFM producers provide crucial inputs for high-tech industries and are considered of economic importance for emerging technologies. Technologically the sector is still at the forefront in many sub-sectors and segments, particularly in higher value added (e.g. precious metals) and high quality fabricated products, which are tailored to the needs and often developed in cooperation with main client industries. There still appear to remain important incentives for many companies to retain their production capacity and R&D activities in the EU. Efforts should be made to highlight and raise awareness of these competitive advantages, specifically vis--vis potential other investment locations. However, cost differences between the EU based companies and their international competitors (especially related to energy, climate change and environmental topics), should stay in a reasonable range, or the benefits of being EU-based will be outweighed by these costs. Generally speaking, the economic trade-off between relocating activities outside the EU versus continuing business activities within the EU is difficult to determine but it seems to be in favour of continuing European NFM business activities if the concerns and issues around energy and the EU ETS will be solved, particularly for primary aluminium, copper and zinc. Policy options The strategic and policy choices that the European Commission faces in regards to the NFM industry are stark. On the one hand, the EC has an economic choice to make that could be conducted based on a cost-benefit analysis of compensation measures for companies (e.g. in relation to the EU ETS) provided by the Commission versus jobs retained / created. On the other hand, regardless of the outcome of such a purely economic analysis, there is a political, strategic justification for supporting these industries. As witnessed with security of supply problems in the field of energy and critical raw materials, the EU does not operate in a level playing field and as such needs to consider its political interests. Our recommendations, however, lean mostly on economic rather than political analysis. The recommendations as such should be taken within this political context and they do take into account the field of play in terms of various other jurisdictions with which the EU competes. In general terms, improving the EU internal market conditions and focussing on key trade irritants internationally should be high on the list of policy and strategic priorities for the industry. The functioning of the EU internal energy market must be improved further. The EU NFM industry has to compete on a global level with regions that do not have EU ETS and costs for renewable energy on top of their marginal prices. Sector-specific trade and economic cooperation agreements should be pursued, with specific focus on non-tariff measures. It is of strategic importance to preserve scrap for the EU market. The specific recommendations and policy suggestions for the sector made, based on this report include: 1. The NFM industry will benefit from more stable electricity market prices and a less volatile production environment (including climate change policy). In our opinion, the EU should continue to pursue its policy of competition in a single
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electricity market and in this context also find a constructive solution to the fact that a short-term marginal price based market will not lead to internationally competitive power prices for the industry. Solutions could be to speed up the liberalisation process by obliging the incumbents to sell parts of their portfolio or if that is not possible in the short time by providing compensation to the industry. 2. Using trade policy initiatives to foster an international level playing field for NFM should (continue to) be a high priority for EU NFM industry policies, in particular, in relation to access to raw materials and in combination with related internal policies. Through its trade policy, the EU can pursue a number of avenues that should help achieve a level international playing field. This is also clearly outlined in a recent working document for the Trade Policy Committee2. The main avenues or policy responses identified in this document include: a. Multilateral and bilateral trade policy negotiations; b. Dialogue; c. Trade Defence Instruments; d. Trade Raw Materials Strategy including export of waste and scrap; e. Investment policy. These policy options should be developed and further enhanced in close coordination with other (non-trade) policy initiatives. The current EU Raw Material Initiative is an example of a multi-pronged approach to the problem of access to raw materials: by addressing the problem externally through trade policy solutions with resource rich countries, by including provisions on access to and sustainable management of raw materials in all bilateral and multilateral trade agreements and through regulatory dialogue. The EU addresses the problem internally through the promotion of efficient and sustainable use of raw material and encouragement of the use of scrap; 3. Import tariffs should be reduced or eliminated, at least for aluminium; simultaneously other competitiveness issues related to e.g. high energy costs and aluminium scrap market distortions should be addressed through other policy measures. Using import tariffs as a form of compensation for high costs, such as for energy, is not the preferred strategy. Import tariffs do not address the basic competitiveness issue behind the high cost environment in the EU, whether related to energy, climate change, environmental legislation or labour. Such issues would be better addressed through e.g. an appropriate EU energy policy, labour laws or possibly other trade policies (see our second recommendation below). Moreover, with respect to the aluminium tariff, in particular, the effects of import tariffs on all value chain segments should be taken into account; 4. More and more, innovation policies focus on how best to encourage knowledge sharing between industry and universities (and on protecting intellectual property rights so that the benefits of those innovative activities can be realised). Given the interdependent nature of the NFM industry, including construction, information and communication technology, renewable energy technologies and transport equipment,
2

Working document of the Trade Policy Committee, December 2010.

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European policy should continue to focus on knowledge sharing and fostering partnerships between various segments of the value chain. Success of the framework programmes in creating networks of excellence is one example.

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List of Abbreviations and Conventions

ACP APT APX ASEAN BAT BIR BM BRIC CE cf CL CBOT COMEXT DDA DG EAA EATP EEB EEX ECORYS EC ECI EEB EFTA EII EITI ELV EPEX EQS ETA US EPA ETP-SMR ETS ERA EU

African, Caribbean and Pacific Group of States ammonium paratungstate Amsterdam Power Exchange Association of Southeast Asian Nations Best Available Techniques Bureau of International Recycling Benchmarking Brazil, Russia, India, China Cambridge Econometrics, Cambridge, UK confer (compare) Carbon Leakage Chicago Board Of Trade Commercial and External Trade Doha Development Agenda Directorate General European Aluminium Association European Aluminium Technology Platform European Environmental Bureau European Energy Exchange ECORYS Nederland B.V., Rotterdam, Netherlands European Commission European Copper Institute European Environmental Bureau European Free Trade Association Electro-Intensive Industries Extractive Industries Transparency Initiative Emission Limit Values European Power Exchange Environmental Quality Standards Emission Trading System United States Environmental Protection Agency European Technology Platform on Sustainable Mineral Resources Emissions Trading System European Research Area Generally, the European Union as it was in the year of reference, e.g. EU in 2003 would be the EU15; EU in 2005 would be the EU25. However, when used in relation to WBMS statistics it refers to the EU27 in any given year.

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EU5 EU10 EU12 EU15 EU25 EU27 EUA EUMAT EUROMETREC FDI FP FP7 FTA GARC GHG GME GSP HPAL IAI ICSG IEA IED ILA ILZSG IMPEL incl INSG IPEX IPP IPPC IPR ISO IUPAC IWCC IZA JIT KwH LCD LME LNG MFN

The five member bloc of France, Germany, Italy, Spain and the UK The ten Member States that acceded to the EU on 1st May 2004 The 12 Member States that have acceded to the EU since 1st May 2004 The bloc of 15 Member States that made up the EU prior to 1st May 2004 The bloc made up of the EU10 and the EU15 The bloc made up of the EU25 plus Bulgaria and Romania European Union Allowance European Technology Platform on Advanced Engineering Materials and Technologies European Metal Trade and Recycling Federation Foreign Direct Investments Framework Programme 7th Framework Programme on Research and Development of the European Commission Free Trade Agreement Generalized Autoregressive Conditional Heteroskedasticity model Greenhouse Gas Gestore dei Mercati Energetici SpA Generalised System of Preferences High Pressure Acid Leaching International Aluminium Institute International Copper Study Group International Energy Agency EU Industrial Emissions Directive International Lead Association International Lead and Zinc Study Group Network for Implementation and Enforcement of Environmental Law including International Nickel Study Group Inter-Parliamentary Information Exchange Integrated Product Policy Integrated Pollution Prevention and Control Intellectual Property Rights International Organization for Standardization International Union of Pure and Applied Chemistry International Wrought Copper Council International Zinc Association Just-In-Time Kilowatt Hour Liquid Cristal Display London Metal Exchange Liquefied Natural Gas Most Favoured Nation (tariff)

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MS MWh NACE NAMA n.e.c. nes NFM NTB NTM NTUA OECD OMEL PBB PBDE PHS PCA PGM PHS PM PRODCOM PS PTA Q R&D R&D&I REACH REE REM RES RMI RMCEI RoHS S&T SCS SEPA SME SPL SWOT SX-EW TBT TC/RC tCO2

Member States MegaWatt hour Nomenclature gnrale des Activits economiques dans lUnion Europenne Non-Agricultural Market Access Not elsewhere classified Not elsewhere specified Non-Ferrous Metals Non-Tariff Barrier Non-Tariff Measure National Technical University of Athens Organisation of Economic Coordination and Development Operador del Mercado Ibrico de energa (the Spanish electricity market operator) polybrominated biphenyls polybrominated diphenyl ethers Priority Hazardous Substances Partnership and Cooperation Agreement Platinum Group Metals Priority Hazardous Substances Precious Metals PRODuction COMmunautaire Priority Substances Preferential Trade Agreement Quarter Research and Development Research, Development and Innovation Registration, Evaluation, Authorisation and Restriction of Chemical substances Rare Earth Elements Rare Earth Metals Renewable Energy Sources Raw Materials Initiative Recommendation for Minimum Criteria for Environmental Inspections Restriction of Hazardous Substances [Directive] Science & Technology Sector Competitiveness Studies State Environmental Protection Administration (China) Small and Medium-sized Enterprises (typically defined as a firms with less than 250 employees) Spent Potlining Marketing/ strategic analysis technique highlighting Strengths, Weaknesses, Opportunities and Threats Solvent extraction/electro winning Technical Barriers to Trade Treatment and Refining Charges tonne of CO2

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tCO2/MWh tCO2/T TDI UAE UNSD US WBMS WEEE WFD WTO WTO DDA bn bt kg kt mln mt p.a. pp

tonne of CO2 per MegaWatt hour tonne of CO2 per ton of production Trade Defence Instruments United Arab Emirates United Nations Statistics Division United States (of America) World Bureau of Metal Statistics Waste Electrical and Electronic equipment (Directive) Water Framework Directive World Trade Organization World Trade Organization Doha Development Agenda billion billion tonnes kilogramme kilo-tonnes million million tonnes per annum percentage point(s)

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FWC Sector Competitiveness Studies EU NFM Industries

1 Description of the Study

1.1

Objectives and purpose of the study


The purpose of this study is to provide the Commission with a clear and up-to-date understanding of the current competitiveness of the EU NFM industry, and how it might develop and be improved. The underlying objectives are to enable the Commission to help the EU NFM industry develop strategies and policies for future competitiveness, while enabling the industry to adapt and contribute to the EUs sustainable development objectives.

1.2

Definition of the NFM industry


The NFM industry encompasses a range of productive activities throughout the value chain, including mining, recycling, refining, and processing. This study will not include mining and focuses on the three main metal groupings that make up the NFM industry: Base metals, including the NFM sub-sectors aluminium, copper, zinc, lead, nickel, and tin; Precious metals, including the NFM sub-sectors silver, gold and the platinum group metals (PGM);3 Minor metals, including NFM sub-sectors refractory metals (tungsten, molybdenum, tantalum, niobium, chromium), and specialty metals (e.g. cobalt, magnesium, germanium, indium, tellurium, antimony, gallium, etc.). The activities carried out in each of these sub-sectors and value chains include: the production of refined, unwrought metal in alloy and non-alloy form; the production of metal bars, rods, plates, sheets, wires, compounds and powders; the casting of light metal and other non-ferrous metal parts, for e.g. land vehicles, vehicle parts and engines, and machinery & mechanical appliances. The study focuses on the NFM industry as a whole. It also looks at a number of subsectors, in recognition of the wide range of characteristics and competitive drivers relevant in each sub-sector. It further looks separately at aluminium, copper, lead, zinc, tin and nickel. Precious and minor metals are considered as groupings. The study uses official statistical data, as defined in the NACE Rev.2 industry classification4, to make consistent comparisons of the NFM industry, its sub-sectors and
3 4

Including platinum, palladium, iridium, rhodium, ruthenium and osmium. http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-RA-07-015/EN/KS-RA-07-015-EN.PDF.

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25

the rest of the economy. For statistical reasons the NFM industry and sub-sectors were defined as per Table 1.1. Official data was supplemented with information drawn from sources such as NFM industry federations and associations,5 the international study groups (ICSG, INSG, ILZSG),6 and the World Bureau of Metal Statistics (WBMS). Annex F provides an overview of the data sources used for the various tables.
Table 1.1 Sub-sectors of the NFM industry and their NACE classifications NFM sub-sector NACE Rev. 1.1 code Precious metals Aluminium Lead Zinc Tin Copper Nickel Minor Metals 27.41 27.42 27.43 27.43 27.43 27.44 27.45 27.45 NACE Rev. 2 code 24.41 24.42 24.43 24.43 24.43 24.44 24.45 24.45 Precious metals production Aluminium production Lead, zinc and tin production Lead, zinc and tin production Lead, zinc and tin production Copper production Other non-ferrous metal production Other non-ferrous metal production: production of chrome, manganese, nickel etc. from ores or oxides; production of chrome, manganese, nickel etc. from electrolytic and aluminothermic refining of chrome, manganese, nickel etc., waste and scrap; plus related castings industries 27.53 27.54 24.53 24.54 Casting of light metals Casting of other NFM production of alloys of chrome, manganese, nickel etc.; semi-manufacturing of chrome, manganese, nickel etc.; production of mattes of nickel. NACE Rev. 1.1 Category Description

NFM are distinguished from ferrous metals by virtue of their non-magnetic properties and enhanced resistance to corrosion. They can be divided into base, precious and minor metals, the latter including refractory metals and specialty metals. The principal NFM are: aluminium, copper, lead, nickel, tin and zinc. Lead and tin account for only a small proportion of global output. The principal precious metals are gold, silver and platinum group metals (PGM). Minor metals constitute the final group. The technological developments of electronics, healthcare (medical equipment) and energy drive the demand for specialist precious and minor metals, such as PGM, molybdenum, tungsten and tantalum.

European NFM Association (Eurometaux), European Copper Institute (ECI), International Zinc Association (IZA), European Aluminium Association (EAA), Federation of Aluminium Consumers in Europe (FACE), International Lead Association (ILA), International Aluminium Institute (IAI), the Nickel Institute, Bureau of International Recycling (BRI), ITRI (Tin). International Copper Study Group (ICSG); International Nickel Study Group (INSG); and International Lead & Zinc Study Group (ILZSG).

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FWC Sector Competitiveness Studies EU NFM Industries

Each of the value chains the NFM studied here has their peculiarities, despite which all share the following general characteristics: The mining and beneficiation of ore into concentrates or intermediate raw materials for refining; The refining of the latter and/or refining of scrap into unwrought metal (unalloyed or alloyed); The processing of unwrought metal into semi-manufactured products (plate, sheet, strip, foil, bar, rod, profile, tube), or processing into pure chemical compounds for use by the manufacturing industry. Process scrap and residues, and old scrap from end-of-life products, enter the value chain at the refining and processing stages. This is a source of significant energy and resource savings, environmental benefits and increased competitiveness. The EU NFM value chain is visualised in the flow chart below.
Figure 1.1 Value chain for EU NFM industry

The definition of the NFM industry used in this study excludes: mining and preparation of ores; casting carried out in connection with the manufacturing of metal products; and end-use applications. Included in first-use applications is the casting of finished or semifabricated NFM products. NFM production provides inputs into many other manufacturing industries, the construction sector, and high-tech industries such as electronics, medical, aerospace, and renewable energy. This is summarised in Table 1.2.

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Table 1.2

Key Uses of Refined NFM Key Uses of Refined NFM Non-ferrous metal Aluminium First-processing Rolled products End-use Foilstock, rigid packaging, transport equipment, construction Extruded products Casted products Copper Rolled products Construction, transport equipment, engineering Transport equipment, engineering, construction Electrical applications (including cable, transformers, electronic components), construction, transport equipment Extruded and drawn products Electrical applications (switchgear, power transformers, wire), plumbing, air-conditioning and refrigeration Casted products Lead Casted, rolled and extruded products Nickel Nickel-based alloys, plating, other alloys Machinery, transport equipment Batteries, construction, radiation shielding, pigments & other compounds, shot/ammunition Stainless steel production, construction, piping, chemical processing, automotive and aerospace, domestic and electrical appliances Zinc Galvanised steel, brass, zincbased alloys for die casting, compounds, semi-manufactures Tin Precious metals Solder, tinplate, brass, bronze Wrought products, compounds, powder Minor metals E.g. Alloys, powder, unwrought products Packaging Investment, jewellery, coins & medals, electronics, chemicals, dentistry Electronics, lasers, lighting, medical, fibre optics transmission, military radar and missile guidance, solar energy, aerospace, automotive, catalysts, water purification, etc.
Source(s): EAA, ECI, IWCC.

Construction, transport equipment, consumer & electrical goods, engineering

1.3

Structure of this report


The report presents the data collected; a review and analysis of existing literature about the NFM industry and its competitiveness; and the outputs of a stakeholder engagement process involving industry and industry associations. It collates and summarizes the evidence and develops a coherent story-line for the competitiveness of the EU NFM industry in four subsequent Chapters: Chapter 2 presents key facts of the EU NFM industry, including trends and patterns in production, use and trade, price mechanisms and the costs structure of the different sub-sectors, and a value chain analysis of each of the defined sub-sectors. The chapter concludes with an overview of key structural business indicators for the EU NFM industry; Chapter 3 sets out key issues and drivers that relate to the competitiveness of the EU NFM industry. Recent developments affecting competitiveness or the framework

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conditions, are summarized and their impacts assessed and put into an international perspective; Chapter 4 analyses key challenges and opportunities (SWOT) at sub-sector level, and concludes with strategy and policy recommendations for the sector.

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2 The EU NFM Industry in a Global Context

2.1

Production and use patterns in NFM7


The combined global output of primary refined base NFM in 2009 was about 76 million tonnes (mt), down from the 80 mt in 2008 as a result of reduced demand in the course of the recession8. In comparison, world raw steel production was about 1.2 billion tonnes (bt),9 or about sixteen times as much. Aluminium accounts for nearly half10 of the annual output tonnage and, as a light metal, its significance in terms of volume is even greater. Together, aluminium, copper and zinc represent more than 85% of annual global NFM production. The NFM industry provides products for end-users in many industries and trends in the global economy serve as important factors driving the demand for and prices of NFM. In 2009, for instance, the collapse of investment and household spending on big-ticket items prompted a dramatic decline of the demand for NFM in the automotive, steel, consumer goods and construction sectors, all significant NFM end-users. Thus the global recession drove down demand for most of the NFM in 2009, leading to a decline of total primary and secondary production of more than 8%. Over the past three years, global NFM production, driven by new mining, smelting and refining projects launched in anticipation of stronger demand, tended to outstrip actual usage11 The supply-demand balance for many NFM is cyclical. Investments in are made in production capacity and new players enter the market when prices are high, occasionally leading to oversupply. Yet generally global demand (usage) shows an upward trend over the longer term, one that is expected to continue. Imbalances between global production and demand are also caused by factors related to the location of NFM producers and end-users. The location of NFM production is influenced by factors such as: the availability of mineral ore and concentrate; energy availability and cost; smelting and refining capacity and operating efficiency; and the relative importance of access to end-users. Australia, Canada, Chile, Brazil, Jamaica and

9 10 11

The data presented in this section are for production of refined metals (primary and secondary). They do not include the production of downstream products, such as semis and castings. This includes primary production of aluminium, copper, lead, nickel, zinc and tin. Unless otherwise indicated, the source for production, usage and trade data is World Bureau of Metal Statistics, World Metals Statistics Yearbook 2010. Data for the EU are consistently for EU27. The term usage is used for the use of each metal although, of course, metals are transformed and incorporated in products rather than used up. Source: World Steel Association. CE calculation from World Metal Statistics Yearbook 2010 data. For instance, stock volumes in the use phase for aluminium amounted to 638 million tonnes in 2008.

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the Russian Federation are the main sources of mineral ores, which makes the international trade of these resources an important strategic issue for the EU. Table 2.1 shows the EU27s shares of global usage and production for the main refined NFM. Overall, EU usage accounts for between one-sixth (for aluminium and copper) and one-fifth (for nickel) of world demand. The EU27s share of global production is generally smaller, ranging between a tenth (for aluminium) and a seventh (for copper, lead and zinc). The EU27s demand for primary aluminium and refined copper and nickel is substantially greater than its own production, indicating that net imports are a significant characteristic of the EU NFM industry (see the table below).
Table 2.1 EU27 Shares of Global Use and Production of Refined Base NFM, 2009 NFM sub-sector Use Aluminium Copper Lead Nickel Zinc 15
12

Global Share (%) of: Production 10 15 13 6 16

17 16 18 14

Source: CE calculations from World Metal Statistics Yearbook 2010 data.

Trends at global level and within the EU are discussed immediately below. In summary, the rapid growth of Chinas share of world usage and production of most metals is a significant recent trend. Most capacity increases are occurring outside the EU, while EU demand for downstream products in particular is expected to continue to grow as its economy recovers from the recession.

2.1.1

Global NFM production and usage patterns The main trends in global production and usage in NFM sub-sectors like aluminium, copper, lead, nickel, zinc and tin, are presented below. See Annex A for more detailed and descriptive production and use. Aluminium13 Global aluminium primary and secondary production increased between 5% and 11% pa over 2002-07 and flattened off to a peak of almost 48 mt in 2008. Despite a sharp fall of 8% in 2009, global aluminium production increased by 34% over the period 2000-2009 to 44 mt, of which 36.1 mt was primary and 7.9 mt secondary production.
12 13

EU share of global aluminium primary usage only. All volume figures for aluminium production and usage come from World Metal Statistics Yearbook 2010 (WBMS), pp. 1113. EU volume figures have been calculated by summing up values published for Member States, on the advice of WBMS. Shares and growth rates are CE calculations based on these data. The WBMS dataset distinguishes primary production (82% of the total in 2009) and secondary production (18% of total production). Total production is calculated as the sum of these. Industry sources suggest that WBMS coverage is not complete, particularly for remelt production, which is only partially included in the WMBS data.

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World aluminium production is concentrated in certain parts of the globe. From 2007 to 2009 China, the EU and the US were collectively responsible for just over half of global primary and secondary production. Chinas production increased substantially from 2.9 mt in 2000 to 14 mt in 2008 and 2009, and it is now the major producer with a 31%share of world production. In contrast, production in the EU increased from 2.96 mt to 3.28 mt over 2000-2005, before falling by over 6% in 2006. A small increase in 2007 was followed by a modest fall in production in 2008 and a more rapid decline of 16% in 2009. As a result, the EUs share of global production fell from 16% in 2000 to 12% in 2007 and 10% in 2009. Other major primary producers are Russia (4 mt in 2007, falling to 3.2 mt in 2009), Canada (just over 3 mt in 2007-2009), Australia (just under 2 mt in 2007-2009), India (growing from 1.2 mt in 2007 to 1.5 mt in 2009), Brazil (about 1.6 mt in 2007-2009), and Norway (over 1.3 mt in 2007-2008, dropping to 1.1 mt in 2009). Primary production in the UAE increased rapidly over the past decade to 1 mt in 2009 due to the launch of a new smelter in Dubai; also in Bahrain where production increased by 69% to 0.9 mt in 2009. Similarly, primary production in Iceland increased from 0.23 mt in 2000 to 0.66 mt in 2009. The emergence over the last few years of a number of sizeable new players in this sub-sector outside the EU is very visible. The global primary aluminium industry is highly concentrated. The International Aluminium Institute (IAI), which represents the worldwide industry outside of China, has 27 members. The seven largest producers, including those from China, account for half of total global production. The four largest producers collectively account for 40% of global production. Of these Rio Tinto Alcan, Alcoa and Rusal retain part of their smelting and refining operations in the EU; the other, Chalco (China), has no installations in the EU (see table below).
Table 2.2 Primary aluminium producers 2009 Rank Company Head Office Production (000 tonnes) 1 2 3 4 5 6 7 8 9 Rusal Rio Tinto Alcan Alcoa Chalco Norsk Hydro Aluminium BHP Billiton Dubal Alba Century Others Total
Notes: * production capacity. Source: Company websites and annual reports.

Percentages

Cumulative Percentages

Russia Canada US China Norway UK-Australia Dubai Bahrain US

3,946 3,808 3,564 3,400 1,396 1,233 1,010 870 615* 16,258 36,100

10.9 10.5 9.9 9.4 3.9 3.4 2.8 2.4 1.7 45.0

10.9 21.5 31.4 40.8 44.6 48.1 50.9 53.3 55.0 100.0

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In 2009 global secondary production14 stood at 7.9 mt, down from 9.6 mt in 2007, and amounts to about a fifth of total production. The US is the largest secondary producer with 40% of global outputs, producing 3.1 mt in 2009, down from 3.9 mt in 2007. Secondary production in the US is almost 65% of its total production. The EU is the second-largest secondary producer with a global market share of around a quarter. It produced some 1.8 mt in 2009, down from nearly 2.5 mt in 2007. Chinese secondary production increased substantially over 2000-2009, but remains at a relatively low level. Secondary production was less than 1 mt in 2009, accounting for just 7% of total Chinese production. Japanese secondary production remained stable over 2000-2008 at 1 to 1.25 mt, but fell sharply in 2009, with a 38% decrease p.a. According to Barclays Capital15 companies cut smelter capacity by some 12.3 mt p.a. over 2008-2010, in response to the recession. The geographical distribution of 10.6 mt of these cuts is as follows: some 3.2 mt in Europe, defined more widely than the EU27; 2.2 mt in North America; and only 0.5 mt in Asia excluding China. China cut capacity by 4.3 mt over the same period. New capacity is being developed in especially China, Russia and the Middle East. Alcoa is constructing a large-scale smelter in Saudi Arabia with a rated annual capacity of 740,000 tonnes. Hydro Aluminium is in a 50/50 joint venture to build a smelter in Qatar with a rated annual capacity of 575,000 tonnes. The European Aluminium Association (EAA) estimates that global capacity will increase by some 7.3 million tonnes between 2009 and 2011, of which 5 million tonnes will be in China and 1.5 million tonnes in Russia.16 Global primary aluminium usage increased by 36% over 2000-2009 to 34.4 mt. Primary aluminium usage increased sharply over 2002-2007, reaching a peak of 37.9 mt, but then fell slightly to 37.3 mt in 2008, before falling more sharply to 34.4 mt, very close to its 2006 level, in 2009. In 2009, China, the EU and the US accounted for 63% of world primary aluminium usage. Chinas usage soared from 3.5 mt in 2000, to 12.4 mt in 2009, and now accounts for 36% of world primary usage. In 2005 China overtook the EU as major primary aluminium consumer. Usage in the EU grew over 2001-2007, reaching a peak of 7.4 mt in 2007, but fell during the 2008-2009 recession to 5.2 mt in 2009 (with most of the decline coming in 2009). In 2009, the EU accounted for 15% of world primary aluminium usage. The US is the third-largest primary aluminium consumer with 3.88 mt in 2009. Usage in the US increased over 2001-2006 to reach 6.1 mt in 2006, before falling by almost 10% in 2007. This was followed by falls of 11.5% and 21% in 2008 and 2009 respectively. Accordingly US usage in 2009, was 37% lower than its peak in 2006. Japan is the fourth-largest primary aluminium consumer in the world. It consumed 2.25 mt in 2009, amounting to 7% of global usage.

14 15 16

The production of secondary aluminium. The direct use of aluminium in the form of scrap is excluded. Barclays Capital, Metals Magnifier, 7 October 2010. The source for these estimates is a communication from EAA with estimates of capacity by country and world region through to 2011.

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Copper17 Total global refined copper production increased by 24%, or 18.4 mt, between 2,000 and 2009. In contrast to other metals such as aluminium, global production of refined copper did not decline in 2008 or 2009. The EU produced 2.5 mt of refined copper in 2009, just under 14% of global production. Only China and Chile produced more refined copper in 2009. Chinese production grew at a fast rate over 2000-2009. Starting with 1.4 mt and a 9% share of global output in 2000, it grew to 4.1 mt and a 22% share of output in 2009. Chile produced 3.3 mt or 18% of the global output in 2009. Japan, with 1.4 mt., was the fourth largest producer of refined copper in 2009. Over 2000-2007, EU27 refined copper production fluctuated, with falls in 2003 and 2007, though overall production remained fairly stable at 2.4-2.5 mt p.a. In 2008 production grew by 5.75% to almost 2.6 mt, falling by 2% to around 2.5 mt in 2009. In contrast, production in China and Chile remained firm. Production in China grew by around 8.5% in 2008 and 2009, and by 4% in Chile in 2008, before accelerating to 7% in 2009. The stronger growth in refined copper production in China and Chile over 2000-2009 means that the EU share of global production declined from 16% in 2000 to under 14% in 2009. China overtook the EU27 as the second-largest producer in 2005 and Chile as the largest producer in 2006. Since then, the production in China increased at a much faster pace than in Chile. Global refined copper usage increased by 20% between 2000 and 2009 to 18.2 mt. However, the growth in global usage over 2000-2009 fluctuated more widely than production. After falling by 1% in 2001, usage grew consistently, reaching 7% in 2004.In 2005, global usage again fell by 1%, before reviving in 2006, reaching 7% growth in 2007. Global usage again fell by 1% in 2008, before growing by a modest 0.75% in 2009. Chinas usage soared from 1.9 mt in 2000, to 7.2 mt in 2009, a growth rate of 16% p.a. Its share of global usage thereby grew from 12% in 2000, to 39% in 2009. This makes China the largest user of refined copper, and explains why Asias share increased from 38% in 2000, to 62% in 2009. At 3.1 mt in 2009, the EU is the next largest user, followed by the US at 1.6 mt in 2009. EU usage of refined copper showed volatile growth over 2000-2006. After falling in 2001, 2002 and 2003, it grew by 2.5% in 2004, only to drop again by 7.25% in 2005. In 2006 it grew by almost 10% to 4.2 mt), but fell again between 2007 and 2009, falling by 19% alone in 2009. Over the same period usage in China virtually doubled, thanks to growth of around 40% in 2007 and 2009. In the US the usage of refined copper every
17

Unless otherwise stated, all volume figures and derived percentage shares or growth rates cited for copper are obtained from the ICSG Statistical Yearbook 2010. Where WBMS data have been used, all volume figures for copper production and usageusage come from World Metal Statistics Yearbook 2010 (WBMS), pp. 27-29. EU volume figures have been calculated by summing up values published for Member States, on the advice of WBMS. Shares and growth rates are CE calculations based on these data.

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year from 2000-2009, apart from 2004 and 2007. In 2009 usage fell by 19%, similar to the drop in the EU. The main producers of refined copper are listed in the table below. Around half of global refined copper is produced by 11 companies, the three largest of which account for just over a quarter of global refined copper production.
Table 2.3 Refined copper producers 2009 Rank Company Head Office Production (000 tonnes) 1 2 3 4 5 6 7 8 9= 9= 11= 11= 13 Freeport-McMoRan Codelco Aurubis Jiangxi Xstrata Copper BHP Billiton LS Nikko KGHM Vedanta Grupo Mexico Norilsk Copper Sumitomo Hindalco Other Total US Chile Germany China Australia UK/Australia S. Korea Poland UK/India Mexico Russia Japan India 1,860* 1,780 1,100 750 730 647 510 500* 450 450 400* 400* 300 8,523 18,400 10.1 9.7 6.0 4.1 4.0 3.5 2.8 2.7 2.4 2.4 2.2 2.2 1.6 46.3 100 Percentages Cumulative Percentages 10.1 19.8 25.8 29.8 33.8 37.3 40.1 42.8 45.3 47.7 49.9 52.0 53.7 100.0

Notes: Cathode production unless denoted otherwise; * includes production of alloys and fabricated products. Source: Company websites and annual reports.

Lead18 Between 2000 and 2009 world lead production increased by 31% to 8.8 mt. A modest fall of -0.5% was experienced in 2009. China, the EU and the US collectively account for almost three-quarters of global output. China more than tripled its production from 1.1 mt to 3.7 mt between 2000 and 2009, currently accounting for 42% of world production. In contrast, EU lead production declined continuously between 2001 and 2004. It picked up a little over 2004-2008, and then fell back to 1.5 mt in 2009. The EU remains the secondlargest producer with a global share of 17%, followed by the US with a share of 14.25%. The US still leads with the secondary production of lead, with 1.15 mt and a global share of 25% in 2009 .However, China has largely closed the gap, producing 1 mt in 2009, amounting to 22% of global output. Meanwhile, secondary production in the EU remained fairly stable at around 1-1.1 mt over 2000-2009, meaning that its share of global production declined consistently from 31% in 2000 to 23% in 2009.

18

All volume figures for lead production and usage come from World Metal Statistics Yearbook 2010 (WBMS), pp. 39-41. EU volume figures have been calculated by summing up values published for Member States, on the advice of WBMS. Shares and growth rates are CE calculations based on these data.

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World lead usage increased by 38% to 8.9 mt over 2000-2009. China, Europe and the US collectively account for three-quarters of global usage. In 2000, China used 0.66 mt of lead, amounting to 10% of global usage. By 2009 China used more than 3.8 mt, representing 43% of global usage. In the EU, in contrast, usage fell by 25% over the same period. In 2000 the EU was the largest global user, consuming almost 1.9 mt representing 29% of global usage. In 2009, however, EU usage had declined to at around 1.4 mt, representing just under 16% of global usage. The US consumed 1.7 mt in 2000. This declined to 1.4 mt in 2003, and then improved to 1.6 mt in 2007, before falling back to just over 1.4 mt in 2009. The US thereby overtook the EU to become the second-largest user in 2009, though the difference in usage between the two remains minimal. Nickel19 Global refined nickel production20 increased by almost 20% over 2000-2009. It increased every year over 2000-2007, peaking at 1.45 mt in 2007. It fell by 6.5% in 2008 and close to 2% in 2009, reaching an output level of 1.33 mt. Recent INSG data indicate that refined nickel production in 2010 Q1 was 4.5% higher than in 2009 Q1, though the production of refined nickel dropped slightly between 2009 Q4 and 2010 Q1. Growth resumed in the first quarter of 2010, when production was 4% higher than in the same period a year earlier. The recovery is being driven by a sharp increase in Chinese usage, which lifted output and reduced inventories. In 2009 China and Russia accounted for 19% of world nickel production, with 0.25 mt each. The EU ranked seventh with 0.081 mt. EU nickel production experienced small fluctuations over 2000-2007, though there is little difference between production levels in 2000 and 2007. EU production fell slightly in 2008 and sharply in 2009, leaving EU nickel production at just over 0.081 mt. Global nickel usage increased by 13% to more than 1.3 mt over 2000-2009. Nickel usage fell sharply by 4.5% in 2008, recovering to +2.5% in 2009. China, the EU and Japan absorb 70% of world nickel production. Chinese nickel usage increased almost tenfold over 2000-2009. Indian usage almost doubled, growing to 0.04 mt. In Japan it declined by 23% over the same period. It remained largely unchanged in South Korea, but fell by around 40% over 2000-2009 in Taiwan. Usage outside Asia remained stable or weakened. In North America and South America demand declined over 2000-2009, while Turkey and the UAE experienced growth of 76% and 100% respectively. EU usage remained stable at between 0.42 mt and 0.47 mt pa over 20002007, but it decreased by 7.75% in 2008, and 39% in 2009 to reach 0.24 mt. As a result, the EU share of global usage dropped from 36% in 2000 to 18% in 2009.

19

20

Unless otherwise stated, all volume figures for nickel production and usage come from World Metal Statistics Yearbook 2010 (WBMS), pp. 50-51. EU volume figures have been calculated by summing up values published for Member States, on the advice of WBMS. Shares and growth rates are CE calculations based on these data. Smelter-refinery production of electrolytic nickel, nickel pellets, briquettes, steel making powder, the nickel content of nickel salts, chemical grade nickel oxide, ferro-nickel, nickel oxide sinter and utility nickel.

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About 60%21 of global nickel output is used in the production of stainless steel. High quality grades of stainless steel require pure refined nickel and a nickel content of 4% to 8%. Lower-grade stainless steel use ferronickel, obtained at the smelter stage. Other important uses of nickel are for: high quality/high technology alloys for aerospace, nuclear engineering, electronics, and for surface coating of metals and batteries. The global refined nickel output is concentrated in the hands of five mining and minerals enterprises that together account for about 61% of annual production.
Table 2.4 Refined nickel producers 2008 Rank Company Head Office Production (000 tonnes) 1 2 3 4= 4= 5= 5= 6 Others Total
Source: ERAMET.

Percentages

Cumulative Percentages

Norilsk Vale BHP Billiton Xstrata Jinchuan Eramet Sumitomo Cubaniquel

Russia Brazil UK/Australia Switzerland China France Japan Cuba

266 238 126 112 112 56 56 42 350 1,400

19 17 9 8 8 4 4 3 28 100

19 36 45 53 61 65 69 72 100

The current structure of the industry characterised is driven by: Mining and minerals enterprises moving forward into the initial stages of metal refining and processing (Vale, BHP Billiton); Refiners and processors developing a diversified portfolio of metals (Xstrata, Norilsk); State-influenced enterprises commanding domestic production (Jinchuan). Outside China the growth of the largest enterprises took place mainly through acquisition, often contested by competitors. An example is Xstratas successful battle with Vale for Falconbridge in Canada. The 5 largest firms production concentration ratio increased by 4 % points (from 57% to 61%) between 2003 and 2008. More significantly, BHP Billiton displaced Xstrata as the number three producer. The largest companies developed a mixed metals strategy in which the composition and scale of their mining, minerals and metal-producing activities are important. A diversified portfolio helps to spread risk and differences between the output and price cycles of different metals. Scale is crucial as new mining, smelting and refining projects are very expensive (in the order of USD 4 billion).

21

Nickel in Society, Nickel Institute.

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Zinc22 World zinc production increased by 27% to 11.5 mt over 2000-2009. China and the EU account for more than half of global production. In 2004, China became the main world producer, and in 2009, with almost 4.4 mt, accounted for 38% of world production. EU zinc production fluctuated over 2000-2007. After modest growth in 2001, EU zinc production fell by 4.5% in 2003. Despite a small recovery in 2004, it fell by a further 8% and 4% in 2005 and 2006 respectively. EU zinc production grew by 4% in 2007, followed by further falls of 3.75% in 2008, and 17% in 2009. In 2009 the EU accounted for just 15% of world production with an output of 1.7 mt compared to 2.4 mt in 2000. Global zinc usage increased by 27% over 2000-2009, but fell by around 3% in 2009. Zinc is used principally in the production of galvanised steel, which is much in demand in the construction, transport equipment and automotive sectors. This is reflected in the global usage patterns. Countries where these sectors are well-developed, such as China, the EU and the US (where these sectors are big) together collectively account for more than twothirds of global zinc demand for the metal. Global usage trends mirror those of production. In 2000, the EU was the main user, with China ranking second. In 2004, China overtook the EU, in 2009 using 4.9 mt and accounting for 43% of world usage. In 2009 the EUs usage fell to 1.8 mt, accounting for 16% of globally. The US came in as the third-largest user with 0.99 mt. Global production is supported by the growing demand in China. Prices weakened with the onset of the recession as demand fell and inventories rose. It fell from USD 4,500/tonne in early 2007, to USD 1,000/tonne two years later, a reduction of threequarters. As the market regained strength and inventories declined, prices rose to around USD 2,500/tonne, aided by the return of speculative interest on the part of investment funds. In 2010 thirteen zinc smelters were in operation in Europe, five of which were located in recent accession EU Member States. Capacities of the larger smelters located in EU15 Member States plus Norway and Finland range from 120,000 to 485,000 tonnes a year. Consolidations that took place over the last twenty years have restructured the European industry. Some of the 22 smelters still operative in 1990 were closed and investments in capacity expansion and operating efficiency were made in others. But no new smelters were built in Europe during this period. In contrast green fields smelters with projected annual capacities in excess of one million tonnes or more than twice the size of the largest European units are reportedly under construction in China. The main global producers identified by the ILZSG are shown in the following table.

22

All volume figures for zinc production and usage come from World Metal Statistics Yearbook 2010 (WBMS), pp. 67-68. EU volume figures have been calculated by summing up values published for Member States, on the advice of WBMS. Shares and growth rates are CE calculations based on these data.

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Table 2.5

Refined zinc producers 2009 Rank Company Head Office Production (000 tonnes) 1 2 3 4 5 6 7 8 9 10 Korea Zinc Group Nyrstar Xstrata Hindustan Zinc New Boliden Glencore Votorantim Huludao Zinc Teck Zhongjin Lingnan Others Total
Source: ILZSG.

Percentages

Cumulative Percentages

S. Korea Switzerland Switzerland India Sweden Switzerland Brazil China Canada China

879 822 744 586 438 394 372 349 248 237 6,207 11,276

8 7 7 5 4 4 3 3 2 2 55 100

8 15 22 27 31 34 38 41 43 45 100

Tin23 World tin production increased by more than 26% to around 0.33 mt over 2000-2009. China, Indonesia and Malaysia account for over 70% of global production. Chinas production increased from 0.11 mt in 2000, to 0.13 mt in 2009, but its share of world production decreased from 43% to 40% over the same period. Production in Indonesia and Malaysia grew at an even faster rate. The EU remains fourth with less than 8,500 tonnes of production, accounting for around 2.5% of global production, in 2009. EU tin production fell with fluctuations over 2000-2005. Weak growth in 2001 was followed by stronger growth of 6% in 2002. This was followed again by 13% falls in 2003 and 2005, and a 10% increase in 2004. EU tin production stabilised over 2006-2008, with growth of 4% p.a. in 2006 and 2007, picking up to 10% in 2008, before falling by around 8.25% in 2009. Global tin use increased by 16% over 2000-2009 to 0.32 mt. China, Europe and the US account for around two-thirds of global tin usage. In 2009, China consumed 0.14mt, representing 44% of global usage. This is up from the 0.05, or 19% of global use, of 2000. In 2000 the EU was still the main user of tin in the world with a global share of 23% and usage of 0.06 mt. In 2009, however, it ranked second with less than 0.05 mt consumed representing 15% of global use. The US was the third-largest consumer with around 0.03 mt in 2009, down 47% from 2000. Precious metals In 2009, the total global production of silver24 was just over 27.5 kt, largely unchanged from 2008 levels. Output grew in 2003 and 2005, which was offset by falls in 2001, 2002 and 2004; and output levels in 2005 were down only slightly from 2000 levels. Levels
23

24

All volume figures for tin (production and usage) come from World Metal Statistics Yearbook 2010 (WBMS), pp. 60-61. EU volume figures have been calculated by summing up values published for Member States, on the advice of WBMS. Shares and growth rates are CE calculations based on these data. Based on data and information published on The Silver Institute website (www.silverinstitute.org/supply_demand.php#demand).

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dropped again in 2006, mine production accounting for 71% of supply, government sales for 8.5%, and scrap recovery for 20%. Mine production increased by 3 to 3.5% p.a. over 2007-2009, while scrap supply fell by 3 to 3.25% p.a. in 2007 and 2008, and by 6% in 2009. Government sales fell by over 80% between 2006 and 2009. Peru was the largest producer of silver in 2009, accounting for close to 18% of world mine production. It is followed by Mexico, China and Australia, in descending order with Australia accounting for just 7.5%. The largest EU producer, Poland, accounted for 5.5% of global production. The total demand for silver in fabrication (industrial applications, jewellery, photography, silverware, coins and medals) stood at 22.7 kt in 2009, around 5 kt lower than in 2000. Demand increased by 1.75-2% p.a. in 2003 and 2005, and by 0.75% 2007, growth that was offset by greater downwards movement for the rest of the 2000-2009 periods, with a sharp fall of 12% in 2009. The demand for silver fell at an increasing rate over the whole period, mainly because of the growth of digital photography. Thus demand fell by 11% in 2006 and by as much as 21% in 2009. Industrial applications are now the major source of demand, which has accelerated from 1.25% in 2002, to 11% in 2005, before slowing to 5% in 2006. Demand picked up slightly in 2007, but fell again in 2008 and even more sharply in 2009. Jewellery is the other major source of demand. However this fell consistently for every year since 2003. For the five years up to 2006 about three-fifths of the gold supply came from mines, a quarter from recycling, and the rest from central bank sales. Over the same period, about 70% of sales was for use in jewellery, a fifth for investment (for example as bars or coins), and just over a tenth for industrial applications, mostly electronics.25 In 2009 the leading producers of mined gold are, in order of importance, China, Australia, the US and South Africa, the latter having been ranked first for many years until 2006.26 Other major producers include Russia, Peru, Canada and Indonesia. Gold is used in small quantities in electronic devices in concentrations higher than what is found in primary ores. However, the complex composition of the products requires sophisticated techniques to separate out the various metals for recycling.27 Current collection rates of end-of-life products tend to be low. This is partly because the metal value in a single device is low and because of a weak connection between the manufacturer of the product and the user. Some end-of-life products are exported from Europe to Asia and Africa as reusable products, but in practice end up being treated as scrap. Platinum group metals (PGM)28 is a collective name for six precious metals with similar properties: ruthenium, rhodium, palladium, osmium, iridium and platinum. All have similar chemical and physical properties, such as a high melting point, low vapour pressure, a high temperature coefficient of electrical resistivity, and a low coefficient of thermal expansion. Moreover all PGMs have strong catalytic characteristics.
25 26 27

28

GFMS Ltd., cited on World Gold Council website (www.gold.org). South Africa Chamber of Mines, press release, 12/3/10. The source for the recycling information is Hagelken C and Corti CW (2010) Recycling of gold from electronics: Costeffective use through Design for Recycling, Gold Bulletin Volume 43 No 3, www.goldbulletin.org. The information on PGMs is largely derived from the Annex V to the Report of the Ad-hoc Working Group on defining critical raw materials (July 2010) published under the Chairmanship of the Commission (DG Enterprise and Industry).

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PGMs are geologically rare. There is no direct PGM mining in the EU, although there was some marginal production of platinum and palladium as by-products in some EU countries in 2007. PGMs were recognised as critical raw materials in the recent EU criticality report. A very small amount of platinum production was recorded in just two EU countries: Finland with 800 kg or 0.39% of world production, and Poland with 10 kg. Palladium, production was only reported for Poland, at 20 kg, contributing 0.01% of global production. Close to 90% of the worlds PGM reserves are located in South Africa, which is also the global leader in platinum production. PGMs always occur and are mined together as coupled elements, usually with platinum and palladium as the main elements. Deposits are further associated with nickel, copper and gold. The deposits in South Africa, Zimbabwe and the US are mined for their PGM content, while the Russian and Canadian PGMs are by-products from nickel mining. In coupled production, the extraction of the smaller elements such as rhodium, ruthenium and osmium, thus depends on the need to mine platinum and palladium; and, in case of the Russian and Canadian operations, on the level of nickel mining in these countries. Minor metals Due to the large number of metals included under this category, it is not possible to present production and usage data and trends for all. Most minor metals are derived from ores that also include other minerals. Below we briefly outline some of the key subcategories of these metals. Refractory metals are highly heat and wear resistant (they have a melting point above 2000 C) and are commonly seen to include niobium, molybdenum, tantalum, tungsten and rhenium. Their high melting points make these metals important for tools that work with metals at high temperatures, wire filaments, casting moulds, and chemical reaction vessels in corrosive environments. Partly due to the high melting point, refractory metals are resistant to creep deformation at very high temperatures. The production of refractory metals tends to be highly concentrated. Three of these, niobium, tantalum and tungsten, were included in the list of 14 critical raw materials for the EU, as per the Critical Raw Materials report of the Ad Hoc Working Group of the Raw Materials Supply Group. World tungsten resources are geographically widely distributed with China holding the largest reserves and biggest deposits. Almost 78% of worlds tungsten production takes place in China. However, China only exports tungsten in value-added forms, meaning that ammonium paratungstate (APT) and oxide are the main tungsten raw materials available for export. Canada, Kazakhstan, Russia, and the United States also have significant tungsten reserves. Tungstens applications in the automotive, lighting, medical, and aerospace industries make it a highly sought after metal in more traditional and newly developing industries and demand is likely to increase.

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China has the largest reserves of molybdenum-bearing minerals, accounting for 44% of world stock. The second and third ranked US and Chile account for 28% and 13% respectively. China became the top ranking world molybdenum producer in 2007, ahead of the US and Chile. This metal is not produced in the EU and EU imports equal usage. Europe imports about 26% of global use.29 The EU27 produced around 100 tonnes of refractory and other30 specialty metals and metal articles in 2009. Of this approximately 80% was tungsten-based and 7% molybdenum-based. Of the remainder less than 0.5% was tantalum. Niobium is not produced in the EU and more than 92% of global niobium is produced in Brazil, with Canada a distant second at 7%. Rhenium was not separately identified in the data, but a group of rhenium and other31 specialty metals made up just over 13% of EU refractory and other metal production in 2009. Specialty metals (e.g. cobalt, magnesium, germanium, indium, tellurium, antimony, gallium, etc). Global primary magnesium production increased by 80% between 2000 and 2008. Global production was weak in 2001 and fell by 7.5% in 2002. It grew by around 20% p.a. in 2003 and 2004, slowing to 8 to 8.5% p.a. in 2005 and 2006, before picking up strongly in 2007. This was followed by a very small fall in 2008. 80% of the 0.8 mt produced in 2008 was produced in China. The next largest producers were the US and Russia, accounting for 4-5% of global production each. China also dominates germanium production and was responsible for some 72% of global production in 2009, with Russia accounting for around 4% and the US for 3%. Global production stood at approximately 140 tonnes in 2009, compared to 39 tonnes in 2000. In 2000, the US was the major producer, accounting for around 60% of global production. It is believed that some quantities of germanium are recovered from imported and domestic material in five EU Member States (Belgium, France, Germany, Spain, and UK), though figures on the volumes recovered could not be obtained.

2.1.2

NFM production and usage patterns in the EU32 This section highlights the main trends in European production and usage in the NFM sub-sectors of: aluminium, copper, lead, nickel, zinc, tin, precious and minor metals. Annex A contains graphs on production. Aluminium Total aluminium production in the EU declined by 17% to 4.4 mt over 2000-2009. This was due to an 18% fall in output in 2009, as production had remained between 5.3 mt and 5.7 mt pa over 2000-2008.
29 30 31 32

Report of the Ad-hoc Working Group on defining critical raw materials (2010) Critical raw materials for the EU. Beryllium, chromium, germanium, vanadium, gallium, hafnium (celtium), indium, and thallium. Idem. All volume figures for production and usageusage patterns in the EU come from World Metal Statistics Yearbook 2010 (WBMS). EU volume figures have been calculated by summing up values published for Member States, on the advice of WBMS. Shares and growth rates are CE calculations based on these data.

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Germany is the main producer in the EU with an output of around 0.85 mt in 2009, followed by Spain with 0.58 mt, and France with 0.55 mt. In 2009 Germanys production was 30% lower than in 2000 and 39% lower than its peak in 2007. Italian production fell by 36% in 2009, leaving the country in fourth place. It was the second-largest producer over 2000-2008. In 2009, aluminium primary production accounted for 59% of total production and France was the main EU primary producer with 0.42 mt. Spain, the Netherlands and Germany followed with an output of 0.30 to 0.34 mt. However, in 2009 production in the Netherlands was higher than in 2000, and Spain registered a year-on-year fall of just 18%, while German production fell by 52%. Thus, after having been the main EU primary producer over 2000-2008, Germany fell back to fourth place. In 2009 Greece produced 0.27 mt and the UK 0.25 mt. Aluminium secondary production in the EU (41% of total production in 2009) is dominated by Germany, Italy, Spain and the UK, which together account for more than three-quarters of total output. With 0.60 mt, Italy was the main secondary producer in 2000. Italys secondary production accounted for more than-three quarters of its total production before 2008, but fell by 44% in 2009. Germanys secondary production was also heavily affected by the recession, and in 2009 was 33% lower than its 2007 peak. The usage of primary aluminum decreased by 13.5% over 2000-2009 to 5.2 mt, with a 26% fall in 2009. Germany is the main consumer with 1.3 mt in 2009, followed by Italy at 0.66 mt, France at 0.53 mt, and Spain at 0.49 mt. Germanys usage increased by 37% over 2000-2007, but fell 3% in 2008 and 34% in 2009. Italy followed a similar trend with a 39% fall over 2007-2009, while France showed a minor decline over 2000-2007, accelerating in 2008 and 2009. In Spain, usage fell in 2001, then increased continously until 2005 to peak at 0.62 mt. It dipped slightly in 2006 and picked up again in 2007. There was another marked fall of 6% in 2008, followed by 18% in 2009. Usage in 2009 was only marginally lower compared to 2000. Copper33 In 2009, the EU produced 2.5 mt of refined copper, around 6.5% higher than levels in 2000. EU refined copper production fluctuated markedly over this period. After growing by 2-3% p.a. in 2001 and 2002, production fell by 4% in 2003, before recovering to 1 to 1.5% p.a. from 2004 through to 2006. Refined copper production fell again in 2007, then surged by roughly 6% in 2008, only to fall back by 2% in 2009. Germany is the largest producer in the EU with 0.67 mt in 2009. Poland is the second largest producer with 0.5 mt in 2009. Historically Germany and Poland have consistently been the largest and second-largest producers of refined copper respectively. Other major producers in the EU include Spain with 0.34 mt in 2009, and Belgium-Luxembourg with
33

Unless otherwise stated, all volume figures and derived percentage shares or growth rates cited for copper are obtained from the ICSG Statistical Yearbook 2010. Where WBMS data have been used, all volume figures for production and usage patterns in the EU come from World Metal Statistics Yearbook 2010 (WBMS). EU volume figures have been calculated by summing up values published for Member States, on the advice of WBMS. Shares and growth rates are CE calculations based on these data.

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0.37 mt in 2009. Scandanavia as a whole produced 0.35 mt of refined copper in 2009. Estimates using WBMS data34 indicate that Sweden accounted for 60% or 0.2 mt and Finland for 30% or 0.1 mt of the 0.35 mt. The remaining 10% was produced in Norway. Of the 2.5 mt of refined copper produced in the EU in 2009, around 0.83 mt came from secondary production. Growth in EU secondary refined copper production was volative over 2000-2009, with production falling in every second year. Thus production fell by 15% in 2001, grew by 10% in 2002, and then fell again by 11%; in 2007 production fell by 2.5%, before growing by 7.25% in 2008, and then falling by 3.25% in 2009. As a result, the 2009 volume of refinery production was around 8% lower than in 2000. EU secondary refined copper production increased by 0.06 mt to 0.86 mt in 2008. It slipped by 0.03 mt to 0.83 mt in 2009, which was still higher than the 2006 and 2007 levels. Germany is also the largest producer of secondary refined copper in the EU, accounting for 46%, or 0.38 mt, of all EU production in 2009. After falling by 6.5% in 2005, the German production accelerated from 1.75% in 2006, to 7% in 2008. Production fell by close to 3% in 2009. The EU consumed 3.1 mt of refined copper in 2009. The growth in EU usage was volatile over 2000-2006. After growing by almost 10% to 4.2 mt in 2006, it fell over 2007 to 2009, by 19% alone in 2009. Usage in 2009 was 29% lower than in 2000, due to the collapse over 2007-2009. German refined copper usage fell from 1.4 mt p.a. from 2006 to 1.1 mt in 2009. Nevertheless, Germany remains the largest user in the EU, accounting for 35% of total usage in 2009. Italy is the second-largest user in the EU, with 16% of total usage. However, its usage fell from a peak of 0.8 mt in 2006, to 0.5 mt in 2009 (and 0.76 mt in 2007 and 0.64 mt in 2008). Spain and France both accounted for 9.5 to 10.5% of usage in 2009. In France, usage fell continuously from 0.54 mt in 2006, to 0.31 mt in 2009. Usage in Spain increased from 0.32 mt in 2006, to 0.38 mt in 2008, only to fall back to 0.34 in 2009. The EU refinery production of 2.5 mt between 2000 and 2008 amounted to 62.5% of total usage in the EU (i.e. 4.0 mt). The 1.5 mt deficit was covered with imports. Lead EU lead production, of which 30% was primary and 70% secondary production in 2009, declined over 2001-2004. It picked up a little over 2005-2008, and fell back to 1.5 mt in 2009. Germany is the main producer with 0.39 mt, followed by the UK with 0.30 mt, and Italy with 0.15 mt. In the case of the UK there was a slight increase of production in 2009; in the case of Germany a slight decrease; and in the case of Italy a 25% decrease. Lead secondary production in the EU increased steadily between 2004 and 2008, and fell slightly in 2009. The ranking of EU27 countries and the trends in secondary production are similar to those in total production. Germany, the UK and Italy are the main producers, and Italy is the country that suffered the most in 2009.
34

World Bureau of Metal Statistics (2010), World Metal Statistics Yearbook 2010.

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Lead usage in the EU decreased from around 1.9 mt in 2000 to 1.4 mt in 2009. Germany is the largest consumer of lead in the EU at 0.32 mt, followed by Spain at 0.24 mt, Italy at 0.21 mt, and the UK at 0.19 mt. But the trends in these countries differ substantially over 2000 and 2009. Spains usage fluctuated markedly over 2000-2009. After modest increases in 2001 and 2002, it fell by 10% in 2003, before growing by over 10% in 2004 and 2005. This was followed by modest falls in 2006 and 2007, and an even sharper fall of 12% in 2008, before recovering by 3.75% in 2009. The overall level of lead usage in Spain was 8% higher in 2009 than in 2000. The usage of all other major European countries decreased over this period. Usage in Germany fell by 19% between 2000 and 2009, in Italy by 27% and the UK by 36%. Nickel EU nickel production remained around 0.11 to 0.12 mt p.a. over 2000-2008, but dropped to 0.08 mt in 2009, reflecting the impact of the recession on demand, and the impact of the strike at Vales mine in Sudbury, Ontario, on supply. In 2009 Finland was the main EU producer with 0.04 mt, followed by the UK with 0.02 mt, and France with 0.01 mt. UK production fell sharply between 2008 and 2009. In 2009, EU nickel use was 0.24 mt in 2009, down 44% from its 2000 level. Nickel use in 2009 fell by 39%. At 0.06 mt Germany was the largest consumer in 2009, followed by Italy at 0.04 mt, and the UK at 0.03 mt. However, in 2009, nickel use in Germany was less than one half of its 2000 level, while Italy and Spain registered less dramatic falls of 16% and 27% respectively over the same period. Zinc Zinc production in the EU fell substantially over 2000-2009, especially during the recession. Indeed, total production dropped from 2.4 mt in 2000, to 1.7 mt in 2009.It should be noted that part of this capacity decrease relates to temporary production cuts, leaving capacity idle as opposed to removing it altogether. Spain remains the biggest zinc producer within the EU27, followed by Finland and the Netherlands. Output in Spain increased by over 10% in 2001 and 2002. It was followed by more modest growth over 2003-2009, punctuated by falls of 4.5% and 8.75% in 2005 and 2008. In 2000 Spain accounted for around 16% of total production in the EU, and by 2009 its share had risen to 30%. In 2000 Germany was the second-largest producer after Spain with 0.36 mt. In 2009 total production was around only 42% of its 2000 level. Similarly, in 2000 production in France was around 0.35 mt and in Belgium 0.26 mt; by 2009 France was producing only 0.16 mt and Belgium just 0.03 mt. Zinc usage in the EU fell markedly during the recession. Zinc use was around 2.5 mt in 2000, around 2.3 mt in 2008, but fell to 1.8 mt in 2009. Germany remains the main consumer with 0.38 mt, despite a fall of nearly 30% between 2008 and 2009. It is followed by Belgium at 0.33 mt, France at 0.22 mt, and Italy at 0.22 mt. Of all EU countries Italy has suffered the most during the recession, and zinc use in 2009 was around 45% lower than in 2007. The sixth-largest user, the UK, experienced a steady decline in use over 2000-2008, followed by a sharp fall of 35% in 2009. It currently accounts for about 5.5% of all zinc used in the EU.

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Tin At 8,500 tonnes tin production in the EU is very limited and Belgium was the only country that made a significant contribution to output in 2009. EU tin production fell unevenly over 2000-2005. It picked up over 2006-2008, only to fall again by around 9% in 2009. Tin usage remained quite stable around 0.06 to 0.07 mt between 2000 and 2008. In 2009, tin use decreased sharply to 0.05 mt as a result of the economic slowdown in the region. Germany is the main user of tin within the EU, its use increasing from 0.02 mt in 2000 to 0.023 mt in 2007. This fell back to 0.02 mt in 2008, and to some 0.01 mt in 2009. France, Netherlands and Spain are next with around 5,000-5,500 tonnes each. In Spain and the Netherlands, tin use held up in 2007 and 2008, but fell sharply in 2009. In France, the use of tin fell since 2006. It fell by 16% in 2008, and a further 10% in 2009. Precious metals Precious metals production in the EU was 0.02 mt in 2009, having declined sharply by around 15-20% each year since a peak of 0.03 mt in 2006. Production declined over 2000-2005, then rose sharply in 2006. Silver in unwrought and semi-manufactured forms constituted the lions share of precious metals production in 2009. Base metals, or silver clad with gold, were the other main outputs from the EU precious metals industry. PRODCOM data is not complete enough to identify major producers of unwrought silver in the EU. Semi-manufactured silver production is mostly split between Germany and Italy, while Italy accounts for most production of base metals or silver clad with gold. Minor metals The EU produced an estimated 695 tonnes of minor metals in 2009, less than half that of 2008. PRODCOM data before 2008 is incomplete, making it impossible to examine the historical trends or to break the aggregate of minor metals production down into different types of minor metals for analysis. Generally speaking production of most minor metals from primary raw materials is limited or non-existent in the EU. The recycling rates of many of these metals are still relatively low, which is one of the reasons why many of these metals were identified as critical raw materials.

2.2
2.2.1

NFM Trade patterns


Trade patterns General trends The EU runs a trade deficit in primary NFM products, reduced in some cases by the overall decline in demand over 2008-2009. The EU has a trade surplus in some downstream products and its exports sometimes have a higher unit value than its imports, indicating specialisation in higher value products. In many cases, aluminium and copper for example, this applies to exports to developed country markets such as the US, Norway

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and Japan, while exports to countries like China and India consist predominantly of metal scrap. Chinas rapid growth in production generally aimed at satisfying its own demand, though it also became a major importer, notably in the case of copper and scrap metal. The EU is a net importer of NFM. In 2009, the value of extra-EU exports was EUR 18.3 bn and that of extra-EU imports EUR 28.7 bn. Germany, the UK and Italy accounted for almost two-thirds of extra-EU exports and just over half of extra-EU imports. Countries, such as the Netherlands and Greece, import a considerably greater share of NFM goods from outside the EU, compared to other Member States. This is understood as a share of all NFM intra- plus extra-EU imports. These countries are therefore more exposed to global supply conditions. The main extra-EU exports destinations are the US, Switzerland and China, with Switzerland featuring as a centre of metals trading activities. The main extra-EU sources of imports were: Russia and Norway for aluminium; Chile for copper; and Switzerland and South Africa for precious metals. The shares coming from Chile, Switzerland and South Africa are comparatively high, making the EU relatively dependent on these sources. The following sections highlight the main trends in global and European trade in the NFM sub-sectors: aluminium, copper, zinc, precious and minor metal. Annex B contains more detailed descriptive figures relating to trade patterns. Aluminium The EU was the second-largest net importer of unwrought aluminium in 2009, despite an improvement in its net trade position as a result of the decline in demand over 2007-2009. Its currently imports a net amount of 2.82 mt and exports 0.18 mt of semi fabricates. The US is the leading aluminium importer with net imports of 2.9 mt in 2009. Japan is also a major net importer with 1.7 mt in 2009, followed by South Korea with 0.82 mt. Russia is by far the largest net-exporter of aluminium with 4.86 mt in 2009, most of which is unwrought aluminium. It is followed by Canada with 2.45 mt Australia with 1.58 mt. and Norway at fourth with 1.23 mt, Icelands expansion of production lead to an increase in its net exports from 0.3 mt in 2000, to 0.79 mt in 2009, and it now ranks sixth after Brazil. China mainly produces for its own usage, resulting in limited trade flows. In 2009 Chinas ratio of exports to production for primary aluminium was less than 2.5%. Exports from China were quite limited even before the 2008-2009 recession.35 Similarly, Chinas imports as a percentage of usage ratio amounted to only 14% in 2009. The US relies heavily on imports of primary aluminium, as does the EU. More detailed analysis of the COMEXT database on extra-EU trade shows that the EU was running a deficit of EUR 3.9 bn for aluminium trade and EUR 4.4 bn for aluminium upstream products36 in 2009.37 However, the EU ran a surplus of EUR 0.45 bn38 for
35 36

For example, in 2006 the ratio of exports to production of primary aluminium in China was around 13%. Upstream products include: unwrought aluminium, unwrought aluminium alloys and aluminium oxides, powders, flakes.

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downstream products.39 The trade deficit for upstream products deteriorated from 1999 to 2007, reaching a trough of EUR 11.2 bn in 2007. The deficit shrank markedly during the 2008-2009 recession. The trade surplus for downstream products increased quite steadily over 1999-2005 and reached a peak of EUR 1.2 bn in 2005. It fell back in 2006-2007 and then recovered slightly in 2008-2009. Copper Chile is the largest exporter of refined copper in the world, exporting 3.2 mt amounting to 37% of global refined copper exports in 2009. The next largest exporters of refined copper in 2009 were Zambia at 0.68 mt and Japan at 0.63 mt, followed by Russia at 0.48 mt and Peru at 0.37 mt. The EU exported 0.54 mt of refined copper in 2009, which was a marked jump on the 0.26 mt exported in 2008. China exported just 0.07 mt of refined copper in 2009. Chiles refined copper exports increased from 2.5 mt in 2000 to 3.2 mt in 2009. However, export volumes fluctuated, with falls in exports in 2003, 2005 and 2006. Chiles refined copper exports fell to 2.6 mt in 2006, picked up to 2.9 mt in 2007, 3 mt in 2008, and 3.2 mt in 2009. Chile was the largest exporter of refined copper over the whole of the 20002009 period despite these fluctuations. Russia was the second-largest exporter of refined copper in 2000 with 0.63 mt, though a steady decline in volumes over 2000-2006, saw this fall to 0.26 mt in 2006. This was followed by a small increase in 2007 and a modest fall in 2008, before more than doubling to 0.48 mt in 2009. China is the largest importer of refined copper in the world and imported 3.2 mt, or 39% of global refined copper imports, in 2009. The next largest importers in 2009 were the US at 0.66 mt, Germany at 0.66 mt, followed by Italy at 0.54 mt and Chinese Taipei at 0.5 mt. The EU imported 1.2 mt of refined copper in 2009. Chile does not import any refined copper. In 2000, the US was the largest importer of refined copper at 1.1 mt. But consecutive falls in subsequent years saw US import volumes shrink to 0.7 mt in 2004. Imports picked up in 2005 and then again in 2006 to reach a high of 1.1 mt. From then onwards US imports fell each year, reaching 0.66 mt in 2009. Chinese imports, in contrast, grew unevenly over 2000-2009 and it is now the worlds largest importer. Other major net importers include Italy at 0.52 mt in 2009, Chinese Taipei at 0.49 mt in 2009, and Germany at 0.46 mt in 2009. The EU as a whole is a net importer of refined copper, with 0.67 mt in 2009. This was much less than the 1.2 mt in 2008 and 1.7 mt in 2007. China produces mainly for its own use, and trade flows are relatively limited. In 2009 Chinas ratio of exports to production of refined copper was around 1.8%, and exports of copper from China were quite limited even before the 2008-2009 recession (peaking at
37 38

39

Source: Eurostat, COMEXT. Downstream products account for a large share of EU exports. In 2009 the share of downstream products was 49.6% in volume measures (84% in value measures) up from 39.6% in 1999. Downstream products include: aluminium and aluminium alloy bars, rods and profiles, aluminium and aluminium alloy wire, aluminium and aluminium alloy plates, sheets and strips, aluminium foil, aluminium and aluminium alloy tubes and pipes.

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0.24 mt in 2006). Similarly, Chinas imports of refined copper as a percentage of usage increased sharply in 2009 as the country stockpiled heavily.40 The US relies heavily on imports of copper from other countries (imports accounted for 41% of total usage in 2009), and exports very little of what it produces (just 7% in 2009). As a proportion of production, EU exports of refined copper are much higher. In 2009, the EU exported 22% of the refined copper it produced, and this compares to 5% in 2007. Its import penetration, however, is similar to that for the US and China: In 2009 EU imports of refined copper accounted for 40% of total refined copper usage (down from 45% in 2007). During the 2008-2009 recession EU imports of refined copper fell from 1.8 mt in 2007 to 1.5 mt in 2008 and 1.2 mt in 2009. With EU exports of refined copper increasing from 0.12 mt in 2007 to 0.26 mt in 2008 and 0.54 mt in 2009, the EUs net trade position improved during this period. Nevertheless, the EU remains a net importer of refined copper, but a net exporter of copper and copper alloy semifabricates with estimated net exports of 0.4 mt41 in 2009. In addition, EU net exports of copper and copper alloy scrap continued to increase over 2007-2009 thanks mainly to a sharp jump of 0.2 mt in 2009 to reach 0.89 mt. This extended a trend that has lasted since 2003. Before 2003, net exports of scrap were small or negative. Upstream products (unrefined copper, unwrought refined copper, unwrought copper alloys and copper powders and flakes) and downstream products (copper bars, copper wire, copper plates, sheets, strips, copper foil and copper tubes and pipes) can be identified using data from Eurostats PRODCOM and COMEXT databases. These cover a wider range of products than the refined copper definition identified in the ICSG data. Using this broader definition the Eurostat data indicates that the EUs ratio of exports to production is even higher (37% in 2009).42 This suggests that the ratio of exports to production is much higher for unrefined copper and semis. The main destinations of EU exports of upstream products43 are China, Turkey, Egypt and Serbia while the main partners for downstream products44 are the US, China and Switzerland. Also, EU imports as a proportion of use stood at 53% in 2009, which suggests that the ratio of imports to usage is much higher for unrefined copper and semis. In 2009, the deficit in upstream copper products stood at EUR 2.8 bn, similar to the deficit level of 1999. The EU simultaneously had a surplus of around EUR 2 bn in copper downstream products in 2009, a 77% increase since 1999.45 Total scrap usage has decreased from 2.4 mt in 2002 to 2.0 mt in 2008.

40

41

42 43

44

45

Chinas imports as a percentage of use stood at around 23% in 2006 and reached almost 45% in 2009 as imports more than doubled. CE calculation from ICSG Statistical Yearbook 2010 (Table 15: copper and copper alloy semi-fabricates (imports and exports)). Sources: PRODCOM (Eurostat), COMEXT (Eurostat). Upstream products include: unrefined copper, unwrought refined copper, unwrought copper alloys and copper powders and flakes. Downstream products include: copper bars, copper wire, copper plates, sheets, strips, copper foil and copper tubes and pipes. Source: COMEXT (Eurostat).

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Zinc Canada is the main net exporter of zinc slab with 0.59 mt in 2009, followed by Australia (0.36 mt), Kazakhstan (0.30 mt) and South Korea (0.27 mt). Among the net importers China leads with 0.69 mt in 2009. This is a major change as the country was a net exporter in 2007. The US, which was the biggest net importer over 2000-2008, follows behind China, with 0.68 mt. Despite a big improvement in its net trade position during the recession, the EU is the third-largest net importer of zinc (0.32 mt), followed by Chinese Taipei (0.19 mt). China and the EU mainly produce zinc for their own use, which is reflected in the low ratio of exports to production and fairly low ratios of imports to use. The US relies heavily on imports of zinc from other countries. Imports as a percentage of primary use stood at more than 69% in 2009. In 2009, EU zinc imports stood at 1.24 mt, 25% lower than their 2007 peak. Exports declined at a slower rate over 2007-2009 and as a result EUs net trade position improved. EU net imports reached 0.32 mt in 2009, although in value terms the deficit in zinc trade stood at around 0.23 bn mainly due to a deficit in upstream zinc products (EUR 0.21 bn in 2009).46 Precious metals EU exports of precious metals stood at 2,700 tonnes in 2009,47 over 60% lower than the peak in 2008, but only 20% lower than in 2007. Imports remained steady over 2007-2009 at around 5,800 tonnes, meaning that the EUs net trade position improved sharply in 2008, to +1,300 tonnes, and then fell back to -3,200 tonnes in 2009. Over 2000-2005, EU exports were far more stable, typically around 4,000 tonnes pa. Imports declined gradually over the same period, leading to an improvement in the net trade position. Nevertheless, the balance was negative in all years except 2005. In 2009, unwrought silver made up over 45% of the EUs precious metal exports. Silver in semi-manufactured forms made up a further 20%. The UK was the largest extra-EU exporter of unwrought silver while Germany was the largest exporter of semimanufactured silver. Minor metals In 2009, EU exports of minor metals stood at roughly 0.03 mt, (of which about half were refractory metals and half were other minor metals48). Imports were much larger, at around 0.2 mt. The impact of the recession is seen in the decline of some 30% in the exports and 37% of imports in 2008. As a result the EUs net trade position improved from -0.26 mt to -0.16 mt in 2009.

46

47 48

Source: Eurostat, COMEXT. Upstream products include: unwrought zinc, unwrought zinc alloy and zinc dust, powder, flakes. Downstream products include: zinc bars, rods, wires etc. While all notations for volume are expressed in mt, in this case we use tonnes, as the volumes are very low. For example, beryllium, bismuth, cadmium, magnesium, thallium.

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Over 2000-2008 exports and imports increased robustly by around 14.7% pa in the case of exports and 11.7% pa in the case of imports. However, import volumes were already far larger than exports in 2000, so that the net trade position deteriorated by 134% over 2000-2008. EU exports a diversity of minor metal. Magnesium, in unwrought and semi-manufactured forms, constituted over 30% of the EUs minor metal exports;49 titanium in various forms around 20%; unwrought chromium around 20%; cadmium around 10%; with numerous other metals making up the rest. Magnesium made up over half of imports. In 2009, Austria, the Czech Republic, Germany, Italy and the UK had sizeable shares of EU magnesium exports; the UK and Germany had large shares of titanium exports, along with France and Italy; and unwrought chromium was dominated by the UK and France.

2.2.2

Recent global investment trends While we are not able to provide an exhaustive overview of global investment trends in the NFM sector, we present below the most important investments made by the key global industry players over the past few years and planned for the near future. This allows us to draw some conclusions on the nature of investments in the industry in the EU as compared to elsewhere. Data for this section derive largely from company annual reports and press releases. In the autumn of 2010 Rio Tinto Alcan announced two investments totalling USD 487 mln at its aluminium smelter in Straumsvik, Iceland (ISAL). It is to spend USD 347 mln on modernising and increasing the ISAL smelter's capacity by 20% following the completion of a long-term energy supply agreement (based on hydropower) with Landsvirkjun, the Icelandic power utility. The new contract came into effect in October 2010 and will run until 2036.A further USD 140 mln is to be invested in a casting facility to produce value-added billet. The smelter, which dates from 1969, is expected to commence the gradual increase of its production in April 2012 and complete the production increase by July 2014. During the recession, Rio Tinto Alcan closed its small and technically outdated Beauharnois smelter in Quebec, Canada, and the smelting operations at its Anglesey aluminium joint venture in the UK (in 2009). The company earlier (2008) announced that it would invest an additional USD 300 mln in the modernisation of the Kitimat aluminium smelter in British Columbia, Canada, bringing the project funding total to over USD 500 mln. The smelter is based on self-generated hydropower and modern, energyefficient smelting technology. Construction is under way on the Middle Easts first fully integrated aluminium smelter and food-grade can sheet rolling mill at Raz as Zawr, Saudi Arabia. It is a joint venture between Maaden, the Saudi Arabian Mining Company (75%), and Alcoa (25% currently). The smelter and rolling mill is scheduled to start production in 2013. Initially, the smelter will produce 740,000 tonnes of primary metal and the rolling mill
49

Based on data collected from COMEXT for extra-EU27 exports for the period Jan-Dec 2009.

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FWC Sector Competitiveness Studies EU NFM Industries

380,000 tonnes of food grade can sheet. The design accommodates subsequent expansion. The second phase of the joint venture is to include a bauxite mine and an alumina refinery. The total capital investment in the joint venture is expected to be USD 10.8 bn. Hydro has invested in a joint venture with Qatar Petroleum at Qatalum in Qatar. The plant has a capacity 0.58 mt of primary aluminium, all to be shipped as value added aluminium cast-house products, and has a dedicated power plant. Production was being stepped up during 2010 with a view to reaching capacity late in the year or in early 2011. Rusal is investing in an additional aluminium smelter in Siberia with a capacity of 0.59 mt, due to come on stream in two phases in 2013 and 2015. It has plans also to build another smelter in Siberia with a design capacity of 0.75 mt. The investment reflects its strategy of focusing on production based on low-cost captive hydro power. In its aluminium smelter strategy BHP Billiton emphasises the availability of stranded power generation capacity. The importance of this factor was brought home by the power crisis in South Africa in 2008 which affected major industrial users of electricity and in response to which the company had to reduce production at its Bayside smelter. The company made a major investment to expand production at its Worsley (Australia) alumina refinery (with an associated expansion of bauxite mining and port facilities), due to be completed in 2011. The importance placed on secure, long-term arrangements for energy supply is further highlighted in its support for the construction of a liquefied natural gas (LNG) facility for Chiles Northern grid system; also by its signing of take-off agreements to support construction of a coal-fired power plant (due to come into operation in 2011). These support the companys share in the worlds largest copper mine at Escondida. It is investigating the feasibility of expanding its Olympic Dam (Australia), including smelting, to become one of the worlds largest producers of copper. In 2008/2009 Aurubis invested mainly in two copper projects in the EU. Aurubis is investing some EUR 90 mln to 2011 on the installation of a second furnace plant and modifications to its recycling system at its recycling plant in Lunen, Germany. This will allow the processing of complex materials to be substantially increased. The other project was in its smelter plant in Pirdop, Bulgaria, which targets markets in south-east Europe. Vales substantial capital programme related to NFM in 2010 includes investments related to the expansion of its Salobo (Brazil) copper mine and development of its first new mine in the Sudbury basin (Canada) for over 30 years, to produce nickel, copper and precious metals. The former is a joint venture project in Konkola North (Zambia) with ARM to develop a copper mine. Its investments in processing include a ferronickel plant at Ona Puma (Brazil), a nickel plant at Long Harbour (Canada) and a copper plant at Tres Valles (Chile). It is also investing in energy supply for processing in Indonesia (a hydroelectric project). Nyrstars 2009 investments focused a diversification strategy which aims at adding significant mining activity to its zinc and lead smelting businesses. Investments were made mainly in mines in Tennessee (US), Corichancha (Peru) and Ironbark (owner of zinc/lead deposits in Greenland).

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Bolidens 2009 investments in its smelting business area focused on increasing smelting yields and energy efficiency through improved methods and processes at its zinc and copper smelters in Sweden, Norway and Finland, and to increase its capacity to handle the processing of electronic scrap as a secondary material. Eramets nickel-related investment activity in 2009 focused on furthering plans to mine a nickel deposit in Indonesia in partnership with Mitsubishi. Umicore has a global investment strategy. However, its biggest investment at the moment is at its main premises in Hoboken (Belgium) where the company is building a big industrial pilot for the treatment / recycling of end-of-life rechargeable batteries. The company has invested approximately EUR 400 million since 1997 here. As Umicore sold off most of its large production facilities in commodity products over the years, its CAPEX had reduced. However, in recent years CAPEX intensity is increasing again as the company invests more in recycling and clean technology development. These investments are mostly in the EU. The location and nature of investments depend to a large extent on the segment / product and the specifics of that segment in terms of raw material supply, capital intensity and markets. For instance: The company has made substantial investments in recycling in the EU that cannot easily be shifted elsewhere. The main inputs for end-of-life recyclable waste still come from the EU and North America, Japan and Korea, making it less attractive to relocate to low cost or emerging economies; The typical capacity of a zinc plant is around 10,000 tonnes. This is a relatively small capacity and easier to set up across the globe at locations close to the main materials. Umicore has such facilities around the world; Industrial waste driven parts of the recycling business have to be close to the industries that are generating the secondary materials. This is thus increasingly in emerging economies, but also still in the EU and North America; The high value of precious metals means that transportation does not contribute so substantially to total costs and it makes sense to ship them back to the EU for processing and production. This is not the case for base metals. Capital expenditure and research & development efforts remained at high levels in 2009. Key investments in the areas of rechargeable battery materials, automotive catalysts and substrate materials for photovoltaics were either completed or nearing completion in 2009, while new investments were announced including the development of a rechargeable battery recycling facility in Belgium. The ability to complete such investments and to continue with research and development will (according to the annual report) continue to drive the Umicore policy to be present in areas for new materials and applications, particularly those linked to clean technologies. In 2009, some 50% of the total capital expenditures (EUR 190 mln) were for growth projects. The geographic spread of capital expenditure was 66% Europe, 15% North America, 13% Asia-Pacific, 4% South America, 2% Africa.

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Discernable trends Certain common features are identifiable in these investment activities. Firstly, investment in aluminium refining is flowing to locations that can offer long-term energy contracts (from hydrocarbon and other, non-hydrocarbon power sources). In this context, stranded power (without transmission links) generation facilities are attractive because they provide a dedicated power source. The policy emphasis in the Middle East to diversify economic activity by attracting energy-intensive industrial activity is a related driver. Access to secure infrastructure arrangements including power supplies is also important for the other metals. However, investment decisions as discussed above here mostly relate to decisions by integrated producers to develop smelting capacity close to the site of their mining activities and/or investments to service the foreign market directly. In precious and minor metals, the supply shortages due to limited primary and secondary raw materials sources and surging demand are driving investments in the development of raw materials (i.e. mining deposits). The examples of investments within the EU relate to recycling and secondary production of metals, including facilities to process increasingly complex materials. This is consistent with the availability of new and old scrap from the well-developed collection system and the smaller proportion of energy costs in secondary compared with primary processing.

2.3

Price mechanisms in the NFM industry


To understand global developments and patterns in the NFM sector, it is important to understand how prices in this highly global industry are set. Base non-ferrous metal prices are determined by the supply of and demand for metals. Base metals are priced globally on international metal exchanges, primarily the London Metals Exchange (LME), but there are also exchanges in Shanghai and Chicago. The Shanghai Metal Exchange is accounting for an increasing proportion of global trades and this is having some effect on prices50. The price paid for the finished base metal is composed of two parts: 1. The price determined on the metals exchange, say the LME; 2. A regional price premium that reflects the balance of supply and demand in the region.

50

It should be noted that price on the Shanghai Futures Exchanges (SHFE) also contain 17% VAT, which means they are higher than LME prices. According to Lien and Yang (2008), aluminium (and copper) futures display a certain degree of integration with those of the LME.

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The income received by mines is a function of the metal price determined on the exchange (e.g. the LME) and the quality of the concentrate it supplies to smelters51. Smelters revenues are made up of: 1. The income received from treating and refining concentrate supplied by mines; 2. The income based on the prevailing regional premium. Direct sales from smelters/refiners to downstream processors command a price premium because of the service element that the supplier can offer. In contrast, sales and withdrawals, via LME warehouses, are entirely on an arm's length commodity basis and cannot get the premium. The balance of supply and demand determines the price for the metal on the exchanges. The LME price for instance varies with the global supply of and demand for metal concentrate/primary metal. The effect of these forces on final prices is summarised in Table 2.6.
Table 2.6 Determination of base NFM prices Determination of base NFM prices Availability of metal Low High metal prices and low TC/RC Metal shortages boost metal prices; Low metal concentrate shortages reduce demand for smelter capacity, putting downward pressure on treatment and refining charges (TC/RC). High metal prices and high TC/RC Metal shortages boost prices; good High metal concentrate availability increases demand for smelter capacity and boosts TC/RC.
Source: Boliden Annual Report 2009.

High Low metal prices and low TC/RC High metals availability pushes down metals prices; metal concentrate shortages reduce demand for smelter capacity, putting downward pressure on TC/RC. Low metal prices and high TC/RC High metals availability pushes down metals prices; good metal concentrate availability increases demand for smelter capacity and boosts TC/RC.

Availability of metal concentrate

In consequence the competitiveness of the EU NFM industry is directly linked to the factors that determine EU production costs. These include policy and regulatory conditions, energy prices, labour costs and to a lesser extent exchange rates. Aluminium prices, for example, have fluctuated considerably in response to changes in demand. Since 2000, the price of aluminium has risen from about USD1, 300 per tonne to peak at USD 3,300 per tonne in early 2007 as a result of high demand, especially from China and India. Since mid-2008, as a result of the international economic crisis and the resulting decline in demand, prices fell to as low as USD 1,000 per tonne in mid-2009. Since then the LME price has recovered to above USD 2,000 per tonne.

51

These are the primary drivers, other factors include the effect of any price escalators and income received from by-products in the concentrate.

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Buyers in larger markets pay a regional premium over the LME price. This premium includes transportation costs to markets; it also reflects regional differences in demand. In the European market the premium applies to aluminium at the port in Rotterdam. Buyers need to pay additional logistics costs from Rotterdam to their location in Europe, adding about USD 30-60 to the costs. Purchase of these goods can be divided between duty paid and duty unpaid, a difference that essentially transfers risk between the buyer and seller. In a duty paid delivery, for example, the seller fulfils all obligations in terms of duties, taxes and other delivery charges. For the EU data on regional premiums over the past years for the markets in the US, Japan and the EU are presented in Table 2.7.
Table 2.7 Prices and premiums of primary aluminium, 2003-2009 (USD / tonne) Prices and premiums LME 3 months Premiums EU duty unpaid EU duty paid Japan US Mid-West Duty-paid minus dutyfree premiums, divided by LME price (%)
Note: While data for December 2010 could not be provided, various sources indicate that prices tended upwards until the end of 2010, but are expected to decrease again in the first quarter of 2011. Source(s): Metal Bulletin Research.

2003

2004

2005

2006

2007

2008

2009

2010

52

1,428

1,721

1,899

1,259

2,662

2,620

1,701

2,135 Sept.

34 97

49 116

56 124

57 126

53 155 69 70.55

40 85 80 94.80

44 62 97 103.60

125 185 122 136

4.4

3.9

3.6

5.5

3.8

1.7

1.1

2.8

2.4

Cost structures in the NFM industry


The table below presents data on the structure of conversion costs for the basic NFM subsectors. The table does not include the cost of raw materials, which are substantial (as much, or larger, than the conversion costs shown in the table). However, raw material prices are set in the global market and are therefore not a source of competitive advantage or disadvantage. Costs are usually passed on directly to customers.

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For example: Shanghai Metal Market site: article 31/1/2011: Steady US aluminium premium defies seasonal drag: refers to a US Mid-West price of 6.35-6.5 per lb (US$139.70 to US$ 143 per ton) for late November, early December 2010 (expected to go down slightly in the first quarter of 2011); Metal first.com 15-12-2010: reported that for the fourth quarter of 2010 aluminium premium for the Japanese market amounted to US$116-118, which were expected to weaken to US$112-113 in the first quarter of 2011; Platts: 12 November 2010: European spot aluminium premium edge up, focus on next year. Reported that for November the aluminium premium had edged up by US$5 to US$195-205 per ton (duty-unpaid: US$125135).

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Unfortunately, despite substantial efforts from industry representatives in the various subsectors, we were only able to differentiate between primary and secondary processing for aluminium. Typically, energy intensity and thus share of total costs of energy are higher for the former. This becomes clear when considering the data for aluminium where this differential is reported as being largest. In the case of the other metals it is difficult to distinguish between energy costs for primary and secondary processing. In some cases it is difficult to do so even between the different sub-sectors. The reason for this is that many companies are active in various stages of the value chain and/or produce various types of metals in different shares. Most industry stakeholders agree that energy intensity and hence costs for primary copper and zinc production are similar to those for aluminium. However, the data on the energy costs for these metals presented in the table are averages for primary and secondary production. There are indications that coppers share of primary production was underestimated and energy costs for these metals appear on the low side as compared to aluminium. Similarly, copper industry stakeholders have commented that the share of capital costs presented here may be on the high side, while the share of Other costs is correspondingly low.
Table 2.8 Conversion cost structure of NFM sub-sectors (2009) NFM SUBSECTOR Aluminium, primary
1

Cost category Energy costs (%) 68,6 Labour costs (%) 19,6 78
4

Other costs (%) 11,8

Capital costs (%) -

Aluminium, secondary Copper Zinc Lead Nickel


3 1, 2

22 25-34 36 18 19 23-36 24 27 30

15-21 27 41 7 20-27 13 14 44

1 Figures for capital costs were not distinguished and could not be derived from the data provided. 2 Data are for 2008 from EAA cost survey for extrusions, rolling & recycling; for secondary aluminium the share of labour costs could not be identified because workers typically carry out several tasks on site. 3 For copper, the figures are an average estimate from company accounts across primary and secondary production, and were consulted with the ECI. The importance of primary and secondary production varies across companies, and the company accounts do not provide sufficient detail for cost structure to be estimated separately for each type of production. 4 Other costs include administrative costs, environmental costs, consumables, external services, onsite services, maintenance costs, transport costs, etc. Sources: Aluminium: EAA / Copper and zinc: CE estimations based on annual accounts of main EU producers / Lead: Eurometaux / Nickel: CE calculations from Brook Hunt data provided by the Nickel Institute.

Despite most likely not being 100% accurate, the data in the table clearly show that for all sub-sectors, energy costs are substantial for all sub-sectors, especially in primary production, which are most energy intensive. High energy cost are also a key driver of the value of recovery and recycling, which are substantially less energy intensive than the smelting of ores.

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Apart from aluminium, energy costs account for anything between 18% and 36% of total conversion costs. Estimates for nickel presented by INSG in April 200953 suggest that electricity costs for new nickel pig-iron electric furnaces currently being built in China, account for 40% and fuel coal accounts for 13% of conversion costs. This indicates that energy costs are a larger proportion than the average shown in the above table. Copper production in the EU is a mix of primary and secondary production, and company accounts do not provide sufficient information to estimate the conversion cost structure for each type of production. The energy required for recycling copper is much less than in primary production. The share of energy in conversion costs for primary production would therefore be higher than the average shown in the table, and the share of labour costs correspondingly lower. Labour costs can be equally or more important, typically accounting for a quarter of conversion costs. In the case of nickel, it is over half of the costs, 23-36% of total conversion costs for copper refining and even a higher proportion for further processing down the value chain (fabrication). Generally speaking the relatively lower energy costs and increasing relative importance of labour costs downstream in the value chain reflects the situation prevalent in most of the NFM industry sectors. Given that the prices of refined metals are determined in the global market, profit margin erosion is more severe for relatively high-cost producers in mature market economies with high energy costs, than for suppliers in regions of resource abundance, in particular energy. Closing down and in particular restarting production lines is very time consuming, costly, and risky. Consequently primary metal producers tend to maintain output when the price falls in a weak market. In the short term production is maintained for so long as the LME price is above marginal cost. Producers with available capacity and low input costs can sustain output levels for a long time, thereby further weakening the metal price. This contributed to depressed metal prices and profitability. It also deterred adjustments on the supply side through the removal of surplus capacity that would bring the market into better long-term balance. The final element is other costs, which includes, among other things, administrative costs, environmental costs, transports costs, consumables, external services, onsite services, maintenance costs. The table shows that the share of these in the conversion cost can vary across the sub-sectors. In the case of primary aluminium and nickel, they account for just 7-12%. In the case of lead and zinc, however, the share is in excess of 25%. For industry stakeholders and policymakers, therefore, the key issues of interest for primary aluminium, copper, zinc, lead and nickel production are as follows: 1. energy costs, given the higher share of energy in their conversion cost base. Due to the significance of energy costs, primary aluminium and copper and zinc producers, are especially sensitive to the price paid for energy, compared to prices in non-EU countries, and the stability of energy prices, as volatile prices undermine investment decisions;

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Lennon, J., Layton, M., Liu, B. (2009), Nickel Pig Iron Update, Presentation to INSG 2009.

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2. labour costs, given their equal or greater weighting in the conversion cost structure (when compared to energy costs) of some metal sub-sectors; and 3. Environmental compliance cost, especially in comparison with third countries, where the industry often is subjected to less regulation and does not face similar costs especially in emerging economies such as China, India and Russia. Supply and price of raw materials Raw material costs can range from 49% to 85% of total production costs. These costs are usually passed down and are set globally, as such, are not as crucial for competitiveness as some other costs are (as illustrated above). However, one of the key competitiveness issues for the EU NFM industry is access to raw materials (primary and secondary). This relates to trade and non-trade issues (see Chapter 3) and as is clearly reflected in the EU Raw Materials Initiative (RMI). The effect of exchange rate movements on prices paid by EU producers can be important as well. However, the effect of exchange rate movements on the relative prices of domestically sourced inputs can be more significant. An appreciating the Euro, for example, raises the relative cost (in a common currency) of domestically-sourced inputs. Primary raw materials The EU is not heavily endowed with the necessary ores for NFM production. Table 2.9 shows that, at best, the largest producer in the EU accounts for 2-4% of global production of basic NFM ores. This compares to shares of 25-45% for the largest global producer. Use of these ores in the EU exceeds domestic production and so the EU is heavily reliant on imported raw materials. The major sources of ores for each of the basic NFM are shown in table 2.9. This indicates that the production and supply of ores is dominated by a handful of countries. Typically, 50-75% of global ore production is concentrated in three to five countries. For example, over half of all bauxite came from Australia, China and Brazil in 2008, while 75% of all lead was produced by China, Australia, Peru and the US. The table shows that the major ores producers across the NFM industry, as a whole, are China and Australia: each a major global producer of all but one of the basic nonferrous metal ores.
Table 2.9 Major global producers of basic NFM raw materials (ores) (2008) NFM raw materials ores Bauxite (212 mt) Biggest global producers and share of global production (2008) Australia (30%) Brazil (13%) China (10%) Guinea, India, Indonesia, Jamaica (78.5%) Alumina (82.3 mt) China (28%) Australia (24%) Brazil (9%) US (5%) Jamaica (5%) Copper (15.5 mt) Chile (34%) US (8%) Peru (8%) China (6%) Poland (2%) Bulgaria (%) Portugal (%) Ireland (2%) Spain (1%) Italy (1%) Germany (1%) Biggest EU producers and share of global production (2008) Greece (1%) Hungary (%) France (<%)

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NFM raw materials ores Zinc (11.7 mt)

Biggest global producers and share of global production (2008) China (27%) Peru (13%) Australia (13%) US (6%) Canada (6%)

Biggest EU producers and share of global production (2008) Ireland (3%) Sweden (1%) Poland (1%)

Lead (4 mt)

China (39%) Australia (16%) US (10%) Peru (8%)

Sweden (1%) Poland (1%) Ireland (1%) Portugal (<%)

Tin (278,000 t) Nickel (1.53 mt)

China (45%) Indonesia (19%) Peru (14%) Russia (18%) Canada (17%) Australia (13%) Indonesia (11%) New Caledonia (6%)

Greece (1%) Spain (%) Finland (<%)

Precious metals - Gold (2,290 t) China (12%) US (10%) Australia (9%) South Africa (9%) Peru (7%) - Silver (21,565 t) Peru (17%) Mexico (15%) China (13%) Australia (9%) Chile (6%) Russia (6%) - Platinum group metals (452 t) Selected minor metals - Molybdenum (0.22 mt) China (36%) US (27%) Chile (15%) Peru (7%) - Niobium- Tantalum (0.267 mt) - Tungsten (57,200 t) Brazil (93%) Canada (3%) China (76%) Russia (5%) Canada (4%)
Source(s): British Geological Survey (2010), World Mineral Production 2004-2008; USGS (Oct. 2010): 2008 Minerals Yearbook Rare Earths.

Sweden (%) Bulgaria (<%) Finland (<%)

Poland (5%) Sweden (1%)

South Africa (61%) Russia (28%) Canada (4%) US (3%)

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Secondary raw materials The EU has limited reserves of primary raw materials, but is a major producer of secondary raw materials. EU demand of secondary raw materials is also among the highest in the world. For instance, while global average demand for secondary raw materials in copper is approximately 35%, it is around 40% in the EU. The use of secondary raw materials increased substantially over the years. An estimated 80% of the lead produced in Europe comes from secondary raw materials; Europe also sets benchmark values with respect to the level of recycling and recovery rates, with EU NFM producers and recyclers achieving high levels of efficiency in terms of metal recovery from scrap. Both the limited availability of primary raw materials and the high cost of energy can be seen as important factors behind the relative importance of recycling in EU NFM.54 There are two main sources for secondary raw materials: (1) industrial waste and manufacturing scrap (off-cuts, waste streams from e.g. smelters) and (2) end-of-life products (sometimes referred to as urban mines). The second stream is mostly obtained from EU sources, while especially for e.g. precious metals, part of it also sourced from outside the EU. Recycling is becoming increasingly important in NFM production, though the recycling rates, especially for some of the precious and rare metals, are still below potential. The recent Ad-Hoc Working Groups criticality report on defining critical raw materials based its list of critical raw materials on a number of criteria, including the recycling rates. Equally important in respect of secondary raw materials is the access to and trade in scrap metal. Here too, the demand of emerging economies and trade distortions (as elaborated further in Chapter 3) are putting increasing pressures on availability and prices of scrap metals. Trade in scrap In terms of tonnage, EU exports and imports of scrap are dominated by aluminium and copper. The table below shows that EU exports of aluminium scrap have risen strongly over the past decade, driven by demand from China and India. Exports to Japan and the US have fallen. In contrast, EU imports of aluminium scrap have declined, driven strongly by the collapse in exports from Russia which has restricted exports of scrap (through e.g. quantitative restrictions and export taxes). Overall the EU changed from being a small net importer (108,400 tonnes in 2000) of these materials to a large net exporter (880,900 tonnes in 2009).

54

Recycling aluminium uses 95% less energy than producing aluminium using raw materials (www.bir.org/industry/nonferrous-metals/).

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Table 2.10

Extra-EU trade in aluminium waste and scrap Year

55

2000

2007 000 tonnes

2009

Exports China India South Korea Pakistan Taiwan Hong Kong Indonesia Japan Brazil United States Total extra-EU exports Imports Croatia Saudi Arabia Turkey Russia United Arab Emirates Cuba Serbia Iceland Ukraine Total extra-EU imports
Source(s): Eurostat COMEXT.

121.6 31.5 15.7 21.5 61.1 9.5 15.6 27.8 0.1 22.5 446.3

280.8 108.3 34.6 33.9 36.6 21.2 5.4 15.9 2.1 6.9 1,085.7

526.2 229.8 64.5 62.3 51.9 43.3 15.7 11.1 9.6 6.7 1,126.8

6.2 4.0 7.2 238.0 3.6 1.0 0.0 3.0 47.0 554.7

15.8 26.3 12.7 27.5 9.3 8.0 7.7 3.5 0.2 425.4

12.7 11.5 10.7 7.9 7.4 6.8 5.7 5.6 0.1 245.9

Table 2.11 shows a similar picture for trade in copper waste and scrap. EU exports rose strongly over the decade, in this case driven almost entirely by the growth in exports to China. EU imports dropped in the early part of the decade, picking up towards the end and then falling again in the recession. Imports from Russia and Ukraine dropped to very small levels from 2001 onwards.

55

The table shows the largest trading partners outside the EU27 (i.e. Norway and Switzerland are excluded, and intra-EU trade).

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Table 2.11

Extra-EU trade in copper waste and scrap Year

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2000

2007 000 tonnes

2009

Exports China India Hong Kong South Korea Pakistan Taiwan Canada Japan Total extra-EU exports Imports United States Ukraine Russia Croatia Tunisia Serbia Morocco Kazakhstan Turkey Bosnia And Herzegovina Total extra-EU imports
Source(s): Eurostat COMEXT.

277.7 83.2 29.5 15.9 3.7 16.4 5.5 4.8 480.1

782.9 71.1 49.7 15.2 18.8 10.7 9.9 3.0 1,006.7

923.2 90.4 61.5 24.0 22.8 10.5 9.8 1.9 1,174.3

16.8 64.9 52.0 7.2 8.8 0.0 12.9 0.3 0.5 4.4 323.3

35.0 1.6 16.4 12.1 11.1 7.9 10.0 7.7 2.7 7.6 348.7

35.0 11.9 10.2 10.1 9.7 7.6 7.0 6.3 5.9 5.8 282.1

2.5

Value chains in the NFM industry


The main suppliers to the EU NFM industry are the mining (specifically the mining of metal ores) and recycling industries, which supply primary (mined) and secondary (recycled) raw materials to the NFM industry. Globally, mineral ore mining and processing is commanded by a small number of multinational enterprises: BHP Billiton, Vale, Rio Tinto, and Anglo American and Freeport-McMoRan. These are variously integrated forward into subsequent stages of production. NFM production provides key inputs to many other manufacturing industries and to construction, as summarised in Table 1.2 in Chapter 1 of this report.

56

The table shows the largest trading partners outside of Western Europe (i.e. Norway and Switzerland are excluded, and intra-EU trade).

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While the value chain for each of the NFM studied here has its own unique characteristics, in general it would include: Mining and beneficiation of ore into concentrates or intermediate raw materials for refining; Refining of the latter and/or refining of scrap into unwrought metal (unalloyed or alloyed); Processing of unwrought metal into semi-manufactured products (plate, sheet, strip, foil, bar, rod, profile, tube) or processing into pure chemical compounds, for use by the manufacturing industry. Process scrap and residues, and old scrap (from end-of-life products) enter the value chain at refining and processing stages. This is a source of significant energy and resources savings, environmental benefits and increased competitiveness.

2.5.1

The value chains of selected NFM sub-sectors The following sections contain a descriptive analysis of the value chains for aluminium, copper, zinc, lead, nickel, precious and rare metals. Key firms with NFM operations in Europe, especially regarding aluminium, are presented. For a list of main NFM companies in the EU we refer to Annex C. The main operations identified and described in these fall under four headings: Mining; smelting; refining; other. The section contains descriptive analysis, with the more in-depth analysis of competitiveness issues within the various value chains being left for the following Chapters (3 and 4). Recycling as part of NFM value chains For all the metals presented, recycling of materials recovered, either during fabrication or from end-use scrap, plays a key role in the value chain. This is because the metal, or a useful alloy, can usually be recovered from scrap in a form that is suitable for reprocessing, while the costs of recovery and secondary processing are considerably less than the costs of primary production. This difference is largest in the case of aluminium as the comparison of the energy costs of primary and secondary production in Table 2.8 shows, but is economically important for all the metals. Recycling is not wholly an alternative to primary production because in many cases the quality of recycled material is such that it has to be blended with primary metal. A high proportion of new (generated during production) and old (end-use) scrap is recycled. However, the proportion of total production that is based on recycled materials is considerably lower (by volume). This is because some products have a very long life (for example, those used in construction). With growing global production of metals, the proportion of production using materials recycled from such long-lived products will necessarily be smaller than the end-of-life recycling rate. The IAI GARCH model estimates that only 8% of recycled aluminium produced from old scrap comes from building applications, compared with 42% from transport and 28% from packaging, because of the long life of building products57.

57

http://www.world-aluminium.org/cache/fl0000181.pdf.

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Precise estimates of the importance of production from recycled materials are difficult to make and definitions vary. A simple comparison can be made between the share of secondary production in total (primary and secondary) production, but this ignores the fact that some recycled material may be used as an input to primary production. Estimates from industry sources for the proportion of global production that comes from recycled sources indicate the following shares: Aluminium: more than 33%;58 Copper: 35%;59 Lead: more than 50%;60 Nickel: 40-45% (for nickel used in stainless steel production);61 Zinc: 30%;62 Precious metals: gold 41%63; silver 1964%. Data on production from scrap/recycled PGMs and minor metals were not published or separately identified. Recycling of NFM involves a whole different set of auxiliary activities and thus a different input route within the value chain. According to the Bureau of International Recycling (BIR), recycling in the NFM value chain involves the following steps, often implemented by different companies:
1. 2. 3. 4. Sorting: In order to be recycled appropriately, different types of NFM need to be separated from each other, and from other recyclables such as paper and plastic; Baling: Non-ferrous materials are compacted into large blocks to facilitate handling and transportation; Shearing: Hydraulic machinery capable of exerting enormous pressure is used to cut metals into manageable sizes; Media separation: Shredders incorporate rotating magnetic drums to separate non-ferrous from ferrous metals. Further separation is achieved using electrical currents, high-pressure air flow and liquid floating systems. Further processing may be needed; 5. Melting: The recovered materials are melted down in a furnace, poured into casters and shaped into ingots. These ingots are either used in the foundry industry or they can be transformed into flat sheets and other wrought products such as tubing, which are then used to manufacture new products. Source: http://www.bir.org/industry/non-ferrous-metals/.
58

59

60

61

62 63 64

International Aluminium Institute (2009) Global aluminium Recycling: A Cornerstone of Sustainable Development. The figure is defined as the proportion of all the aluminium produced globally that originates from old, traded and new scrap. International Copper Study Group (2010) The World Copper Factbook 2010. The figure is defined as the proportion of all the copper produced globally that originates from old and new scrap. International Lead Association, undated web page, www.ila-lead.org/lead-information/lead-recycling. The figure is defined as the proportion of lead used globally that has been used before in other products. The ILA website also cites Imperial College Consultants (2001) LEAD: the facts, which included the figure of 70% for the proportion of global usage that was satisfied by secondary production. International Nickel Study Group (2010) INSG Insight, International Nickel Study Group Briefing Paper No. 9, March. The figure is defined as the proportion of nickel used in stainless steel production that comes from secondary sources. According to the Nickel Institute the nickel recycling "loop" is not a single loop but many separate alloy loops. In any methodology to quantify nickel recycling (indices, recycling rates, etc.), it is important that the nickel cycle be defined broadly enough to embrace all these "alloy loops". If all these loops are included, then the demonstrable recycling rate for nickel will be high. If all these alloy loops are not included, then the apparent recycling rate for nickel will appear to be anomalously low because very little nickel is recycled as nickel. International Zinc Association, undated web page: www.iza.com/recycling.html. World Gold Council: http://www.gold.org/world_of_gold/market_intelligence/gold_demand/gold_demand_trends/. The Silver Institute: http://www.silverinstitute.org/supply_demand.php.

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Steps 1 - 4 concern collection activities in service of the NFM industry and are not usually considered and integral part of the NFM value chain (the companies involved in these activities would typically serve a wide range of industries), while step 5 often takes place in NFM production facilities. In some cases NFM producers form closed loops where all production flows back in the form of scrap for re-use. Examples are found in e.g. catalytic converters for cars, which may be returned to the manufacturer that supplied them and then re-supplied as new catalysts. Aluminium value chain The IAI lists 117 primary aluminium smelters in the world excluding China, of which four are still under construction. Of these, 21 (or 18% of the total number) are in EU27, with a further 11 in Norway (7) and Iceland (4), giving a Wider Europe share of about 25% of the total number of smelters. In the EU, three major global producers play an important role in this segment Rio Tinto Alcan, Norsk Hydro and Alcoa. The global industry is open and highly competitive, with high levels of international trade in primary and secondary raw materials, primary metal and, to a lesser degree, fabrication being important characteristics of the industry. New major global players like Rusal, Alba, and Dubal are gaining market share against the traditional major producers. Russian-based Rusal probably gains advantage from the governments tendency to favour local industry (and use those industries as a tool for foreign policy). Alba and Dubal most likely gain advantage from very low energy costs in the Middle East. The competitiveness effects of this un-level international playing field are further discussed in the next Chapter. The global aluminium industry has long suffered from surplus capacity. The financial crisis will only exacerbate the problem, placing further strain on the industry in the shortterm. Longer-term prospects remain difficult to forecast, given the unprecedented nature of the economic crisis, but it remains quite possible that demand may take some time to recover in a sustainable way. In Europe, some capacity classified as redundant has already been removed, but idle capacity remains. The main reason for this idle capacity is seen to lie in increased electricity costs. Expired electricity supply contracts have to be renewed at a market level rate that increased considerably compared to previous contracts, due to notably the EU ETS.65 Plants with idle capacity are not necessarily those that are technically less competitive, but those that have the least favourable power contracts. At one time highly vertically integrated, the global aluminium industry has become more fragmented. The leading producers concentrate on primary aluminium smelting and refining, the activities in which they perceive their competitive advantage. Semifabrication is now largely in the hands of independent processors, which cater primarily for their regional or local markets.
65

Source: Eurometaux; Eurometaux indicates price increases of 50% and more.

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Exceptions to this fragmentation remain. Primary aluminium producers are generally integrated downstream as far as initial rolling or extruding operations, giving energy saving and quality control benefits. Where smelters/refiners have disposed of downstream divisions/stages, this was driven by major producers who focus on the upstream where margins are less volatile. However, firms that pursue this approach risk letting others into the downstream market while locking themselves out. At the same time, anecdotal evidence suggests that in Germany, since rolling mills were divested, they have been transformed for the better, with new cultures, better approaches to doing business and a greater market awareness. This was because they were no longer part of a wider supply chain/conglomerate that took decisions for the benefit of the whole group. Instead managements interests were more focused on their own market/supplier/customers, which allowed them to concentrate on their core markets/customers. While this greater market awareness brings firms closer to the market, it also reinforces the need for them to be lean. The competitiveness of downstream producers, therefore, requires a lean (JIT delivery) supply chain or something similar. While splitting the supply chain may be an option for firms to manage a lean supply chain, it would also reduce their bargaining position with suppliers. There are few if any substitutes for aluminium in many of its key applications. Figure 2.1 describes the value chain for aluminium based on the four operations: mining, smelting, refining and other activities and also includes the recycling loop which maps the return of fabrication scrap and end-of-life scrap to the smelting and refining stages. Aluminium is one of the most recycled materials today after steel and paper. It is also the only packaging material that completely covers the cost of its own collection and processing at recycling centres. Moreover, energy savings of recycling aluminium versus refining aluminium ores was reported to be close to 95%66 making it not just economically interesting, but also energy efficient and ecologically better than using primary raw materials. Recycling, however, is not an alternative to primary production, but a complement. The recycled material has to be blended with primary metal in smelters and refiners to obtain metal of the required purity. This is also very important for other NFM because of the difficulty of extracting metal of quality from long-cycle endof-life alloys.

66

www.bir.org/industry/non-ferrous-metals/.

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Figure 2.1

Value chain for aluminium

The processing of refined aluminium consists of alloying, rolling, extruding, casting and forging of the metal. This sector is now largely separate in terms of ownership and control from the primary metal smelters and refiners. It is comprised of divested downstream units from primary producers; new entrants from within the EU and from outside; and established independent processors (Germany is a notable example). In contrast to primary smelting and refining, enterprises are typically smaller in terms of output and capital asset values, and much more labour intensive.
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The processing sector forms a vital link in the supply network linking primary aluminium production to final end-use. Whereas the location of primary smelting and refining is increasingly energy resource-based, processors are principally market orientated. Location close to end-users enables close and effective communication with principal customers and reduces out-bound transportation costs. Processing efficiency depends on effective manufacturing systems rather than on chemical engineering expertise. Modern techniques of lean manufacturing and inventory management are important in controlling costs and enhancing competitiveness. As prices of raw materials are determined globally, they are often passed on to end-users. Holding on to large amounts of stock thus places a substantial price risk with the individual producer, who will thus want to hold as small an inventory as is possible while not compromising too much on the speed / security of supply. Processors now typically multi-source their supplies of metal, relying mainly on price-based contracts. Good relations with primary metal producers located within the EU market are important in helping to assure flexibility and security of supply, arguing in favour of an integrated supply chain. The consolidation of asset ownership in the European aluminium sector is representative of a more general restructuring process within the NFM industry. Examples are the acquisition by Rio Tinto of Pechiney, formerly the principal European aluminium producer, and Alcan, previously the worlds third-largest aluminium producer. Consolidation is driven by the need to bring supply into balance with prospective demand and to improve operating efficiencies as the global recession comes to an end. One consequence of consolidation is the requirement of EU competition policy that enterprises dispose peripheral assets, typically sharpening the boundary between refining and downstream processing. The largest enterprises have gained an increased share of global production. At the same time they have tended to retreat from direct involvement in downstream profiling (rolling, extrusion, casting and forging). The drivers of this process of de-integration include: Recognition that in the aluminium industry the greater part of total value added is to be found at the primary production (smelting and refining) stage; Associated with this, the identification by the leading natural resource-based enterprises that their core business lies in primary production rather than in marketinfluenced and service-intensive downstream activities; Acquisition and construction of profiling and distribution facilities by independent enterprises with a close knowledge of local market conditions and customers and that are experienced in efficient manufacturing processes and methods, including inventory management. An important consequence of vertical de-integration in the aluminium industry for the pattern and intensity of competition is that the relationship between the primary metal producers and the downstream processors has changed. EU-based processors increasingly have to compete for imported primary aluminium. Internal pricing and supply decisions about the transfer of primary metal for downstream processing have given way to contract-based negotiations where price is the determining factor.

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Copper value chain Mining companies gain power as a result of two factors: (1) the relatively small number of copper mines and (2) their investment in smelting capacity. Global competition over concentrates also continues to grow, especially from EU, Japan, China and India. Active policies for upgrading the value chain in places like Chile (to retain more primary materials for further processing within the country) increased pressures on raw materials further. Copper deposits are a substantial source of other metals. For example, 90% of the annual production of selenium, 70% of cobalt, nearly 40% of silver and more than 30% of zinc are by-products of copper extraction. Primary (mined) concentrates are multi-metal mixtures. Smelters or refineries only extract target metals, while the remaining metal values are captured in intermediate substances which provide inputs for further metals recovery processes in the EU. These intermediates can be a source of EU primary metal inputs, particularly precious and high-tech metals, for downstream high value-added sub-sectors. Some mining of the mineral ores required for copper occurs in Poland, Bulgaria, Portugal and Sweden, but their share of global production of ores is small. The main EU mining producers include Aitik in Sweden and the Neves Corvo mine in Portugal. Aitik is owned by Boliden produces and has a capacity of 175,000 tonnes of copper (18 mt of ores, to be doubled to 36 mt over 2011-2014). Neves Corvo is owned by Somincor and has a capacity of 120,000 tonnes. Actual production of these mines were, however, much lower, as several sources confirm.67 The major global producer of copper ore is Chile. The next largest producers are the US, Peru and China, all of whom produce between a quarter and a sixth of what Chile produces. Extracted ore is concentrated, transforming the copper into matte, which is still only 5070% copper, before being processed into blister copper, which is around 99% pure copper. Once smelted the blister copper is then refined further, typically by further heat treatment or electro-refining. An alternative is the leaching and electrowinning process. The result is the same, in any case, refined copper cathodes. Smelting and refining capacity in the EU is concentrated in Germany, Spain, Sweden, Belgium, Austria, Bulgaria and Finland. The major operators of smelting facilities in the EU include Aurubis (including subsidiaries such as Huettenwerke Kayser), KGHM, Atlantic Copper, Boliden, Metallo Chemique and Montanwerke-Brixlegg. Electrowinning capacity is small and concentrated in Spain and Cyprus. Copper is shipped to fabricators mainly as cathode, wire rod, billet, cake (slab) or ingot. Fabricators make various forms of copper (wire, rod, tube, sheet, etc) through drawing, rolling, extrusion processes, and these products are sold on to manufacturers for incorporation into finished goods.

67

These sources include BGS World Mineral Production 2008; ICSG Statistical Yearbook 2010; WBMS 2010; Lundin (owner Somincor) Mining Report 2009 (www.lundinmining.com/s/QOU.asp?ReportID=425338) and Bolidens annual report 2009 (http://vp031.alertir.com/files/press/boliden/201002122325-2.pdf).

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Another important source of raw material is scrap. Typically it arises from: End-of-life products that end up in the hands of scrap traders and recyclers who, having processed it, sell it on to refiners and fabricators; Waste generated in semis and finished goods fabrication.

According to BIR, coppers recycling value is so high that premium-grade scrap holds at least 95% of the value of the primary metal from newly mined ore. Recycling copper saves up to 85% of the energy used in primary production and, as such, is economically very interesting. Recent years have seen changing conditions regarding the trade of copper scrap where a relevant portion is now exported from EU27 to China and net exports of copper scrap have become substantial, fuelled in large part by demand from China, but exacerbated by the fact that many countries have placed export restrictions on the export of their scrap, limiting the possibilities for the EU copper producers to source secondary raw materials from outside the EU. We return to the trade related issues of raw material inputs in Chapter 3. The degree of integration among copper producers varies. For example, Boliden has facilities from the mining stage right through to the refining stage, and its activities end there. In contrast, Aurubis does not have its own mining facilities. Instead, it focuses on more downstream activities, with its smelting and refining divisions supplying Aurubis fabricating facilities, which produce wire, rod, strips, and other profiles. Aurubis downstream facilities are located almost exclusively in Germany. As a copper producer without its own mines, security of supply is a more important issue for Aurubis. One consequence of this is that the company currently generates around 40% of its refined copper from scrap. The importance of recycling is set to increase further, with e.g. Aurubis planning to double the capacity of its Lunen plant (Germany) to process electronic scrap for the copper it holds.68 Figure 2.2 depicts the value chain for copper.

68

Bloomberg, 09/09/10, www.bloomberg.com/news/2010-09-08/aurubis-melts-old-computers-for-copper-gold-as-smeltersbattle-for-supply.html.

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Figure 2.2

Value chain for copper

Zinc value chain More than four-fifths of zinc produced is used for galvanising (to protect steel from corrosion) or alloying, the remainder being supplied as semi-finished metal for further chemical and other processing. Demand is driven by the final end-use sectors, in particular construction and the manufacture of transport and other equipment, which

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together account for 70% of the total. This is reflected in the global pattern of use: China, the EU and the US together account for more than two-thirds of world demand for this metal. Figure 2.3 depicts the zinc value chain.
Figure 2.3 Value chain for zinc

Zinc ore is concentrated, typically at the mine site. Sulphur is removed by roasting or sintering. Refining is then carried out using the hydrometallurgical (or electrolytic) (over 90% of production) or pyrometallurgical processes.69 Nearly 70% of zinc from end-of-life products is recycled. Old zinc scrap consists primarily of die cast parts, brass objects,
69

Source: IZA.

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end-of-life vehicles, household appliances, old air conditioning ducts, obsolete highway barriers, and street lighting. Total recovery of zinc within the NFM industry amounts to 2.9 million tonnes, of which 1.5 million tonnes consists of new scrap or process residues and 1.4 million tonnes is made up of old scrap. For zinc too, the energy efficiency over primary sources refining is substantial: it is estimated that secondary zinc production uses 76% less energy than primary production.70 Zinc or zinc alloys are supplied to the galvanizing industry to produce galvanized steel which is in turn used in construction, automotive and consumer goods sectors. Zinc alloys are supplied to the die casting industry to produce kitchen and bathroom fittings, toys, lock ware, clothing fasteners and various auto and electronic components71. Zinc is also supplied to make compounds such as zinc sulphate (which has applications in agriculture, in the production of rayon, and as a medicine) and zinc oxide (used as an additive in various materials including rubber, tyres, ceramics, glass, lubricants, paints, pharmaceuticals, cosmetics)72. Zinc smelters / refineries have mixed metallic feed streams. As well as producing zinc metal and alloys, they also produce intermediate substances which provide inputs for further metals recovery processes in the EU. These intermediates can be a source of EU primary critical raw material metal inputs, particularly precious and rare metals, for downstream high-tech industries. This is an important addition to recycling (as a main activity) as the current demand for precious and rare metals by EU manufacturers far exceeds the recycling rates currently achieved for these. Recent years have seen an increasing reliance on imports of primary zinc into the EU to satisfy the needs of downstream EU users and manufacturers. These undermine the significant economic and energy saving benefits available to industry (e.g. galvanizers) through the delivery of primary zinc at a local (intra-EU) level and the short lead times local suppliers can work to. Lead value chain Lead remains relatively unique in the NFM sphere because of the severe restrictions on its use, including through end-of-life Directives and more specifically the Waste Electrical and Electronic Equipment Directive (WEEE). The latest limitations come in the form of the Restriction of Hazardous Substances Directive (RoHS), which came into effect in 2006. RoHS has caused much of the electronics industry, for example, to move toward lead-free solder for circuit boards. In the years before RoHS, lead solder only accounted for approximately 0.5% of total usage. However, given that electrical and electronic sector is one of the fastest growing manufacturing industries, these restrictions have further limited available innovation paths for the industry. Significant potential remains for the development of battery technology for electric cars, arguably one of the greatest growth areas. However, while early versions of batteries used lead in the contacts, newer versions of these batteries rely on lighter materials.

70 71 72

www.bir.org/industry/non-ferrous-metals/. Source: Nyrstar. Source: IZA.

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Currently, four to five primary producers remain in the EU, but demand continues to decline, with most material coming from scrap. Approximately 50% of the lead produced and used each year throughout the world was used before in other products. About 80% of lead is currently used in acid batteries, all of which is recoverable and recyclable.73 Some EU countries have achieved a 100% recycling rate, while the average for the EU is considered to be 70-80%. Figure 2.4 depicts the lead value chain. The mined ores are crushed and concentrated, and the resulting concentrate is roasted to produce lead oxide (and other materials containing lead). The lead oxide is refined in a blast furnace. Further processing removes impurities and typically also recovers silver and gold as by-products. The refined metal is used in alloys or in pure form in end-use applications. The majority is used in lead acid batteries.

Figure 2.4

Value chain for lead

73

www.bir.org/industry/non-ferrous-metals/.

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Nickel value chain The major nickel ore deposits, often with cobalt and copper, are in Russia, Canada, and Australasia (Australia, Indonesia and New Caledonia), with new deposits currently being developed in Finland. Figure 2.5 depicts the value chain. Smelters tend to be located close to mineral and energy resources, while refinery location is influenced more by end-user markets. Smelters tend to be larger than refineries, with one smelter usually supplying two or more refineries. About 60% of global nickel output is used for alloying to make stainless steel. High quality grades of stainless steel (4% to 8% nickel content) require pure refined nickel. Lower grades of stainless steel use ferronickel, obtained at the smelter stage. Other uses of nickel are for high quality/high technology alloys for activities including aerospace, nuclear engineering, and electronics, surface coating of metals and batteries. Nickel is extracted mainly from nickel-rich sulphide ores but deposits of these are becoming depleted. Lower nickel-content oxidised ores are increasingly being used, but require new extraction techniques. Currently, the most important extraction method is High Pressure Acid Leaching (HPAL). However, there are considerable technical difficulties with this process. Important projects, such as Goro, New Caledonia (Vale) and Coral Bay, Philippines (Sumitomo), were substantially delayed because of severe cost over-runs and high operating and maintenance expenses. Global nickel refined output is concentrated in the hands of five mining and minerals enterprises that together account for about 60% of annual production. The current structure of the industry is characterised by: Mining and minerals enterprises moving forward into the initial stages of metal refining and processing, such as Vale and BHP Billiton; Refiners and processors developing a diversified portfolio of metals, such as Xstrata and Norilsk; State-influenced enterprises commanding domestic production, such as Jinchuan. Stainless steel is the most important use for nickel and accounts for about 60% of production. Stainless steel usage in the EU fell to 40% at the trough of the recession, but for now, demand is recovering and prices are rising. Even at the most optimistic projections, however, there is little or no prospect of investment in additional new capacity. Nickel prices are among the highest of the common NFM. Thus the incentives for recovering and recycling nickel effectively at all stages of the fabrication and use cycle are strong. Nickel is rarely used by itself but is commonly mixed with other metals to produce alloys. There are thousands of different alloys containing nickel. The nickel content of such alloys vary from, e.g. 1-3% for special engineering steels, 8-14% for stainless steels, 15-

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40% for special engineering alloys, and 40-90% nickel for special alloys for the aerospace and electronic industries.74 Such alloys are often recycled as the same special alloy, creating their own closed loops. It is not always possible to maintain and segregate products and scrap into specific alloys. The nickel recycling industry has various ways of handling mixed nickel-containing scraps in order to optimize the retained value of the scrap.

74

www.nickelinstitute.org/index.cfm?ci_id=115&la_id=1.

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Figure 2.5

Value chain for nickel

Nickel-containing stainless steels commonly contain 8-14% nickel, and accounts for approximately 60% of primary nickel use. Sophisticated blending processes are used by specialist suppliers in order to provide quality-assured feed to stainless steel mills. These blending processes can utilise nickel-containing products from a very wide range of fabricating or end-of-life sources. These include low-nickel steels; high nickel alloys; mixed turnings; end-of-life engineering assemblies; reject products from primary nickel producers; and re-melted ingot from processing nickel-containing slag, dust, batteries, and spent plating fluids.

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This omnivorous character of the stainless steel industry means that it places a higher value on many of these products than do the industries that originally generated the products. Hence, many products become feed for the "stainless steel loop" rather than for its original sector. An assessment of nickel recycling thus has to include all aspects of the stainless steel loop. Precious metals value chain Precious metals include gold and silver and the platinum group metals: ruthenium, rhodium, palladium, osmium, iridium, and platinum (with platinum the most widely traded). Most of these are valuable for industrial uses due to their resistance to corrosion and their conductivity. However, the demand for precious metals is driven not only by their practical use, but also by their role as investments and a store of value. Historically, precious metals have commanded much higher prices than common industrial metals. Mining of precious metals take place predominantly outside the EU, with South Africa, Russia, China and the Americas as major sources (see Table 2.9). Recycling rates are estimated at 28% globally for gold, while another source of gold comes from its release onto the markets by banks. Gold markets are characterised by substantial above ground reserves held primarily by banks. If released they can have substantial effects on prices. Refining and melting processes yield higher purity precious metals, which are subsequently used in the various end-uses. For gold this includes mostly: coinage bullions; jewellery; electronics & computers; dentistry. Silver has the highest electrical conductivity of any element and the highest thermal conductivity of any metal. It occurs naturally in its pure form, as an alloy with gold and other metals, and in minerals such as argentite and chlorargyrite. Most silver is produced as a by-product of copper, gold, lead, and zinc refining. Demand for silver is built on three main pillars: industrial uses, photography and jewellery & silverware. Together, these three categories represent more than 95% of annual silver use75. Industrial uses include electrical contacts and conductors and in catalysis of chemical reactions. In addition silver has medical uses, e.g. dilute silver nitrate solutions and other silver compounds are used as disinfectants and micro biocides. Main end-use markets for PGMs include: Autocatalysts: catalytic converters and diesel particulate filters; Jewellery: approximately 20% of PGMs are used for jewellery; Electronics and electrics: in this sector PGMs are used in a variety of application such as computer hard discs, multilayer ceramic capacitors, or hybridized integrated circuits; Dental alloys: their high corrosion resistance make PGMs interesting for dental applications;

75

www.silverinstitute.org/.

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Catalysts: PGMs are not only used for autocatalysts, but also as catalysts in the chemical industry and for petroleum refining; Glass making equipment: minor applications include glass making equipment, especially LCDs; Investment tools: due to their high prices, PGMs are used as investment tools.

PGMs are expected to play an important role in emerging technologies and were included in the EU list of critical raw materials as part of the RMI. Especially for fuel cell driven vehicles, by 2030, platinum demand is estimated to far exceed world production. The three largest companies Norilsk Nickel Mining & Metallurgical Company, Anglo American plc and Impala Platinum Holdings Ltd control nearly 70% of the platinum market. The recycling of PGMs from industrial waste streams is quite efficient due to their high value. This is especially the case with industrial process catalysts and PGM equipment used in the glass industry. Although not visible in demand statistics, these industrial PGM applications account for about 50% of the global gross PGM demand. In most applications more than 90% of the PGMs originally used even after many years of use are finally recovered. Since most industrial users keep the property of the PGMs throughout their lifecycle (closed loop), they appear on the markets as net buyers only to cover lifecycles losses or market growth (expansion or new applications). The demands reported for the chemical, oil-refining or glass sector are net figures (new demand), these reflect only a fraction of the much larger gross demand. Recovery of PGMs from consumer products is still much more limited, with recovery rates as low as 10% for electronic applications and below 50% for automotive catalysts.76 Within the EU, Umicore Precious Metals Refining operates as one of the world's largest precious metals recycling facilities. However, many large producers of e.g. copper and zinc also engage in and/or facilitate some production of precious and rare metals as they are recovered as by products from their main smelting and refining activities. The nature of the value chain varies somewhat according to the metal. Figure 2.6 depicts the value chain for gold, highlighting the stages through mining, refining and smelting to produce virtually pure gold for end-use applications.

76

Critical raw materials for the EU Report of the Ad-hoc Working Group on Defining Critical Raw Materials (2010).

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Figure 2.6

Value chain for Precious metals (example of gold)

Minor metals value chains As described in Chapter 1, this sub-sector grouping includes a wide variety of NFM, including refractory and specialty NFM. A large number of minor metals (and precious metals) were identified as critical raw materials for the EU. This assessment was based on supply risk (political economic stability of producing country, level of concentration of production, potential for substitution and recycling rate) and environmental country risk. This sub-sector group includes a large number of different metals and subsequent value chains. We will not attempt to present a schematic overview of the minor metals value chain as it would not do justice to the inherent variations within this group. As an example below, we elaborate briefly on the tungsten value chain, which can be seen as reasonably representative for many refractory metals.

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While world tungsten resources are geographically widely distributed (China, Canada, Kazakhstan, Russia, and the United States, all have significant tungsten resources), though close to 78% of worlds tungsten production takes place in China. Tungsten has a wide range of uses, the largest of which is as tungsten carbide in cemented carbides or so-called hard metals. These are wear-resistant materials used by the metalworking, mining, and construction industries. Other uses include: Tungsten metal wires, electrodes, and/or contacts are used in lighting, electronic, electrical, heating, and welding applications; To make heavy metal alloys for armaments, heat sinks, and high density applications, such as weights and counterweights; super alloys for turbine blades; tool steels; and wear-resistant alloy parts and coatings; As a substitute for lead in bullets and shot (Tungsten composites); Tungsten chemical compounds are used in catalysts, inorganic pigments and high temperature lubricants. Raw materials supply is thus highly concentrated and the tungsten value chain as a whole seems to be shifting increasingly towards China. Its control over the resource is enhanced by restrictions on the export of raw materials and subsidies / State support (for more details see Chapter 3). This implies that the industries elsewhere is squeezed on price in the downstream segments and restricted in terms of resource access further upstream.

2.5.2

Integration and diversification The degree of forward vertical integration varies between the main metals. Historically, enterprises in the aluminium sector were characterised by extensive vertical integration. In recent years, however, most have retreated from direct involvement in downstream processing and profiling, concentrating on minerals mining and primary smelting and refining. There are a few exceptions to this such as Hydro and Alcoa. The major aluminium producers also trade in semi-processed and semi-manufactured products along their supply chain. Most importantly, they supply refined metal to the independent downstream processors that engage in alloying, rolling, casting, shaping and profiling, and in metal goods production. While the independents tend to be significantly dependent on the integrated smelters that are present in the EU, they can also source their metal requirements from elsewhere. Their choice is influenced by: import prices, tariffs and quotas and, to a lesser extent, exchange rates. For the various supply-chain stages of the EU NFM industry, the characteristics of integration are summarised in Table 2.12.

Table 2.12

Characteristics of integration of the EU NFM industry Supply-chain stage Mineral ore processing Recycling Smelting and refining Characteristics Highly concentrated multi-national enterprises. Integrated and independent enterprises. Integrated and independent enterprises; Cross-border trade in concentrate and refined metal.

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Supply-chain stage Casting, shaping and profiling Some integrated producers;

Characteristics

Tendency for vertical de-integration; But fragmented structure with SMEs. Metalworking and metal articles Buyer weakness in face of strength of refiners; Scope to import in absence of trade barriers; Buyer strength in some segments, e.g. transport equipment, packaging.

The largest global NFM producers have developed mixed metals strategies in which the composition and scale of their mining, minerals and metal producing activities drive competitive advantage. A diversified portfolio helps to spread risks as the output and price cycles differ between metals. Moreover, scale is important as new mining, smelting and refining projects are hugely expensive often adding up to billions of dollars. A clear example of the success of this strategy is presented by BHP Billiton, which has in recent years developed into the worlds largest natural resources company (by quite a margin) through acquisitions and new developments. The company is active in mining, smelting and refining of aluminium, copper, lead, nickel, zinc, uranium, manganese, and iron ores, diamonds, coal and petroleum. This strategy was applied by a number of the large global players (although none have been as successful as BHP Billiton) leading to high production concentration with these large players, even for individual metals.

2.6
2.6.1

EU NFM industry structure


Turnover, value added and employment Table 2.13 shows the key statistics for the main sub-sectors of the NFM industry.

Table 2.13

Key Structural Business Statistics Data for the EU27 NFM Industry, 2007 NFM sub-sector NACE Rev. 2 code EUR bn Precious metals production Aluminium production Lead, zinc and tin production Copper production Other non-ferrous metal production Total (manufacture of base and precious metals) (as % of all manufacturing) related castings industries Casting of light metals Casting of other NFM 24.53 24.54 14.1 5.6 4.3 1.4 92.0 33.3 46.4 43.5 24.4 129.9 1.8% 18.0 1.0% 218.7 0.6% 82.4 24.45 9.0 1.6 18.0 91.1 24.43 24.44 13.7 45.0 2.6 3.8 23.1 46.3 114.2 82.4 24.41 24.42 8.8 52.6 EUR bn 0.9 9.0 Turnover Value added at factor cost Number of persons employed '000 10.5 120.8 Value added per person employed EUR '000 85.7 74.3

Source(s): Eurostat Structural Business Statistics.

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In 2007, aluminium production accounted for some 50% of value added in the manufacturing of base and precious metals. The next-largest sub-sector was copper production which accounted for just over 20%. In terms of employment, aluminium accounted for 55% of the total, and copper for 21%. The capital-intensive nature of the sector is reflected in the relatively high figures for value added per person employed (the figure of EUR 82,400 was more than 50% higher than the figure for manufacturing as a whole (EUR 52,500)). The sector accounted for 1% of value added in manufacturing, and 0.6% of employment. When the relevant castings industries are included, they increase the value added of the sector by about 30%, and employment in the sector by 57%. The latter figure reflects the fact that these processes are less capital-intensive than basic manufacturing. The value added per person employed was slightly lower than the figure for manufacturing as a whole.

2.6.2

Size distribution of companies in the NFM sector The capital-intensive nature of metals refining is reflected in the greater importance of large firms in the NFM sector than in manufacturing as a whole. Even so, the NFM sector has many small firms. The NFM sector in the EU is mostly made up of micro and small enterprises, with 56% of the enterprises operating in this sector having fewer than ten employees and around 25% having between ten and 49 employees (see Table 2.12). Only 13% could be classified as medium-sized (50-249 employees), while just over 5% of enterprises were large (250+ employees). Consequently, over 80% of all NFM enterprises employed fewer than 50 people in 2007. Annex C provides an overview of the key producers with NFM operations in Europe (2010). There are more large enterprises and fewer micro-enterprises when in the NFM sector if compared with the manufacturing sector as a whole. Large enterprises account for less than 1% of firms in the manufacturing sector, compared to 5.4% for the NFM sector. Generally, manufacturing is more skewed towards micro and small enterprises, with 80% of firms employing fewer than 10 people, compared to 56% in the NFM sector. Not all sub-sectors and especially not all segments of the NFM sector (e.g. primary metals producers) are equally dominated by smaller companies.

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Table 2.14

Comparison of the EU NFM sector with manufacturing by firm size, 2007 No. employees 1-9 No. enterprises Manufacturing NFM Turnover Manufacturing NFM Value added Manufacturing NFM Employment Manufacturing NFM
Source(s): Eurostat; CE calculations.

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10-19

20-49

50-249

250+

SME share (%)

80.5 56.4

9.5 14.6

5.7 10.8

3.6 12.8

0.8 5.4

99.2 94.6

5.4 1.8

4.8 2.5

8.2 4.7

21.2 26.0

60.4 64.9

39.6 35.1

7.2 2.4

6.3 2.9

9.4 4.9

22.7 23.5

54.2 66.3

45.8 33.7

14.0 3.0

8.8 3.6

12.0 5.8

25.0 24.5

40.2 63.1

59.8 36.9

Large enterprises accounted for 65% and medium-sized enterprises for 26% of the total turnover of the NFM sector in 2007. A similar pattern is found in manufacturing as whole, though there are differences at the micro level. Micro enterprises operating in the NFM sector accounted for only 1.8% of total turnover, while in manufacturing the same group was responsible for around 5.4% of total turnover. The figures for value added tell the same story. Large enterprises account for around twothirds of the NFM sector value added and medium-sized enterprises for just under a quarter. In manufacturing, the shares of micro and small enterprises are larger and this is offset by a smaller (55%) share for large enterprises. Large and medium-sized enterprises accounted for over 85% of employment in the NFM sector. This is a considerably larger share than for manufacturing, where large and medium-sized enterprises employ around two-thirds of the workforce. Micro and small enterprises accounted for just over 12% of the workforce in the NFM sector. International comparisons of firm size Generally speaking, firm size in emerging economies and notably China, Russia and the Middle East tend to be much larger than in the EU. This is partly due to continued State involvement in these companies and/or scale advantages related to cheaper sources of energy (the latter does not apply to China so much, but more to Russia and the Middle East). Table 2.15 presents firm size data for the US.

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2007 is the latest available year for EU firm size distribution data.

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Table 2.15

Comparison of the US NFM sector with manufacturing by firm size, 2007 No. employees 1-9 No. firms Manufacturing NFM No. establishments Manufacturing NFM Employment Manufacturing NFM 4.3 1.3 4.6 1.7 17.2 9.6 50.8 31.5 13.7 9.7 18.0 19.2 58.6 40.8 15.7 12.6 19.4 23.0 10-19 20-99

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100-499

500+

1-499 share (%)

4.9 12.6

1.4 11.0

98.6 89.0

7.0 13.1

10.6 26.5

89.4 73.5

18.4 17.8

55.6 69.6

44.4 30.4

Source(s): US 2007 Country Business Patterns and 2007 Economic Census.; CE calculations.

The categories for firm size by number of employees do not match the EU data exactly, but clear comparisons can still be drawn. In manufacturing as a whole, the US has fewer micro-enterprises than does the EU (58.6% of firms were in the 1-9 employees category in the US, compared with 80.5% in the EU). These firms also account for a smaller proportion of all employment (4.3% in the US compared with 14.0% in the EU). The US data reveals the same tendency for NFM firms to be larger than the average for manufacturing industry as a whole. Yet even in NFM the EU has a larger number of smaller firms than the US. The data underlying Table 2.15 but not depicted here, provide some insight into the size distribution of firms within NFM segments in the US. As expected, upstream activities are even more skewed towards larger firms than the NFM average. Table 2.16 presents similar data for Japan.
Table 2.16 Comparison of the Japanese NFM sector with manufacturing by firm size, 2006 No. employees 1-9 No. establishments Manufacturing NFM Employment Manufacturing NFM 14.9 8.4 10.0 7.3 30.1 28.3 18.9 24.5 26.0 31.5 74.0 68.5 66.2 54.1 14.5 16.7 15.9 22.2 2.6 5.3 0.8 1.7 99.2 98.3 10-19 20-99 100-299 300+ 1-299 share (%)
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Source(s): 2006 Establishment and Enterprise Census of Japan; CE calculations.

Once again, the categories of firm size are not the same as for the EU data, and the Japanese data are for establishments (plants) rather than for firms (enterprises), which can be compared directly with the US data (are available for both). In terms of shares of employment, Japans micro-establishments are similar in importance to micro-enterprises in the EU (in both cases, firms employing 1-9 people account for 14-15% of
78 79

2007 is the latest available year for US firm size distribution data. 2006 is the latest available year for Japanese firm size distribution data.

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manufacturing jobs). However, the largest businesses in Japanese manufacturing (those employing 300+) account for a smaller share of all manufacturing jobs (26.0%) than do the largest EU enterprises, i.e. those employing 250+ people (40.2%). Japans NFM sector is, again, more concentrated in larger businesses than is manufacturing industry as a whole, but the shares of all NFM jobs that are in the largest establishments is smaller than the corresponding EU data for the largest enterprises. Japan has very little primary aluminium production, and so the absence of these particular large establishments is reflected in the data.

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3 Competitiveness issues for the EU NFM industry

This chapter presents an analysis of the key competitiveness issues facing the EU NFM industry, particularly from a policy and regulatory perspective. Each of the key issues identified are covered as follows: (i) a short description (scope, purpose, implementation, etc) and discussion of the development of the policy/regulation; (ii) an assessment of the impact of each Regulation to date on the EU NFM industry; and (iii) an international comparison, assessing international differences between framework conditions and whether they differ in their impacts on EU and non-EU NFM industries. The key competitiveness issues identified as impacting the EU NFM industry include: Environmental policies;80 The EU ETS (and other climate change policies); Energy policy and markets; Trade policy and access to raw materials; Recycling; Research, development and innovation policies. All these issues are discussed in more detail as follows.

3.1
3.1.1

Environmental policies
Introduction

This section assesses the most important EU environmental policy Regulations and Directives applicable to the NFM industry. The environmental policies have far-reaching implications that significantly increase the EU NFM industrys costs. Three environmental policies have a significant impact on the EU NFM industry. These are: 1. Environmental standards (e.g. pollution control policies (IPPC/IED)); 2. Waste (including treatment and recycling); 3. Protection from harmful substances for the environment and human health (REACH).81

80 81

Environmental polices are limited in this study to environmental standards, waste and REACH. This is not an exhaustive list of EU environmental policies. Many other policies such as eco-labelling, green procurement, etc. are also relevant for the NFM industry and will likely have an impact on the operations of companies in the industry. However, within the context of this study, it was agreed to focus on a selected number of environmental policies seen as having a substantial impact on the industry at present and in the future.

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Environmental standards NFM producers are subject to, and have to comply with, multiple environmental regulations, which are taken into account during environmental permit applications/updates and environmental inspections. The investments, administrative costs and effort needed for compliance have an economic impact on the NFM industry. The impacts on the NFM industry arising from the IPPC/IED Directive, the Air Quality Framework Directive and Water Framework Directive are discussed below. The impacts of waste policies and REACH are assessed in more detail in the next sections. The IPPC Directive (2008/1/EC), the Integrated Pollution Prevention and Control Directive, requires all NFM installations to have a permit (activities listed in Annex I of the Directive). Installations should reach a certain efficiency level (the BAT Reference case) in energy use and emissions to receive a permit. For some NFM producers this may require investments in production and higher electricity usage. With the recast of the IPPC Directive (i.e. Industrial Emissions Directive), adopted by the EU in 2010, the permit-setting will become more harmonised and transparent. It will also require a better understanding of how to apply an integrated approach between different environmental policies and site-specific needs; The Ambient Air Quality Framework Directive (2008/50/EC) aims to minimise the harmful effects on human health by monitoring and assessing the air quality and reducing the levels of pollution. The 2004/107/EC Directive is particularly relevant to the NFM industry as it focuses on monitoring arsenic, cadmium, mercury, nickel and polycyclic aromatic hydrocarbons in the ambient air; The Water Framework Directive (2000/60/EC) reorganises water management in the EU and sets minimum water quality standards. It identifies priority hazardous substances (PHS), especially cadmium and mercury, and priority substances (PS), notably nickel and lead. These PHS are subject to measures aiming at the cessation of discharges, emissions and losses of these substances. PS emissions are subject to point or diffuse source control measures. Waste - including treatment and recycling The Waste Framework Directive (2008/98/EC) was revised in 2008. It establishes a legal framework for the treatment of waste within the EU. Complementing legislation to the Waste Framework Directive are, among others: the Waste, Electrical and Electronic Equipment (WEEE) Directive 2002/96/EC); the Waste Shipment Regulation (Regulation (EC) No 1013/2006); the Packaging and Packaging Waste Directive (Directive 94/62/EC); the Batteries and Accumulators Directive (Directive 2006/66/EC); the Restriction on Hazardous Substances (RoHS) Directive (Directive 2002/95/EC), focussing on certain hazardous substances in electrical and electronic equipment. Only a small number of waste products generated by the NFM industry are classified as hazardous. Despite this the waste legislation, also relating to including non-hazardous waste, has implications for the industry as a whole. The most relevant ones include: Additional costs incurred by the industry due to stringent technical provisions and costs (e.g. for the land-filling of hazardous wastes); Concern that the recycling of NFM falls under the scope of the Directive via the coincineration definition issue. This results in an obligation for the NFM industry to comply with stricter limit values;

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Additional costs for the industry for packaging and labelling of scrap materials; and Inefficiency in the application of shipment legislation relating to hazardous and nonhazardous waste for recycling.

Various EU pieces of waste legislation, such as the WEEE Directive currently together with the RoHS Directive in co-decision, help to reduce the environmental impact of the NFM industry. They promote secondary production, or the recycling of scrap, which is used in 40-60% of EU NFM output. This is significantly less energy and CO2 intensive than primary production within the industry. The WEEE helps to stimulate the use of scrap materials and to preserve strategically important scrap for the EU market. The WEEE, as most of the EU waste legislation, follows the principles of the Waste Framework Directive. It includes hierarchical levels - namely the 3Rs: Reduce, Reuse and Recycle - as the basis of waste management strategy. It also allocates responsibility for waste to the producers and stakeholders involved in the lifecycle of waste products: in other words, the polluter-pays-principle.82 There is increasing global and EU-level pressure on raw materials supply. This leads to increased recycling and efforts to find an adequate balance between primary production and secondary sources as the basis for sustainability of the NFM industry in the EU. The EU Raw Material Initiative (RMI) was a first step in this direction. Various environmental legal acts and initiatives aim at dealing with industrys demand for secondary raw materials. This includes the WEEE and the Waste Shipment Regulation (see in Section 3.4), the classification and identification of second hand and end-of-life goods, and improvement of collection schemes and management of secondary raw materials. REACH In 2007, the REACH (Registration, Evaluation, Authorisation and restriction of Chemicals) Regulation (EC 1907/2006) came into force. It aimed at improving the protection of human health and the environment, while maintaining the competitiveness and enhancing the innovative capacity of the EU chemicals industry. The NFM inorganic chemicals and fall under the scope of REACH. In consequence certain chemical substances, such as hexachloroethane, may not be used in the manufacturing and processing of NFM. The main impact of REACH on the NFM industry is that all metals have to be registered, thereby increasing the administrative burden. The vast majority of NFM need full registration as per the Annex IX and X requirements of the REACH Regulation. Also relevant are the administrative costs involved in joint financing of the testing, the completion of file documents and other ad hoc consortia related activities. Examples include the following:83 1. The nickel sector/consortia have spent around EUR 12 million to prepare 11 registration dossiers of chemical substances and two registration dossiers of intermediates;

82

83

European Commission, DG Environment, The Producer Responsibility Principle of the WEEE Directive, Final report produced by Okopol, IEEE and RPA analysts, August 2007. Source: Eurometaux, communication on letter to Eurometaux from the Consultants about comments Eurometaux made on the Draft Final Report of this NFM competitiveness study.

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2. The copper sector/consortia invested in total EUR 11 million of which EUR 8 million for a voluntary risk assessment and EUR 3 million in three REACH consortia. So far, about 25 REACH consortia have been formed within the NFM industry over the last three years to cover about 750 chemical substances and to cope with the registration phase. The companies spend an estimated EUR 25,000 per substance, depending on the profile of the substance and availability of existing data. 84 Given that 25-30 REACH consortia have been formed, the overall cost would be in the range of EUR 150-200 million for the NFM industry as a whole.85 The consequences of this legislation to the NFM industry can be categorised as follows: additional costs incurred by the industry due to extra administration of hazardous properties; additional costs for registration (i.e. testing, registration fees, dossier costs); additional costs for testing and back testing of products produced; investments in alternative production processes: manufacturers of NFM products are not allowed to use of certain chemical substances and manufacturers have to adapt, change and/or restructure their processes accordingly; constraints on production and supply of certain NFM compounds like chromium salts due to the REACH authorisation process.

3.1.2

Impact and international comparison There are substantial differences between environmental policies within the EU,86 leading to inadequately harmonised internal market conditions87. In addition, environmental taxes tend to differ across Member States. Compliance costs may therefore vary substantially across Member States. This will continue to be the case as long as EU environmental legislation is based on Article 193 of the Lisbon Treaty, formerly 176, of the EC Treaty. The majority of environmental policies concentrate on pollution prevention, waste, recycling and improvements to quality of life. The EU is clearly at the forefront of environmental policies development and implementation, having set sustainable development as a clear overriding principle for economic growth. While such policies add to production costs, they have also spurred innovation and technological development and

84

85

86

87

Source: Eurometaux, communication on letter to Eurometaux from the Consultants about comments Eurometaux made on the Draft Final Report of this NFM competitiveness study. Source: Eurometaux, communication on letter to Eurometaux from the Consultants about comments Eurometaux made on the Draft Final Report of this NFM competitiveness study. There are substantial differences in terms of European law, not only for environmental policies. More about the differences in European law can be found at: http://ec.europa.eu/community_law/directives/directives_en.htm. Environmental policies are imposed at the EU level, and in the form of a Regulation, Directive, Commission Decision or a Commission Recommendation. A Commission Decision is uniform in its interpretation and implementation for all EU27 Member States. A Directive serves as a guideline for Member States how they could implement some environmental regulation on a national level, resulting in some flexibility in interpretation (and as such there can be differences in legislation between Member States). An example is the Commission Recommendation on environmental inspections. However, so far there have been several interpretations about this recommendation with the result that environmental inspections are implemented and monitored in different ways and are not harmonised. Therefore, the implementation of a possible Directive as a guideline regarding environmental inspections (or might even a Commission Decision) is under discussion now at DG Environment.

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to some extent have contributed to the strong position of the EU NFM industry in terms of energy efficiency, recycling rates and product innovation. When considering the impact of environmental policies, it is important to distinguish between the various sub-sectors and the various value chain activities in the NFM industry. Environmental policies aimed at chemical and specific materials used in refining activities have bigger costs implications for the upstream part of the value chain than downstream parts. Examples include nickel and lead sub-sectors, but also for aluminium and copper production. In further downstream and higher value-added sub-sectors, such as precious metals, the relative costs of compliance are usually lower. This is the case in activities and subsectors that are closely linked to client industries, such as automotives, electronics and telecom industries, and renewable energy industries. Environmental policies in these segments seem to create opportunities for new applications and the development of new technologies by NFM producers in cooperation with client industries. It is important for producers in these segments that regulations are enforced properly and consistently throughout the EU. International comparison of environmental policies EU environmental legislation is among the most far reaching and ambitious, which places the EU NFM industry at a disadvantage. Lesser developed /emerging markets lag substantially behind the EU in respect of their environmental policies, leading to lower costs of compliance and enforcement of environmental policies. However, in developed countries such as the United States, Canada, Japan and the EFTA countries, environmental policies compare well with those of the EU and are applied more uniformly and pragmatically, thereby reducing compliance costs. Most of these countries face similar issues relating to pollution and public awareness of environmental, health and safety standards. The US Environmental Protection Agency (EPA), for instance, writes environmental profiles per sector, including sector opportunities and policy enforcement profiles. The priorities attached to environmental policies differ substantially across the world. They are embedded in national tax systems and enforced through different legislative acts. This makes comparison difficult, even impossible, though sub-sectoral impact assessments could be informative. This, however, is beyond the scope of this competitiveness report. A macro-comparison for environmental policies in developing countries like China, India and Russia, versus environmental policies in the EU27, is interesting to make as they are starting up their frameworks for national environmental policies:

In recent years China has been working to develop, implement and enforce a solid environmental law framework through SEPA (Ministry of Environmental Protection). The environmental legislation in this framework is less stringent than the those in the EU: air pollution control and prevention is not included, whereas the EU industry must comply with air pollution regulations and the IPPC/IED permitting framework;

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In Russia, there is no specific legislation regarding scrap material. Russia has a pollution prevention and control system that is similar to the EU BAT approach of issuing permits to polluting installations. However, it is not clear how stringent the permitting standards and environmental conditions are. What we know from UNSD figures, is that the levels of greenhouse gas emissions in Russia have decreased significantly between 1990 and 2006;88 by more than 36% compared to a small 0 to 5% increase in the same time slot for most of the EU27 Member States. The yearly GHG emissions are still very high on a per capita level: around 11 tCO2 in Russia, compared to 3 to 8 tCO2 in EU27 in 2006)89. The reason for the reduction of Russias GHG relates mainly to the collapse of its economy in the 90s, which led to steep drops in energy demand, production and other activities. Old, inefficient manufactories were closed and are slowly replaced by new ones. In India, the level and content of environmental legislation is very weak, often unclear and mainly discusses water and air pollution (Ministry of Environment and Forests). Other environmental legislation focuses on nature conservation and wildlife. Apart from that, there is no specific legislation for environmental inspections to monitor compliance. For example, there is no specific legislation in India about the dismantling and recycling of scrap material. The result is the establishment of many backyard operations where recycling is cheaper, but the resource efficiency very low, resulting in the loss of valuable metals.

The cost of compliance tends to be higher in the EU than in most other developing countries like India, Russia, China and the Middle East90. Furthermore, industries in developed countries, apart from the EU, do not face the burden of uneven policy implementation. It is generally accepted that the cost of compliance with environmental EU policies and directives, is much lower in developing and emerging countries. However, this does not seem to be a factor driving the shift of production facilities to other countries. Even when they do, they invest in installations that comply with the highest environmental standards as applied elsewhere in the company.

3.2
3.2.1

The EU ETS and other climate change policies


Introduction The European Emission Trading System (ETS) has been operational since January 2005 (2003/87/EC Directive). The scope of this cap-and-trade system for carbon credits

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United Nations Statistics Division (UNSD), Environmental Indicators, Greenhouse gas emissions (CO2 emissions in 2006), last updated August 2009. United Nations Statistics Division (UNSD), Environmental Indicators, Greenhouse gas emissions (CO2 emissions in 2006), last updated August 2009. It is difficult to compare environmental legislation between countries. However, interviews with international operating industrial companies reveal that the number of and compliance with environmental legislation in the EU is one of the highest in the World. In many of the countries, which are a competitor for the EU NFM sector, there is a lack of enforcement regarding environmental legislation.

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contains around 12,000 industrial installations across the EU, which are responsible for around 2 billion tonnes of CO2 emissions each year. In 2008, the EU ETS system was reviewed and evaluated. The initial Directive was amended with an enlarged scope, to include other greenhouse gases, additional energyintensive sectors like the aluminium and other NFM, and the chemical and aviation sectors (2008/101/EC). The amendment of the initial EU ETS Directive (2009/29/EC) should improve and extend the current EU ETS system. NFM sectors are listed in Annex I of the Directive as new activities covered under the EU ETS and it affects primary and secondary aluminium, production of alloys, foundry casting and refining activities. The revised EU ETS will set the rules for the third phase of the scheme from 2013-2020, progressively reducing the cap for emissions from the power and industrial manufacturing sectors by 21%, based on 2005 emissions, by the end of the period. This represents twothirds of the 20% emissions reduction, based on 1990 emissions, aimed at by the EU in its 20-20-20 strategy. Furthermore, from 2013 onwards the allocation mechanism of emission allowances will change from grandfathering to product benchmarks and fallback approaches; and from free allocation to a transitional system in which a part of the emission allowances will be auctioned. This section is well elaborated as most stakeholders experience the EU ETS and carbon leakage as one of the most important issues.

3.2.2

Impact and international comparison The EU ETS has an impact on the competitiveness of the EU NFM industry as it increases the production costs compared to those of producers outside the EU. In addition to the direct CO2 emissions from its own production activities, the industry also faces the indirect CO2 cost pass through as a result of higher electricity prices and the cost burden of self-generation.91 Therefore, the NFM industry faces direct and indirect costs from the EU ETS. The industry cost structure is an important, particularly for the copper and aluminium sectors, but also for zinc, nickel and lead. The prices for copper and aluminium, and for other NFM, are determined globally on the London Metal Exchange (LME), while costs, apart from raw materials costs, are local. Competing regions do not have to absorb the costs of emission trading. These costs are not reflected in global prices for copper, zinc or aluminium and relate solely to the cost structure of European producers. NFM producers therefore cannot pass the costs of the EU ETS on to downstream producers. This means

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It has been estimated that these indirect cost effects could add up to 11.8% to the costs of aluminium production, depending on the extent to which the power sector passes on the ETS costs. The calculation is reasoned as follows: 0,7 tCO2/MWh gives 11 tCO2/t aluminium. With an emission allowance cost of 15 EUR/tonne, this corresponds to 165 EUR/tonne aluminium, or approx. 10% of a gross value at USD 2,300 per tonne of aluminium. In the case of selfgeneration, based on coal, the factor is an even higher (0.9 tCO2/Mwh), equalling 11% of gross value with the above assumptions; Sources: EC Directorate General of Environment, McKinsey and Company, and Ecofys, EU ETS Review, Report on International Competitiveness, December 2006.

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that they have a cost disadvantage compared to their non-European competitors, creating potential for carbon leakage. In the EU ETS Directive (2003/87/EC) the potential for carbon leakage and competitiveness effects as a result of extending and/or including new sectors in the trading scheme was noticed and addressed in Article 10a of the Directive. The Commission performed a carbon leakage assessment in 2009 based on the EU ETS Directive. It identified a list of activities and sectors that are more likely to be exposed to a significant risk of carbon leakage. The goal was to use the inability to pass the direct costs of the EU ETS through in product prices, and the consequent risk of losing market share to less carbon efficient installations outside the EU,92 as criteria for inclusion on the carbon leakage list. This list was completed by the end of 2009 and adopted in 2010 in a Commission Decision (COM 2010/2/EC). It includes the sectors of NACE 24.41 precious metals, NACE 27.42: aluminium production, NACE 27.44: copper production, NACE 27.43 zinc, lead and tin production, and NACE 27.45 Other non-ferrous metal production. In other words, the NFM industry was recognized as facing a significant risk of carbon leakage. Some support measures for the listed sectors that aim at preventing potential carbon leakage effects are mentioned in the EU ETS Directive and the COM Decision 2010/2/EC. In the COM Decision it is stated that: To address the risk of carbon leakage, Directive 2003/87/EC provides that, subject to the outcome of the international negotiations, the Union should allocate allowances free of charge at 100% of the quantity determined in accordance with the measures referred to in Article 10a (1) of Directive 2003/87/EC to sectors or sub-sectors deemed to be exposed to a significant risk of carbon leakage.93 It therefore recognises that direct and indirect costs of the EU ETS have a significant risk potential on the performance of the European industry and/or its subsectors. It further means that the sectors listed should be given emission allowances free of charge at the quantity determined in Article 10a (1). This Article says that there should be fully-harmonised implementation measures for the allocation of emission allowances, based on a calculated benchmark for products.94 The indirect costs, such as higher electricity prices, are included in the methodology to determine the carbon leakage list, under the presumption that it is possible to calculate them.95 An average emission factor of 0.465 CO2t/MWh is included above the direct emissions for calculating the product

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The whole sale prices in Western Europe are based on the principle of the marginal cost of the most expensive power plant at the moment of production in use and are thus not based on the average power mix, as included in the carbon leakage assessment. Another issue is that the main models (like the Primes, Gaines or PACE model) used for calculation of carbon leakage and the impact of going beyond the 20% GHG reduction targets, do not take into account the effect of indirect emission cost for the users of electricity, based on real electricity prices. European Commission, Commission Decision 2010/2/EU (determining, pursuant to Directive 2003/87/EC of the European Parliament and of the Council, a list of sectors and sub-sectors which are deemed to be exposed to a significant risk of carbon leakage), page 1, section 2. European Commission, Directive 2009/29/EC (amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emission allowance trading scheme of the Community, page 10, Article 10a(1). DG Environment, Methodology for the free allocation of emission allowances in the EU ETS post-2012 Sector report for the NFM industry; Ecofys, Fraunhofer and ko-Institut.

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benchmarks, based on the assessment of indirect EU ETS costs.96 This factor is the average physical CO2 emitted by electricity generation in Western Continental Europe. It varies from approximately 0.08 in France to 0.8 t/MWh in countries dominated by coal fired plants, and even to 0.9 t/MWh for self-generation based on coal.97 Currently, the cost pass through in Western Continental Europe is equal to 0.70 to 0.75 t/MWh.98 The cost pass-through in electricity prices is therefore approximately 150% of the comparable emission cost in that sector.99 The direct costs are covered by granting the emission allowances to the listed sectors 100% for free, based on the allocation rule and different benchmarks that will be determined per sub-sector. Therefore, the methodology to determine the product benchmarks is important for the NFM industry. This methodology takes in consideration the average performance of the 10% best performing installations in terms of emission efficiency in the sector as the starting point for setting ex-ante benchmarks. The benchmark values announced by the Commission for aluminium and pre-bake anodes for aluminium are 1,514 kg CO2eq./t and 0,324 kg CO2eq./t respectively.100 The other aluminium sub-sectors and other non-ferrous metal industries, such as copper, zinc and lead, will receive their allocations based on fall-back options. This is because it is difficult to determine the top 10% of well-performing installations, as the boundaries between the sub-sectors are difficult to determine. The spread of emissions within some sectors is huge, and the number of installations often too small, representing only 0.5% of the overall industrial emissions in the EU27.101 Another relevant point that came out of discussions with the NFM industry is that the latest EU ETS Directives and guidelines do not contain explicit support for recycling. The word recycling is not explicitly mentioned. Complex scrap that needs more energy to be processed and generates more CO2 emissions compared to clean scrap, could be unintentionally taxed by current rules for free allocations based on benchmarking. However, the latest information received from the European Commission is that the voted draft decision defines emissions from recycling activities as process emissions by making reference to secondary materials. This would ensure that more emission intensive recycling activities should receive larger free allocations. Several fallback approaches were suggested as a fallback: the Heat benchmark value, the Fuel benchmark value and the Grandfathering proportionality factor. The last two approaches are relevant for NFM installations, apart from aluminium which has its own
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P. Capros et al., Model-based Analysis of the 2008 EU Policy Package on Climate Change and Renewables, E3MLab/NTUA, June 2008. International Energy Agency, Emissions trading and its possible impact on investment decisions in the power sector, author: Julia Reinaud, 2004. International Energy Agency, Emissions trading and its possible impact on investment decisions in the power sector, author: Julia Reinaud, 2004. The average emission level per MWh in the power generation sector is between 0.47-0.50 tonnes. The average cost passthrough in the electricity price equals the value of 0.7-0.75 tonnes of EUA per MWh. This means that the increase in value of the generation electricity output is approximately 150% of the quota cost in the power generation. European Commission, (draft) Commission Decision of [] determining transitional Union-wide rules for the harmonised free allocation of emission allowances pursuant to Article 10a of Directive 2003/87/EC, version 15 December 2010. DG Environment, Methodology for the free allocation of emission allowances in the EU ETS post-2012 Sector report for the NFM industry; Ecofys, Fraunhofer and ko-Institut.

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product benchmark.102 In October 2010, the Commission (DG Climate Action) announced the product benchmark methodology and benchmark values for the different approaches. In the Commission Decision and the accompanying Impact Assessment of the Decision, the fuel benchmark value is defined as the amount of CO2 emissions per unit of fuel (natural gas) usage, with a value of 56.1 tCO2/TJ. Furthermore, it would cover also process emissions allocated on the basis of 97% grandfathering of the CO2 emissions included in the EU ETS.103 Also, the fuel benchmark value for natural gas usage makes no exemptions for situation where companies are far from gas grids or where the industrial process functions better on another fuel. Consequently, installations that use coal/oil in areas with no gas, or where gas is not the best fuel to use, have to buy a substantial amount of allowances. There is therefore an increased potential for carbon leakage in remote areas and in the case of complex metals recycling. Article 10a(6) of the Directive contains measures aimed at preventing carbon leakage effects due to direct and indirect costs of the EU ETS. It also makes it possible for Member States to compensate the most electro-intensive sectors, for which NFM subsectors could qualify. These sectors could thus be compensated for higher electricity prices as a result of the EU ETS via national State aid measures.104 The Commission is still working on the Environmental State Aid Guidelines. One could legitimately ask whether an international climate agreement, particularly an international cap-and-trade system for greenhouse gas emissions, will reduce or prevent the carbon leakage risk for European energy-intensive sectors in light of the different structures and regulation of the global electricity market. It is more likely that CO2 costs would be passed on in a deregulated electricity market like in the EU, than in a regulated market, such as China, Iceland or the Middle East. In such markets these impacts are normally be averaged out and industries often enjoy long-term power contracts which are not affected.105 106 A number of studies107 emphasise the relocation of production as a potential consequence of carbon leakage under the EU ETS. However, it is difficult to assess this impact as the counterfactual is not easily defined. It would be difficult to attribute the relocation of production solely to the EU ETS, as it is mostly included in the energy price. At a regional level aluminium smelters are differentiated mainly by energy and labour costs. Other costs like capital or raw materials are either global, or linked to specific sites or plants, like logistics cost or energy efficiency. However, the decisive cost factors in this
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European Commission DG Climate Action, draft COM Decision (version 15-12-2010. European Commission DG Climate Action, EC Impact Assessment Commission Decision on determining transnational Union-wide rules for harmonised free allocation pursuant to Article 10a of Directive 2003/87/EC. A danger of this pathway could be that some MS will not have the financial capacity to compensate its industry with a further distorted EU level playing field as a consequence. Eurometaux, Implications of a global GHG reduction agreement for the risk of Carbon Leakage due to indirect emissions in the EU ETS, Eurometaux, March 2009. In the EU27, there is only one example of a long term agreement, i.e. Exeltium. It is a deal between EDF and major energy intensive industrial companies operating in France. Exeltium's long-term mission is to securitise purchases of electricity made by these shareholder companies. It has taken more than 5 years of negotiating to finally get the approval from the European Commission in 2008. Above, there is financing involved for an amount of 1.6 billion with a maturity of 9.5 years. E.g. IEA studies by Julia Reinaud (2006, 2008) on Competitiveness and Carbon Leakage.

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context are CO2 and energy prices, both linked to EU policy, EU ETS and liberalised energy markets. A possible policy solution that could partially prevent further economic damage to the industry is available only for CO2. Finally, uncertainty over the effects of the EU ETS and how it will be implemented at Member State level, and possible carbon taxes, could have a negative impact on investment decisions in the NFM industry. The pass through of the marginal costs of emission allowances into electricity prices at retail and wholesale level will strongly affect electricity prices and hence investment decisions. International comparison of climate change policies The EU ETS is currently the first and only binding trading system in carbon credits with a carbon price in the world. There are some legally non-binding carbon credits initiatives outside the EU, including the following: Several initiatives to reduce emissions were put in place at State level in the US. For instance, in 2006 the California Legislature passed the California Global Warming Solutions act. There is also an ongoing debate over whether a mandatory federal emission cap-and-trade system for GHG emissions should be introduced by 2015. According to the Point Carbon 2010 market report, the establishment of an US ETS trading system is a long way off, in part because the US has not yet ratified the Kyoto protocol.108 However, it seems that an US ETS trading system will not be passed through the US Congress, but via mechanisms such as regulations. These objectives will probably be achieved under the US Environmental Protection Act, which will hamper the US NFM industry in another way; Other countries and regions are also investigating the possibility for national or regional cap-and-trading systems for greenhouse gas emissions. Examples are the New Zealand Emissions Trading Scheme launched in September 2008; the Australian Carbon Trading Scheme, originally intended to be introduced in 2012, but currently suspended; and a cap-and-trade system under consideration in Japan; In China discussions about the introduction of a permit-based emissions trading scheme to cut down the main pollutants are ongoing; In Russia there are no ongoing discussions about a trading system for greenhouse gas emissions; however, Russia ratified the Kyoto protocol in 2004. The initiatives implemented so far and those under consideration are not legally binding. Governments and installations are free to follow the trading system guidelines or not. Non-legal industry-based agreements may have a role to play in setting standards in global installations. Corporate social responsibility will influence decisions made by the major multi-national companies that operate in the NFM industry. For the NFM industry and all its sub-sectors, this means that non-EU competitors are not and will not in coming years be subject to legally-binding emission trading regulations. A successful voluntary global sector agreement on the direct emissions, the IAI sustainability initiative (Aluminium for Future Generations), is in place for primary aluminium. The agreement has resulted in a 33% reduction in fluoride emissions and 10% reduction in average smelting energy used by 2010 versus 1990 among the initiatives members. This covers

108

Point Carbon (2010), Carbon 2010 - Return of the sovereign, Point Carbon market report.

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more than 80% of world primary aluminium production.109 However, this voluntary agreement could be improved by including secondary aluminium producers and by actively involving the Asian installations as well. The above, does not mean that the costs for direct emissions are the same in all regions. Also, such a regime has a minor impact on the international playing field. If voluntary sectoral agreements with a similar cost impacts do not emerge in the near future, this will place the EU NFM industry in a less competitive position than the non-EU competitors. It is therefore important for NFM producers and other installations affected by the EU ETS, that a binding international climate agreement is negotiated. It is even more important to level the playing field with respect to the indirect impacts. Until that happens, policy measures should help to avoid carbon leakage and further damage to EU industry. The problem of regional differences due to the indirect impact of CO2 pass-through in electricity prices will not be solved and will remain a critical factor affecting the competitiveness of the NFM industry.

3.3
3.3.1

Energy policy and markets


Introduction The EU NFM industry, especially primary aluminium, is one of the most energy intensive industries in Europe. The sector is vulnerable to energy shocks, increasing energy prices and to policies like EU ETS aimed at reducing emissions. These represent real threats to its international competitiveness. However, the way in and the extent to which energy costs threaten the NFM industry, differs per sub-sector and segment. This depends on the energy intensiveness, the CO2 emissions profile split between direct and indirect emission levels and the level of energy efficiency of the relevant sectors. The EU NFM industry as a whole has reached a high level of efficiency. The copper industry, for instance, decreased its energy use by 50% since 1996.110 Looking at the energy use per kiloton production and kg CO2/t product per NFM sub-sector, the aluminium, zinc and copper sectors are significantly the most energy-intensive sub-sectors within the NFM sector, particularly primary aluminium smelting and copper and zinc cathodes.111 The following is therefore particularly relevant for these sectors. Primary smelting is the most energy intensive activity in the aluminium sector. The energy usage per tonne of product for refining is between 225-260 kWh, compared to between 14,000-16,000 kWh per tonne of product for primary smelting.112 Recycling aluminium scrap is significantly less energy intensive, while secondary re-smelting requires between 120-340 kWh/t product.113 The industry therefore argues that recycling

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Information retrieved from the IAI website: www.world-aluminium.org. European Copper Institute, Critical raw material > copper profile, ECI; and interview Mr. Graud Servin, Regulatory Affairs Manager, European Copper Institute. DG Environment, Methodology for the free allocation of emission allowances in the EU ETS post-2012 Sector reports for the aluminium sector and NFM industry; Ecofys, Fraunhofer and ko-Institute. Idem. Idem and based on EAA 2009 data.

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activities should be separated from the aluminium activities listed under the EU ETS and the product benchmark for the aluminium sector. Primary smelting of cathodes is the most energy intensive within the value chain for copper products, barring mining, and emits about 1,140 kg CO2/t product. Secondary smelting and refining of cathodes as in recycling emits about 310 kg CO2/t product.114 For wire rod and anodes, these numbers are 85 kg CO2/t product and 270 kg CO2/t product respectively. Energy and CO2 via EU ETS are major components of the cost structure of production.115 The costs structure of primary aluminium smelting can be disaggregated to alumina at 37%, energy at 34.8%, strategic raw materials such as carbon at 12.3%, labour at 9.8% and other costs at 6.1%.116 Energy and strategic raw materials constitute 47% of the production costs of primary aluminium. The cost structure of primary smelting of copper cathodes, excluding raw materials costs, can be disaggregated to energy costs at 25-34%, labour costs at 23-36%, capital costs at 20-27%, and other costs at 15-21%, leaving a small margin. Outside the EU27 the energy and labour costs of primary copper production is lower and the costs of environmental standards negligible. This is also true for zinc.117 Summary of trends in electricity prices The International Energy Agency (IEA) shows that electricity retail prices for European industrial users have, over the last 20-30 years, typically been higher and less stable than in other major industrial countries such as the US, Canada and Russia.118119 In 2004, electricity retail prices for the downstream industry in the US and Canada were 35-40% lower than in Europe, and Australian electricity prices 25% lower. In 2004 electricity prices in Russia were around 60% lower than in Europe, giving Russian producers a massive cost advantage.120 The price of electricity in, for example, the US was flat or fell between the mid-1980s and early-2000s. In the EU, electricity prices climbed steadily and peaked in the early-1990s before falling back to reach its mid-1980s level in the early-2000s. Since the early-2000s, these differences have widened further. By 2007, US producers paid close to half the price for electricity compared to their European counterparts, while the cost to Russian producers was still just a third of that faced in Europe. Even in Japan, where the price of electricity was almost three times that in Europe in 2000, the gap was closed and in 2007 electricity prices in Japan were on a par with those in Europe.121

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Idem and based on ECI 2009 data, numbers are calculated as a quotient of total direct CO2 emissions and total production. The conversion costs references and implications for copper are also valid for zinc. Data from EAA (2010) and sourced by CRU. Data from ECI (copper profile, 2010); Note: the presented cost structure analysis is purely qualitative and the numbers are orders of magnitude more than anything else, based on independent consultant data provided by Brook Hunt (2004-2007). International Energy Agency (2010), among others: IEA Statistics: Electricity Information, 2010 edition and IEA Statistics: Energy Balances of OECD countries, 2010 edition. Wholesale prices are only used over the last 10 years (hand in hand with the liberalisation of the energy markets. However, for this period, we see the same kind of trend as for retail prices. International Energy Agency (2010), IEA Statistics: Electricity Information, 2010 edition International Energy Agency.

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Summary of recent developments in the energy market Electricity prices within Europe changed drastically over the last five years. An important reason is the indirect EU ETS cost,122 the pass-through of emission allowance costs into electricity prices. There was a pass-through of 0.70 to 0.75 tCO2/MWh into the electricity market price. This was true even in countries where the power industry received free allowances for all their emissions, a common practice for the first EU ETS period, 20052008. Therefore, the cost of CO2 emissions is part of the marginal costs of electricity producers. Other reasons for the increase in electricity prices relate to the partial liberalisation of the energy markets. Many of the Western European national markets, the power exchanges, are now linked to each other. They may refer to a higher reference price, as the price mainly reflects the marginal cost of the most expensive operated power plant in one of the coupled national markets (better known as the marginal pricing system)123. Important factors affecting electricity prices include: 1. The market power of the incumbents;124 125 2. The interaction between inflexible energy demand and flexible energy supply in the energy market; 3. The fluctuations in prices of fossil fuels. The EU started to liberalize the energy markets in 2000 and opened them up in 2004. Since then the prices of energy, specifically the prices of electricity, have fluctuated heavily, showing a sharply upward trend.126 Opening up the gas and electricity markets to competition aimed at increasing the efficiency of the industry and the competitiveness of the EU energy sector. EU industry associations in the EU differed considerably about the impact of the liberalisation of the energy sector. Some representatives claimed that market liberalisation brought about substantial benefits. Others called for regulatory harmonization and consistency between Member States. NFM industry representatives thought that market liberalisation, restrictive conditions for the negotiation of long term contracts, and marginal prices with CO2 cost pass-through, did not reduce prices. High and volatile electricity prices further lead to closures and disinvestments from the EU NFM sector.127 Due to such concerns the Commission conducted the Energy Sector Inquiry in 2007, which concluded that there were severe market distortions and too much market concentration in most national markets.128

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Platts (2010), figures about correlation between electricity prices and CO2 prices within the EU27 provided by Eurometaux. The marginal pricing system in the Western European wholesale electricity markets is a system that is based on the marginal cost of the most expensive power plant in operation (at a given time) and not on the average cost of their portfolio of power plants (in operation at a given time). European Commission, Energy Inquiry concerning severe distortions of the energy markets, 2007. The market power of incumbents in combination with fluctuating prices of fossil fuels could be used to impose prices at power exchanges by the incumbents and their traders, predominantly determined by their CO2 opportunity costs. Even the biggest electricity users cannot negotiate these set prices in general. Rademaekers, K., Slingenberg, A. and Morsy S. (2008), Review and analysis of EU wholesale energy markets, DG TREN. www.euractiv.com/en/energy/liberalising-eu-energy-sector/article-145320. European Commission, EC Sector Inquiry into the competition in gas and electricity markets, pursuant to Article 17 of Regulation 1/2003 EC, started in 2005 and published in January 2007.

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The main problem arising from the liberalisation of the energy markets in the EU is that the national markets were and still are dominated by the incumbents. In most EU countries, big users have no alternative but to use existing energy suppliers as only these have the capacity to meet their needs. The European energy market is waiting on more capacity in the hands of more suppliers and further investments in transport and interconnection capacity. The question remains as to whether such changes will exert downward pressure on the electricity price? Power exchanges began to develop because of liberalisation. In the beginning, these exchanges reflected the portfolio of power plants in their home markets and prices could differ significantly between countries. Since the pairing of the power exchanges between European countries129, price differences between these countries have become marginal.130 Electricity prices were in most markets levelled upwards rather than downwards on these trading floors, reflecting the marginal cost of the most expensive power plant and thus representing a disadvantage to the consumer.131 It means that, for example, the trading price will reflect the marginal cost for producing the electricity by the most expensive power plant in use. This will hold even though most power plants in Europe are amortized or for France where the base loads is produced by nuclear power plants at a low cost. In Western Europe power contracts for upstream NFM companies are generally based on the wholesale market price.132 The wholesale market price is generally used as a reference or an index in the contracts with the big users. Contractual negotiations focus on the duration, limitation in annual increases for the duration of the contract, flexibility and interruptability issues, and the provision of usage information to the supplier. Most of the time, therefore, a power price paid by the energy intensive consumer, is based on a national wholesale power price index plus some extras which are case specific and negotiable. For that reason a comparison of the wholesale power markets gives a good indication of the international competitive position of our energy intensive industries, including the upstream copper and aluminium companies. Table 3.1 shows the yearly average base load spot price for Germany (EEX, since 20082009 EPEX Germany) 133, France (Powernext, since 2008-2009 EPEX FR), Italy (IPEX or GME)134, the Netherlands (APX)135, the UK (APX UK)136, the Scandinavian countries

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Examples of pairings are between Netherlands (APX-ENDEX), Belgium (Belpex), France (Powernext) and Germany (EEX) EEX and Powernext are now working together under EPEX (the European power exchange), a 50/50 % joint venture. Could we argue then that prices would have stayed low if there was no market coupling? Probably not or maybe that these price increases would have gone slower? However, it is difficult to make statements as there is not enough independent research done in this field for the time being. What will happen for example if France and Italy will be coupled? Will the French wholesale electricity prices increase up to the level of the current higher Italian wholesale electricity prices? An interesting study is Why (and how) to regulate power exchanges in the EU market integration context, Leonardo Meeus, Energy Policy 39 (2011) 1470-1475. The study starts by saying that the European Union (EU) market integration is leading to increasingly monopolistic electricity market infrastructure. It concludes that the reinforced market power exchanges could be tempered by enhancing transparency requirements, by introducing governance rules to prevent that the cooperation among power exchanges could become closed cartels and by continuing to allocate physical long term transmission rights. Although the European electricity market is not equally divided among exchanges, Over The Counter trading and bilateral contracts in terms of volumes, the prices indicated at these Exchanges are leading as a reference and are thus a good indication of the prices paid for the physical power component by the energy intensive industries in these countries. EEX stands for European Energy Exchange. IPEX stands for Italian Power Exchange; GME for Gestore Mercato Elettrico. APX stands for Amsterdam Power Exchange. Established in 2000 as Britains first independent power exchange (formerly named UKPX).

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(Nordpool) and Spain (OMEL)137. These average spot prices give a good indication of the power prices paid by the energy intensive companies in these countries138. Given the increasing coupling of EU power exchanges in Germany, France and the Benelux countries, price differences between these countries are decreasing.139
Table 3.1 Yearly Average Base-load Spot Price for electricity (in /MWH, except for the UK) Power Exchange EEX (EPEX D) Powernext (EPEX FR) IPEX (Italy) APX NL APX UK (in /MWh) Nordpool Omel 2002 22,63 21,12 N/A 29,91 15,23 26,91 38.21 2003 29,49 29,22 N/A 46,47 18,23 36,69 29,74 2004 28,52 28,14 51,60 31,58 21,29 28,92 28,46 2005 45,98 46,64 58,59 52,39 35,60 29,33 54,78 2006 50,79 49,25 74,75 58,10 37,75 48,59 51,53 2007 37.99 40.82 70,99 41.92 27,94 27.93 39,34 2008 65,76 69,15 86,99 70,0 68,91 44.73 65,89 2009 38.85 43,01 63,72 39.2 36,92 35.02 38,06 2010 44,49 47,50 64,12 45.3 41,78 53.06 45,0

Source: Rademaekers, K., Slingenberg, A. and Morsy S. (2008), Review and analysis of EU wholesale energy markets, DG TREN + websites of the different power markets.

The linkages with the energy sector and the EU ETS further resulted in increased electricity prices for the energy-intensive industries and other final energy users like households. The introduction of the EU ETS in 2005 resulted in free windfall profits to the energy sector. Emission allowances were granted to the energy sector for free in the first period, while the sector could pass through the opportunity costs, or the market price of emission allowances, to its users, mainly the energy-intensive industries like the NFM sector.140 The energy demand of energy-intensive industries is inelastic, and electricity producers in the EU face insufficient competition to pressure them to absorb higher costs. Consequently, the energy sector passed on the additional costs associated with the ETS to users, something which is still prevalent today and as a result of which the NFM sector faces high if not unaffordable electricity prices.141 The rise of renewable energy sources (RES) in the electricity supply market should reduce the wholesale prices of electricity in the long term, but simultaneously increase the total supply costs of electricity due to increased grid tariffs. Currently about 15% of the total electricity supply in Europe comes from renewable sources. However, the share of renewable electricity varies substantially between EU Member States. Therefore, costs for green certificates, levies for feed-in tariffs, grid costs and other additional costs will become increasingly important in energy intensive industries like the NFM sector. It will be important to find a system which promotes RES and limits the extra costs to the
137 138

139

140

141

OMEL stands for Operador del Mercado Ibrico de energa. Other factors can play a role (like for example the position of the incumbent and its portfolio of power plants or the negotiation power of the company). Also important is the power consumption profile: aluminium smelters for example are using base load due to their constant consumption of power (and in theory they could cover most of their needs by forward contracts). l France is an exception, where the members of Exeltium pay a base load price which is lower than the current base load price in the market (not taking into account the administrative cost and the cost for the financial structure of Exeltium). Ellerman, D. and Joskow, P. (2008), The Europeans Emission Trading System in Perspective, PEW Center on Global Climate Change. The sector is afraid that prices will just continue increasing, taking into account the higher cost of renewable energy (due to the set RES targets per MS) and the expected investments in the grid system.

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energy intensive industry taking into account the philosophy of an EU-wide level laying field. Another aspect for the high electricity prices is energy contract price setting and negotiating processes between the energy sector and producers in the electro-intensive industries. The amount of negotiated contracts decreased significantly, mainly because the negotiable margins of long-term contracts for users was limited. Generators do not offer them on the market and the contracts refer to the indices on the power exchanges (i.e. wholesale prices). Furthermore, the sheer domination of the electricity incumbents on the market, the short-term nature of the electricity markets, the CO2 related uncertainty and the difficulties with long-term contracts (see supra) influence the pricing and negotiations of electricity contracts. The trend over the last five years is that short(-er) term energy contracts are negotiated between energy suppliers and consuming industries.142 The main reason is that European legislation does not promote long-term energy contracts to prevent market foreclosure. At the same time, especially electricity producers, used and still use the law as an excuse, even though it is no longer compulsory, to limit the duration of energy contracts as a result of market risks (e.g. hedge trading) and market insecurity.143 Current energy contracts after the energy market opening with industrial producers (incl. NFM) are short term (1-3 years); they are indexed to the wholesale oil, gas or even coal prices and are very flexible.144 The use of the concept of all-in contracts (one price for all services) was reduced remarkably, driven by preferences of energy producers and most industries. Of particular current interest to industry, is a take-or-pay contract, which means that for example 70-80% of the yearly energy capacity needed is bought via energy contracts, and the remaining demand is bought in the over-the-counter market or on the power exchange. This provides the industry the flexibility to tune their energy supply to their demand, a flexibility that was of value during the recent economic crisis.145 Measures to improve power market functioning with the aim to create a fair competition, should be supported. The current framework for electricity markets does not deliver the prices required by NFM industries to remain competitive compared to industry elsewhere.

142

143

144

145

Electro-intensive industries (EII), in most places, source their electricity through long term contracts which provide a sound basis for their large, long term, capital investments. As electricity constitutes a very high per cent of the total production costs for a smelter, the ability to obtain a predictable and affordable electricity cost is essential. EII need freedom to negotiate 20-25 year contracts with all available electricity suppliers, the requisite time to amortize significant investments in renovation of EU smelters, to remain internationally competitive. Normally, these contracts are for fixed volumes with flat deliveries (base load) every hour throughout the whole delivery period. Usually, contracts cite a reference price that can be adjusted by relevant indices (consumer prices, LME, etc.) to balance risks fairly and affordably between buyers and sellers over the longer term. In France, seven main French energy-intensive producers united themselves under the Exeltium consortium. They achieved in 2004/2005 to apply for an overall energy contract of 15 years against a fixed electricity price. DG Competition in the end gave its approval. CEEPR (2008), Long-term Energy Supply Contracts in European Competition Policy: Fuzzy not Crazy, Centre for Energy and Environmental Policy Research. Flexibility and short term contracts do have a downturn: when energy prices are increasing drastically, it is of course more interesting having a long term all-in contract with a fixed price. When in 2004 markets became liberalised different industrial companies moved from their historical long term contracts to short term contracts with the idea that energy prices were going to decrease.

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3.3.2

Impact and international comparison Energy (especially power) constitutes a large proportion of NFM primary production costs and changes in electricity prices thus have major impacts on the competitiveness of the NFM industry. Part of this impact results from the EU ETS (discussed in the previous section); the other part results from the energy market and its policies itself (discussed in this section). The major impacts of electricity prices on the competitiveness on the NFM industry are the following:

Increase of conversion cost of the industry: The cost share of energy in the production cost structure for the NFM industry; particularly aluminium, copper and zinc are significant. For copper and zinc, the conversion cost share for energy is between 25-36% (excluding raw material costs), while for aluminium the conversion cost share is 35%146 (with raw material costs). Given that an aluminium smelter should pay full European market prices of approximately 60 EUR/MWh (incl. grid cost), this would take approximately 50% of gross production value (2,300 USD/tonne). Therefore, increases in the electricity price has a significant impact on the production costs for these sectors, especially since the aluminium and copper sectors cannot pass on their (increased) energy costs to downstream users due to global trading via the LME (see also the EU ETS and trade sections); Relocation of NFM activities outside the EU: In general terms, uncertainty and insecurity around energy supply constitute a serious threat to the industry, especially for the most energy-intensive activities. This threat can potentially lead to further relocation of NFM activities outside the European borders to regions with lower energy costs and lower environmental compliance costs (see discussion on international comparison). However, there are several advantages opposing the high energy costs to maintain the NFM business activities within the EU. Among them are: not really the relatively stable market in the EU (in terms of energy market regulation compared to e.g. China or Russia) as for smelters, there is only a global market, no regional one; the high productivity rates and energy efficiency of European smelters; European-based production increases security of supply throughout the value chain; European producers are nearby their market for NFM products; and the high labour standards within the EU compared to competing regions (e.g. China and Russia) and the EUs general social stability. Therefore, the economic trade-off between relocating activities outside the EU versus continuing business activities within the EU is difficult to determine but it seems to be in favour of continuing European NFM business activities if the concerns and issues around energy and the EU ETS will be solved, particularly for primary aluminium, copper and zinc; Malfunctioning of the EU energy market and: Due to various national energy policies, domination by incumbents and insufficient competition, electricity prices vary still considerably across the EU. This puts smelters in countries with higher prices at an even greater disadvantage versus production outside of Europe. The reason why wholesale power prices in general are not decreasing (with stable fuel
EAA presentation, CRU.

146

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prices), when markets get more liberalised and coupled (like the Benelux, France and Germany), is basically due to the marginal pricing system. There are no straightforward or easy solutions to change this situation. First of all, it would be good to increase the transparency requirements on these wholesale markets but probably more efficient will be the introduction of governance rules among power exchanges (and thus to prevent them of forming cartels). More drastically, will be to oblige every member state to organise his power exchanges by cost-of-service regulated or in other words, the power exchanges will become not-for-profit or regulated-profit institutions with their fees approved by the regulator. The most farreaching solution is the creation of a system with more players in each market (minimum 5) each with a reasonable percentage of generation capacity (>10% and max 20%). International comparison of energy policies The main differences between the Western European energy markets and the markets in competing regions for the NFM industry relate to: market liberalisation, market harmonisation, price regulation and availability of energy sources. These differences are elaborated in the next paragraphs. In most of the competing regions for the NFM industry, the energy markets are not liberalised and long-term power contracts a marketable practice, while it is the opposite in the EU. In different regions the EU is competing with, the energy generation and supply installations are (partly) state-owned. Therefore, it is suspected that there is governmental involvement in the energy sector, meaning that the electricity price could be regulated.147 Table 3.1 on the wholesale prices does not show any power exchange in other countries than in Western Europe as these exchanges do not as such exist for the time being in other continents. In the US for example, the biggest operator PJM148 is using LMP (local marginal pricing) and another power market, the Californian Power exchange, ceased to exist in January 2011. Asian power exchanges are being developed but still not mature (the Indian Energy Exchange became operational in 2008) or not deregulated (regional Chinese power exchanges or the Korean Power exchange which has only 1 buyer, Kepco). For that reason, we refer to some figures from CRU.

147 148

www.steelorbis.com/steel-news/latest-news/china-to-investigate-electricity-prices-in-domestic-industry-540890.htm. PJM is a Regional Transmission operator and currently the biggest competitive wholesale power market in the US. Pricing is often done by Local Marginal Pricing or nodal pricing which means that theoretical prices of electricity at each node on the network is a calculated "shadow price", in which it is assumed that one additional kilowatt-hour is demanded at the node in question, and the hypothetical incremental cost to the system that would result from the optimized re-dispatch of available units establishes the hypothetical production cost of the hypothetical kilowatt-hour.

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Figure 3.1

International comparison of electricity prices for aluminium smelters for 2009 (in /MWh)
55 50 45 40 35 Euro/MWh 30 25 20 15 10 5 0 MiddleEast CIS Asia* UnitedStates China EU27**

Source: Own calculations based on CRU data and information from stakeholders * The figure for Asia does not include China ** The figure for EU27 is an average for the aluminium smelters in Western Europe (excluding Norway and Iceland)

For 2009 which was a special year due to the economic crisis the average base load spot price was around 40/MWh for most Western European markets (EU27). We estimated that EU aluminium smelters (on average) paid slightly more than 50/MWh. Compared to the 2009 international average power tariffs from CRU149 (USA: 26/MWh, Asia: 24/MWh, Middle East: 15/MWh, CIS: 17/MWh, China: 42/MWh) we can conclude that the aluminium smelters on the European continent pay often more than twice the price for their power compared to their international competitors. Only exception could150 be China where due to a lack of power capacity (given the increasing demand), power prices increased heavily over the last three years. Also important is to make a distinction between countries where energy intensive companies can fall back on self-generated power. In Europe for example, only 10% of the used power is self generated; in Asia, the USA and the Middle East it is more than 80%. Prices for self generated power are on average more than 30% cheaper compared to purchased power. The wholesale market power prices give a good indication of electricity prices paid by the primary energy intensive industry in Europe. However, for those smaller and less energy intensive companies situated further down in the value chain, retail prices are more appropriate. Table 3.2 gives an international comparison of electricity retail prices for the industry. As most data are coming from one source (the IEA) there is comparability between these data.
149

150

The power tariffs published by CRU in their aluminium Smelter 2010 Edition for Europe is not representative for the EU27 as it is a volume based average for all European smelters (thus also taking into account the smelters in Norway and Iceland which have low prices and long term power contracts). CRU, Aluminium Smelter Power Tariffs 2010 Edition (own calculations on the basis of a slide of the executive summary). We put it in a conditional way as power pricing mechanisms in China are not transparent enough.

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Table 3.2

International comparison of electricity prices for industry (retail prices) Electricity prices for the industry in 2009 Region
1 2 2

151

Electricity prices for industry (USD/KWh)

Electricity prices for industry (EUR/MWh) 110 .77 50 .15 54 .63 68 .11 52 .01 115 .69 42 .37 100 .86

EU27

0 .1511 0 .0684 0 .0745 0 .0929


4

United States
3

China (Taiwan) India

Russia Japan Korea


2

0 .0708 0 .1578 0 .0578

Turkey

0 .1376

Source: IEA 1 Average calculation based on IEA data (Key World Energy Statistics 2010) for the EU27 Member States. 2 IEA data (Key World Energy Statistics 2010). 3 Data sourced from Central Indian Electricity Authority (2009). 4 Figure based on estimate of Russian Federal Service on Tariffs and Regional Tariff Service.

Looking at the retail prices in Table 3.2, we can conclude more or less the same message as for the wholesale prices: prices in EU27 are, on average, twice as high as in the US, Russia and Asia (except for Japan). Some of the above mentioned differences are based on particularities in the specific competing countries. A major competitive advantage for Russia and the countries in the Middle-East is their dual pricing strategies, particularly for the NFM downstream installations.152 The dual pricing strategy means that different prices for electricity are charged for domestic users and export oriented industries. In Russia and the UAE, this pricing strategy is observed for gas (e.g. Gazprom). Besides that, there are no taxes levied on electricity and gas in these countries, compared to the high level of taxation in the EU Member States, but this zero taxing regime is also applied in Canada and the US. Internationally, it has been observed that various emerging economies, besides Russia and China, have risen as strong competitors to the EU and to the US, particularly SouthAfrica and Bahrain. These countries have a better proximity to raw material supplies compared to the EU resulting in that these countries have access to much lower energy prices. For example, in South-Africa, there are large coal reserves, which is a relatively cheap energy resource (compared to oil or gas) for the production of electricity. However, the potential for power shortages in the sub-Sahara African countries, as a result of the poor energy infrastructure, makes the continuation of energy supply for smelters in these countries insecure and not reliable. Therefore, in these African competing countries, energy supply is an issue for smelters instead of high electricity prices. Similar issues

151

152

The presented figures are average electricity (retail) prices over 2009. Important to note here is that, as mentioned in the main text before, the energy contracts between energy suppliers and the electro-intensive industries are negotiated bilaterally and as such can have significant differences in terms of price determination. For the NFM upstream production dual pricing strategies are less relevant as in this segment of the value chain most of the energy contracts are negotiated bilaterally.

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have arisen in China more recently; where Government enforced power cuts due to power shortages have forced e.g. aluminium fabricators to cut their output.153 According to the United States International Trade Commissions report on Unwrought Aluminium, the increasing aluminium production in Russia is due to the low cost of electricity which is three times less costly than electricity prices in the US. In a similar manner, The United Arab Emirates and Bahrain use cheaper alternative sources of energy (natural gas). Iceland relies heavily on low-cost electricity from hydroelectric and geothermal sources and has witnessed an increase in its production in the past few years.154 The national policy of Iceland has emphasized electricity as a national priority area for development and exploitation.

3.4
3.4.1

Trade related issues


Tariff issues EU import duties for NFM differ. They are low, in several cases 0% for unwrought metals, with somewhat higher rates applying to semi-manufactured goods. The tariffs imposed on aluminium imports are highest, as shown in Table 3.3. Many countries exporting NFM to the EU, however, have gained import duty reductions or exemptions through the Generalized System of Preferences (GSP), or EU trade agreements. Under various free trade agreements, several countries have duty free access to the EU market. For instance, primary aluminium and semi-fabricates of aluminium are imported duty free from countries with which the EU has Preferential Trade Agreements (PTAs), such as Norway, Iceland, South-Eastern Europe (e.g. Bosnia and Herzegovina, Montenegro, Croatia) and Mediterranean countries (Turkey and Egypt) and from ACP countries (e.g. Ghana, Mozambique).

Table 3.3

EU tariff schedule relating to non-ferrous metal materials and products (range of applied tariffs) (%) Raw materials MFN Precious metals Copper Nickel Aluminium Lead Zinc Tin Other base metals 0 0 0 0-4 0 0 0 0 Unwrought metal MFN 0 0 0 3-6 2.5 2.5 0 0-7 MFN 0 0 - 4.8 0 - 3.3 5 - 7.5 0-5 5 0 39 Semi-manufactured products GSP 0 0 - 1.3 0 0 -4 0 -1.5 0 -1.5 0 0 - 5.5 Salts, oxides and other compounds MFN 3 - 5.5 3.2 5.5 0 - 5.5 0 - 5.5 3,2 - 5.5 4,6 - 5.5 4.1 0 - 5.5 GSP 0 0 0 0 1.7 0 0-2 0 0-2

Source: Annex 1 of Council Regulation No 2658/87, EU tariffs set in Combined Nomenclature.

153 154

Metal Bulletin, 07 September 2010 (www.metalbulletin.com/article.aspx?articleID=2662709&LS=EMS434045). United States International Trade Commission 2010, unwrought aluminium. Industry and Trade Summary. P. 42-43.

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Despite the existing tariffs, there is considerable import trade especially of unwrought metals, and imports have in fact been increasing in recent years. While tariffs may thus not have strongly impeded trade in these commodities, they provide some benefits to EU producers by raising the conversion margin by the level of the tariff. Thus, while in relation to the price of the commodities the duty is low; in relation to the conversion margin it can be quite significant. Third country tariffs (relevant to EU NFM exports) also vary considerably and while tariffs generally were reduced under the WTO, there are still important markets where duties remain and have even been increased again. In a recent working document on NFM155 it is indicated that relatively low duties exist in most of the EUs main export markets. However, the report also identifies a number of important markets where duties remain, such as Brazil, China and the US and India, Japan, Russia and South Korea. Russia in particular still retains high levels of import tariffs for some NFM, such as aluminium, precious metals and some specialty metals such as tungsten (up to 15% NFM tariffs for specific product codes). Although probably not the only factor, these persisting duties likely explain in part the low levels of exports to these countries, specifically in areas where the EU has a competitive advantage (e.g. semis). Countries like India and China moreover also have strong tariff escalations, reflecting industrial and trade policies aimed at supporting the development of downstream activities domestically by protecting them from imports. Next to these import duties, affecting EU exports, numerous countries notably Russia and China still maintain and in some cases have recently reintroduced export duties on raw materials and primary products (e.g. copper and nickel in Russia). Before considering in more depth these export restrictive and also non-tariff measures in third countries affecting the EU NFM industry, we first provide an assessment of tariff issues related to a specific sub-sector: the aluminium industry. Assessing the impact of tariff removal on unwrought aluminium In terms of EU import tariffs the regime applying to the aluminium sub-sector continues to be subject to debate especially in the light of the need to balance the interests of primary producers and downstream producers of semi-fabricates. Because of the importance of this issue, a separate assessment was conducted on this issue (see Annex D for the full assessment), reviewing the EU import duty regime for the aluminium sector and its impact on operations within the various value chain segments within the sector. The analysis seeks to provide an answer to the question whether further reductions should be made to EU import tariffs for aluminium. It examines the main grounds for the present regime of import duties for aluminium products. These grounds include, in particular, the need to compensate the EU industry for market imperfections resulting from e.g. relatively high costs of energy, stricter environmental regulations (ETS), maintaining the advantages of clustering along the value chain, and export tariffs imposed and subsidies provided in third countries. In turn, these interests have to be balanced with concerns about the competitiveness of the downstream EU aluminium industry.

155

Report for the Trade Policy Committee of 3 December 2010.

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The assessment is based on an analysis of available data on developments in production, imports and exports, the cost structure of the industry, and stakeholder consultations and interviews with industry representatives (see Annex E for a list of all companies and organisations interviewed). The main findings of the assessment of the EU tariff regime are the following: Under the current tariff regime, primary aluminium production in the EU has not grown; investments to expand production have taken place outside the EU as also illustrated in Chapter 2 of this report, and the EU demand for primary aluminium is increasingly met by imports. The question whether without tariffs aluminium production would have declined, or will decline, cannot be answered without being speculative. We are concluding that the grounds for having import tariffs are not very strong. The cost of electricity is viewed to be one of the main issues that are compensated for by means of import duties. However, using import tariffs as a form of compensation for high energy costs does not address the basic competitiveness issue of the high cost of energy for EU producers; addressing this issue is best done through an appropriate EU energy policy and policies to address the ETS implications; While duties on primary aluminium raise revenues for primary producers, they also raise the costs of inputs for downstream producers. A considerable share of primary aluminium is imported duty free into the EU (65% in case of unalloyed primary aluminium and 85% in case of alloyed primary aluminium). However, for all semifabricate producers, the cost of aluminium includes the cost of duty irrespective of its origin. A somewhat simplified calculation suggests that reducing the import duty tariff by 1% (or EUR 15 at a price of EUR 1,500) would result on the one hand in a loss of revenue for the primary sector of EUR 45 million, at an EU production level of 3 mt. On the other hand, it would reduce costs in the downstream sector by EUR 117 million, given that 7.8 mt of primary aluminium are consumed by the producers of semi-fabricates. Semi-fabricate producers outside the EU that have duty-free access to the EU or have GSP preferential treatment have a cost advantage compared to EU producers of semi-fabricates, because they pay less for primary aluminium; Proposals for tariff reforms were presented by different segments (upstream and downstream) of the industry. They propose aluminium import duty reductions, although the extent and time scheduling differ. In the light of the ongoing trend towards liberalisation of trade, and the limited effectiveness of the tariff instrument to compensate primary producers for EU cost disadvantages, further reductions in the EU import tariff for aluminium will improve the competitive position of the EU producers of semi-fabricates. Simultaneously, there is a need to address the factors that distort the level playing field for EU primary aluminium producers, such as those raising the cost of electricity in the EU; The EU secondary aluminium industry faces competition from Ukraine, China and Russia where secondary producers have access to scrap at lower costs on account of export restrictions. The EU secondary industry operates with small processing margins. Consequently changes in import duties and resulting changes in prices will have an important impact on these margins and the profitability of the secondary aluminium industry. However, as secondary alloyed aluminium prices are correlated with primary aluminium, and as it is difficult to determine the physical difference between primary alloyed and secondary alloyed aluminium, it is recommended to

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maintain the parity in import tariff treatment between primary and secondary aluminium alloys. At the same time, appropriate policies to improve the supply of scrap for EU processors should be designed and implemented. The Raw Materials Initiative (RMI) is an important step in this direction, as argued elsewhere in this report; In considering reductions in tariffs on primary aluminium, one also needs to consider the tariff on imports of aluminium semi-fabricates (7.5%). It is clear that reducing tariffs for semi-fabricates, to the extent that they are passed on in the form of lower product prices, would result in reduced costs for downstream users, such as the automobile industry, building and packaging.

Finally, it must be noted that it is difficult to isolate the impact on imports and production of the 2007 partial suspension of the autonomous customs duty for unwrought unalloyed aluminium from 6% to 3%; the data suggests that these effects were modest. Since 2007, changes in imports and production have broadly followed developments in demand by downstream industries which were dominated by the effects of the global economic crisis.

3.4.2

Non-tariff issues While tariffs in the NFM sector are generally speaking low and have decreased over successive GATT rounds, non-tariff measures (NTMs) are still an issue and have gained in relative importance. NTMs are often harder to address in the context of trade negotiations, as they require a certain harmonisation in areas that countries tend to see as sovereign policy areas. The EU has set ambitious targets with respect to NTMs, within the WTO and in its bilateral and regional trade negotiations in which it seeks to achieve comprehensive and deep agreements that include notably the (mutual) removal of NTMs. The key non-tariff issues for the NFM industry relate to: technical barriers to trade (TBT); customs procedures; restrictions on primary and secondary raw material exports in third countries (directly impacting the industrys access to raw materials); state support and competition policy; and intellectual property rights (IPR). TBT and customs procedures TBT do not seem to be a major issue for the sector at this point, although there appear to be some customs procedures and non-written procedures in Russia and China156 that add cost to imported products into these countries, thus favouring local producers. This includes e.g. complicated and costly verification of performance criteria for standards in third countries. With regard to imports of raw materials, REACH compliance and customs procedures related to waste shipments may complicate (delay, add costs, etc.) the imports of secondary raw materials, in particular. While no hard data on this exist at the moment, this would be an issue for monitoring.

156

Working document of the Trade Policy Committee, December 2010.

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Access to raw material from primary and secondary sources As has been highlighted already in the previous parts of this report, as a net importer of energy and non-energy (raw materials) inputs, access and availability of raw material for EU industries, including metallic minerals, are a major concern for the EU. Raw materials come from primary, but increasingly also from secondary (scrap) sources. The rise of emerging economies and their industrialisation has resulted in an increased demand for raw material supplies. Coupled with an uneven natural distribution of raw material across the globe, countries compete for raw materials resulting in higher and more volatile international prices. Moreover, several of the countries that possess mineral reserves have tended to move further downstream, increasingly refining and processing the ores and concentrates domestically, moving towards higher value added exports. While the EU NFM industry has a competitive edge with regard to scrap recovery and refining from industrial waste and end-of-life products, it has become a net exporter of scrap, mainly due to strong demand from, notably, China and to a lesser extent India. Thus while it is generally true that EU exports tend to be more in downstream semimanufactured and manufactured products (higher value added) overall export volumes of the EU are increasingly dominated by scrap exports. For instance, 50% of aluminium scrap produced in the EU in 2009 was exported157 and shares for copper are similarly high. This trend is expanding towards precious, refractory and specialty metals as well.158 Chinese demand in particular for scrap metal is driving up prices for these raw material sources. The fact that State interventionist policies and import incentives imply lower cost and subsidies for Chinese companies (see next section), means they can afford higher prices and are thus less affected than EU producers by the price increases they trigger. The complexity of these non-tariff barriers to trade (or in other word the existence of an uneven global playing field) and the resource scarcity issues imply they need to be addressed in an integrated way through various policy avenues. In recognition of this crucial issue of access to raw materials (not just for NFM) and its relation to trade and efficiency issues (improving recovery rates), the Commission launched the so-called Raw Materials Initiative (RMI) in November 2008, presenting a new integrated strategy setting out targeted measures to secure and improve access to raw materials for the EU. This integrated strategy is based on three pillars: 1. ensure access to raw materials from international markets under the same conditions as other industrial competitors; 2. set the right framework conditions within the EU in order to foster sustainable supply from European sources; and 3. boost overall resource efficiency and promote recycling to reduce the EU's usage of primary raw materials and decrease the relative import dependence.159 The integrated approach means both intra-EU and external dimensions of the access to raw materials is being addressed and different policy areas are seen as instrumental in
157 158 159

EEA (2010). Working document of the Trade Policy Committee, December 2010. http://ec.europa.eu/enterprise/policies/raw-materials/index_en.htm.

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doing so. Thus the RMI considers both the trade related aspects of access to raw materials as well as intra EU efficiency and management of raw materials issues, in turn linking to areas such as innovation and R&D. In addition, the RMI incorporates both primary and secondary raw materials. As one of the priority actions under the RMI a common list of critical raw materials, in close co-operation with Member States and stakeholders, was defined and based on: 1. their significant economic importance for key sectors (particularly from emerging technologies); 2. high supply risks, taking into account political-economic stability of the producing countries, the level of concentration of production, the potential for substitution and the recycling rate; 3. environmental country risk, relating to the risk that measures might be taken by countries with weak environmental performance in order to protect the environment and, in doing so, endanger the supply of raw materials to the EU. The list of critical raw materials that was compiled on the basis of this methodology in June 2010 included 14 raw materials, of which 11 were NFM all belonging to the minor metals sub-group. The list also includes rare earth metals, which are not part of the NFM industry, but are sometimes used as inputs for NFM production and as such form a strategic raw material for the sector. This list is part of a longer series comprising about 40 elements, all of which the Commission is monitoring. It is therefore possible that more elements will be added to the list in the future and even base metals such as copper could be considered. Trade related issues (non-tariff issues) form an important factor for these critical raw materials, but also for most other NFM, as they restrict access to primary and secondary raw materials, putting upward pressure on costs, but probably even more importantly possibly threatening the development of new technologies and retention of value chain segments within the EU. The main issues relate to export discriminatory measures such as taxes, quantitative restrictions and dual pricing strategies by raw material exporters. The main culprits in this respect appear to be Russia and China, countries which also have a dominant position with regard to raw material reserves and production. Thus the impacts of their restrictions are acutely felt globally, but especially by the EU with its high dependence on imports of these materials, specifically precious and minor metals. Russia has severely restricted the exports of scrap metals, with the effect that since 2,000 there are virtually no copper scrap exports from Russia. This is done to secure supply for domestic industries and facilitate the upgrading of production along the value chain to higher value-added products. Russia has export taxes of up to 50% for aluminium and copper scrap. China has placed several restrictions on its exports of aluminium, copper, nickel, tungsten, molybdenum, rare earth metals and other minor metals and NFM scrap in order to limit access of other operators to these resources.160 The EU has argued that the
160

Commission Of The European Communities, Com(2008) 699, Communication From the Commission to the European Parliament and the Council The Raw Materials Initiative Meeting Our Critical Needs For Growth And Jobs In Europe. {Sec(2008) 2741}. P. 10. Brussels, 2008.

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barriers created by China to restrict exports of its raw materials will cost the EU companies at least EUR 20 billion on a yearly basis.161 Chinas restrictions on raw material export are currently examined by a WTO Dispute Settlement Panel. Other countries have also imposed various restrictive measures, for instance, between 2003 and the countrys WTO accession in 2008, Ukraine imposed a complete ban on exports of scrap of NFM.162 As illustrated in our analysis of trade in scrap metals in Chapter 2, increasing amounts of NFM scrap are being exported from the EU, whereas EU imports of scrap fell. This has resulted in the EU becoming a net exporter of e.g. copper scrap (net exports increased dramatically from approximately 120,000 tonnes to 890,000 tonnes of copper scrap in 2009) and aluminium scrap. The increase of scrap exports is a result of strong demand from other countries, notably China, but it is clear that a number of regulatory issues and measures that distort trade have contributed to this situation. For instance, the illegal shipment of waste and shipment of end-of-life products labelled as for re-use outside the EU have contributed to the loss of valuable scrap material. A number of important pieces of legislation are relevant for access to raw materials and particularly the import and export of scrap. These include the Raw Materials Initiative, mentioned above, as well as the WEEE, end-of-life vehicles and packaging regulations and the Waste Shipment Regulation. The specification of what is waste (end-of-life products) and what can be sold for re-use (second hand market) is a crucial distinction in this respect. The Waste Shipment Regulation requires Member States to check and verify whether waste exported to third countries is recycled in a (socially and environmentally) sustainable and efficient way. This has proven hard to enforce by individual Member States, leading some industry actors to label the Regulation as ineffective in practice. Another big issue is that of the illegal exports of waste under the guise of re-use. Considering the fact that there is a strong demand for scrap in the EU, but also the fact that EU recovery rates tend to be among the highest in the world and the circumstances under which recycling takes place are strictly monitored, such loss of scrap is considered highly wasteful from both an economic and potentially harmful from a sustainability perspective. State support for NFM sectors While outright state support (State aid) still takes place in some economies, since the 1990s, extensive restructuring programmes in Eastern Europe have reduced the incidence of such measures in these countries significantly. More recently, in the context of the economic crisis, State aid was provided to the NFM industry in several non-EU countries as part of large stimulus packages. Subsidies to the NFM industry offered by some foreign governments are increasingly indirect, but were found to place the EU NFM industry in a disadvantaged position vis--vis non-EU industry. Cases have been reported where subsidies of NFM downstream products have caused unfair competition with the EU market by imports from abroad. For example, Chinas stimulus programme for the NFM industry approved in 2009 supports technological innovation through a loan
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EUobserver.com Http://Euobserver.Com/884/28943, Accessed On 30-01-2010. Korinek, J & Kim, J. (2009) Export Restrictions on Strategic Raw Materials and Their Impact on Trade and Global Supply. Workshop on Raw Materials. P.21-25. OECD Headquarters Paris, 30 October 2009.

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subsidy program directed at speeding up the establishment of a national reserve system, and adjusting the industrys export rebate system.163 The recent Commission164 report on restrictive trade measures identified these stimulus packages as potentially disruptive to international trade as they often include, for example, buy local measures. China has introduced a specific stimulus package for NFM. Subsidies/compensations are not always applied directly to the NFM industry, but also indirectly through e.g. subsidies/compensations on energy, tax deduction policies, export subsidies, etc. For example, the UAE and Russia are practicing dual pricing for energy, where export oriented non-ferrous metal smelters (particularly aluminium smelters) have access to energy at a lower cost than industrial users producing for the domestic market, implicitly involving an export subsidy. Although the cost of electricity is relative high in China, strong government support means that this disadvantage can be contained; electricity price movements are smoothed and receive a degree of subsidy. This is probably most prominently illustrated by the fact that most Chinese primary aluminium smelters are fully owned by electricity companies. In recent years and as a consequence of the financial and economic crisis, a re-emergence of industrial policy can be discerned across the developed and emerging economies. Substantial stimulus packages were put in place as a way to encourage development of specific industries notably green or clean technologies or, in the direct aftermath of the crisis, to prevent further job losses in e.g. the car manufacturing industry. Thus extensive (prospective) public investments in clean energy technology for the 2009-2013 period was noted in China (up to USD 400 billion), the US (close to USD 140 billion) and Japan (around USD 75 billion).165 While these investments do not support the NFM industry directly, they constitute investments in important client industries for NFM producers including e.g. rechargeable batteries (Japan, US), and photovoltaic panels (China), and as such indirectly encourage production and technological development for NFM producers as well. While multi-nationally operating EU NFM producers with a presence in these countries may reap the benefits of such programmes if they are eligible as well, it is seen to put smaller EU based producers at a disadvantage. Other non-tariff issues Together with food processing industries and steel, the NFM is one of the industries most frequently targeted by trade restricting measures across the world. Seen as strategic and crucial to industrial and technological development, the NFM faces such measures as export restrictions (taxes, quota) subsidies and state support (direct and indirect) as discussed above, but is also frequently subject to dumping and trade defence measures, intellectual property rights (IPR) issues, investment measures and local content requirements. Below we briefly discuss a few of these. At present there are no trade defence instrument (TDI) measures against the EU NFM industry. On the contrary, the EU has TDI measures against NFM products imported from

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http://news.xinhuanet.com/english/2009-02/25/content_10894891.htm. Accessed on 08-06-2010. EC, DG Trade (2010) Seventh report on potentially trade restrictive measures identified in the context of the economic crisis (June September 2010). Economist. Picking Winners Saving Losers. Issue: August 7th-13th 2010, pp.47.

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foreign countries, essentially China. Measures are currently enforced on household aluminium foil, tungsten carbide, tungsten welding electrodes, molybdenum wire and aluminium wheels. As regards the latter, an investigation by the EC revealed that imports of Chinese aluminium wheels, used by car makers such as Renault and BMW harmed European producers: imports of Chinese wheels had increased by 66%, from 3.7 million units in 2006 to 6.1 million units by June 2009, and its market share had nearly doubled from 6.3% in 2006 to 12.4% in 2009. Such measures may increase with the current restrictions and subsidies for critical raw materials, as the EU assesses the impacts of such restrictions on its NFM sectors and value chains. EU NFM producers are capital intensive and technologically advanced. As such, intellectual property rights (IPR) issues are relevant to the core of their business many of the technologies used are proprietary. This means IPR infringement issues impact directly on the competitive advantage of these companies. It is possible to distinguish between two types of IP violations in the context of international trade and investments: 1. Patent infringements and violation of technology secrets; 2. Counterfeiting of trademarks and the piracy of work protected by copyrights. For NFM producers looking to invest outside the EU, particularly the first type of infringements poses a threat. This kind of infringement is particularly relevant to companies investing in foreign countries where they are more or less forced to disclose and transfer technology and intellectual property. In the case of China, for instance, the Government has developed industrial policies that aim to encourage the technological development of its indigenous companies and industries. Through such policies the Chinese Government, in essence, tries to further encourage and speed up the process of technology transfer that has often been associated with FDI. To this end it may ask investors to provide very detailed information about their installations up to design and technological specifications. Thus for EU companies looking to invest in China, it creates a substantial risk of imitation and loss of competitiveness and thus ultimately it forms a barrier to investments. In other cases, investment restrictions are more direct, with especially the mining sector being out of bounds for foreign investors.

3.4.3

Emergence of China and its impact on international markets and trade It is hard to consider global developments in the NFM industry and specifically in the area of trade related issues and ignore the phenomenal rise of China as a major player in this industry. China is asserting itself as a major operator at international level in an increasing number of sectors, including the NFM sector. Its consequent impact on the availability and prices of raw materials has become considerable, due to the fact that: the dynamism (high growth levels) of its economy is causing a continuous increase in world demand; it is restricting access to the materials in its possession; it is deploying investment capital with which even the largest European enterprises are unable to compete.

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In addition China is starting to have an increasing influence on the manufactured product markets, as the Chinese NFM industry is becoming an important producer and exporter of products further downstream in the value chain as well. Thus it is competing on product markets further downstream as well and in parts builds it cost advantages in these downstream segments through restricting access by third countries to its raw materials in particular. Although China has made progress in respect of integrating the rules of international trade since its accession to the WTO in 2001, at the same time it has also very effectively resisted the actual implementation of some of its commitments. State interventionist industrial policies are still common, including the non-ferrous sector, while subsidy mechanisms and indirect subsidies have been put in place and have become more pronounced over the past three years at least. In 2008, for example, export taxes were confirmed or imposed on 297 raw materials and products, whilst the WTO Accession Protocol limits these to 84. Other NTMs are also still an issue including IPR infringements and export restrictions of raw materials and scrap. As Chinas influence in the global NFM industry increases further there will likely be even more calls from its trading partners to create a level playing field in the international arena. Given its still rather fickle trade policies and economic diplomacy, security of supply has become such an issue globally that it is spurring investments in alternative locations.

3.4.4

Direct and indirect impacts of trade related issues on the EU NFM industry As for other trade related issues, the most obvious and immediate impact of these measures on the industry were increased prices of raw material inputs, uncertainty and price volatility of raw materials and the lack of a truly level playing field for international trade in NFM products and both primary and secondary raw materials. This has resulted in relatively higher input costs for EU producers and a higher level of insecurity/volatility for them. The subsequent direct and indirect impacts have included: Increasing import penetration, especially from regions with lower costs of production inputs, e.g. China. The best illustrations of this trend are the increasing imports levels of primary products from Russia, the United Arab Emirates (UAE) and China; countries where dual or non transparent pricing for energy is applied. China is a good example for those countries where export of value added products is indirectly encouraged through e.g. industrial policy aimed at keeping input prices low by providing direct or indirect subsidies (although some Chinese aluminium smelters indicate that their power tariffs are one of the highest in the world); Reduced dependence on imported raw materials and the rising importance of recycling: in response to higher prices and less secure access to primary raw materials, and further encouraged by environmental policies and regulations. By now Europe, the most advanced region for recycling, has established a well-developed recycling sector which is complementary to primary raw materials transformation; Investments in new raw material sources development. Despite the increased recovery rates for most NFM sectors, imports of primary raw materials will remain an

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essential and major source of supply to the European markets for technical and structural reasons (e.g. long term stock and rising demand). Given the recent security of access issues with respect to raw materials from China, even within the EU, some projects are being developed for development of raw materials supply (mining operations); Increased prices and export of scrap in the EU: The export restrictions on raw materials imposed by supplying countries, has put increasing pressure on available sources of scrap and demand for these inputs from the EU has risen sharply due mainly to increasing demand from China and to a lesser extent India. In addition, the ineffective enforcement of trade related aspects of environmental regulations related to waste shipment, in particular, has resulted in loss of valuable raw material inputs.

Overall the extent and type of impacts of these various trade related issues differ per subsector and value chain segment. Thus the absence of a level playing field in relation to energy supply costs affects the upstream segments of notably aluminium, where the biggest new production capacities were located in China, the Middle East and Iceland in recent years. The access to raw materials and scrap impact most sub-sectors to some degree, but appear particularly relevant to the copper, precious and minor metals subsector.

3.5

Recycling
Recycling for the NFM industry is of crucial and increasing importance given resource scarcity, security of access to raw materials, high energy costs and environmental regulations. As such, it is a cross-cutting issue that cuts through all sub-sectors and through many different policy and competitiveness issues. Another way of looking at it is that recycling actually connects these various issues. The strategic importance of recycling was confirmed and underlined in the Raw Materials Initiative and the related critical raw materials for Europe report. One of the main criteria for assessing supply risk under the RMI is the recycling rate for the specific material. While some of the issues relating to access to raw materials thus, clearly, have an international trade dimension as discussed above, there is also an intra-EU dimension, which relates to waste management and collection, economic viability and efficiency of recycling systems in the EU. As discussed in Chapter 2, there are two main sources of NFM scrap for recycling: industrial (waste) streams (i.e. remelt from the smelter/metal production process) and end-of-life scrap. While efficiency in the former tends to be quite high and many EU producers of major metals provide the raw materials from their refining processes to producers of minor metals, for end-of-life scrap efficiency can clearly still be improved. The so-called urban mines are seen to still contain a large share of scrap that does not make it back to NFM producers. Based on the RMI, the NFM industry itself has proposed a number of concrete measures to address the issue of recycling efficiency. These include notably: (1) measures to improve the management of secondary raw materials and their efficient use; and (2) addressing the economic viability of recycling, to ensure that the non-value driven recycling of strategic technology metals is guaranteed even when volume and

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environmental drivers are not present. This is particularly the case for precious and rare metals. Coupled with trade related measures to ensure access to scrap and the further development of sustainable recycling (creating a level playing field and improving the enforcement of key regulation in this area) the successful implementation of these initiatives will be important for EU NFM producers to secure their access to raw materials and to improve their competitive position of efficient recyclers. The latter role is important for the development of closed recycling loops, where valuable raw materials are retained with the value chain.

3.6

Research, development and innovation policies


While much of the focus of industry remains on the cost side of the business equation, the innovative potential of the European metal industry remains a plus that must also be accounted for. The Lisbon Agenda and the newly minted Strategy 2020 document give prominent place to innovation as an important component of economic growth, for good reason. In a high-cost labour environment, innovative ways to provide goods and services allow industries to remain competitive. Low cost and low-added value activities are seeded to other jurisdictions. Current research has shown that, to date, research activities take place mainly within the developed world. Some capacities were moved offshore, but these activities are generally meant to alter given innovations for local markets. As of yet, there is little evidence to support an exodus of innovative capacity outside of the developed world, including Europe166 and evidence from some of the main industry players in the EU confirms this.
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Yet, just as the EU cannot compete on price when compared to e.g. Asia or the Middle East, so it lags in general with its biggest Western competitors. Business spending on R&D, for example, lags significantly behind researching powers such as the United States and Japanthough some individual Member States, namely in the north, are exceptions to this. Figure 3. illustrates this, even if only presenting an EU average for EU business enterprises as a whole.168

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The European Commission is currently examining trends in the internationalisation of research and development in an ongoing study. The aluminium firm Hydro, for example, has some of its top research facilities in Europe, employing more than 1,000 scientists in Germany and Norway, while precious metals producer Umicore conducts the bulk of its R&D in Belgium and Germany. We could not obtain NFM specific data on R&D expenditures, but there is no evidence to suggest their expenditures would be far off the EU average.

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Figure 3.2

Research and development expenditure, by sectors of performance; Business enterprise sector

Source: Eurostat. R & D expenditure (used by Eurostat) is a basic measure that covers all expenditures for R & D that is performed within a statistical unit or sector of the economy, whatever the source of the funds.

As regards data on R&D spending by NFM industry, it should be noted that Eurostats data on R&D spending are presented for the NFM sector as a whole over 2002 to 2007 and are not broken down by sub-sector. Data for many Member States are also missing. Based on what data are published, we can identify the following trends and patterns: The largest R&D expenditure is in Germany and France, where the NFM sectors spent EUR 126 mln and EUR 92 mln on R&D respectively in 2007; Spending by newer Member States (that joined on or after 1 May 2004) is on a much smaller scale; The newer Member States of Poland, the Czech Republic and Hungary, capital spending typically accounted for large shares of R&D spending in 2002 and 2003, as they built up their R&D capacity, and that this share fell away to nothing or close to nothing by 2006 or 2007; Among those Member States of the EU15, with R&D capacity much more developed, capital expenditure typically accounted for a smaller share of R&D spending over 2002-07 and labour costs typically accounted for around 50% of R&D expenditure. With regard to patenting activity, Eurostat publishes international data on patent applications over 1996-2007. This allows some comparison with other non-EU countries, but it is only available at the 2-digit level (Basic (ferrous and non-ferrous) metals sector). Data for 2006 and 2007 are provisional. For the basic metals sector as a whole, the series indicates the following. The EU filed the largest number of patent applications (12,335) over 1996-2007, averaging just over 1,000 per year. In contrast, the US, the second-largest filer of patent applications, lodged 5,371 patent applications over 1997-2007, averaging around just 450 per year. Behind the US, Japan filed 4,636 patent applications (386 per year). Outside the EU, Japan and the US were the main sources of patents filed. They were followed by

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Switzerland and Korea, which averaged 61 and 31 patents a year respectively. China averaged just over eight patents a year over 1996-2007. Although the data do not go into sufficient sectoral detail to distinguish the NFM sector, the conclusion is that the EU plays a leading role in the development and application of new inventions in the basic metals sector (of which the NFM sector is part). It consistently lodges far more applications than any other country. At the same time, patenting activity in China, often seen as increasingly important competitor, is comparatively very small. The engine of EU patenting activity is Germany. Of course, an innovation environment speaks to more than just grant money or business investment in business-oriented research & development. Successful clusters of industry have also demonstrated the advantages for innovative industries to locate geographically close to each other. Connections between industry, the academic world, and even government institutes prove to be important centres of innovation and economic growth.169 More and more, innovation policies focus on how best to encourage knowledge sharing between industry and universities and on protecting intellectual property rights so that the benefits of those innovative activities can be realised. This is one reason why the concept of clustering has received such great attention. Companies, universities and even government institutes within a tight geographical space co-operate and compete for resources. Knowledge-sharing in certain areas remains crucial. According to the European Cluster Observatory, at least six cluster associations exist in the general area of metals two in Spain, one in France, one in Greece, one in Sweden and one in Germany as shown in the diagram below. Most of these clusters would seem to include elements of the NFM industry. For example, the cluster association of Neopolia in France organises related industries in the shipbuilding industry, which includes aluminium-based construction. One is related to aluminium, called Alumiumriket. Alumiumriket, or the Kingdom of Aluminium, is a cluster of more than 300 companies, based in South East Sweden, who operate within the whole spectrum of aluminium, from raw material to the finished product, collaborate with training and the exchange of experiences. Despite these efforts and achievements, however, Europe currently remains at an uncomfortable middle point in terms of competitiveness it can claim to be neither the best in terms of cost nor innovation. In terms of cost, it has been clear for some time that manufacturers have been choosing to move outside of European boundaries or at best to low-cost Central and Eastern Europe so that they can enjoy lower labour costs. In terms of innovation, many standard indicators reveal that the European Union suffers significant disadvantages compared to the United States, for example, in innovation capacity: scientific publications and citations; patenting, R&D investments all of these metrics are higher in the U.S. (Crescenzi et al., 2007)

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For instance Hydro has strong and long-standing research cooperation with the Technical University of Aachen and the Norwegian Technical University of Trondheim.

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If on a policy level, the European Commission should decide that innovation is the way to remain competitive globally, it will need to compare its performance in the NFM industry with the leading innovation players, namely Japan and the United States and to a lesser degree, Australia and Canada.

3.6.1

Research under the Framework Programmes The major EU funding sources for research & development fall under the Framework Programmes, which is currently in its seventh incarnation (commonly abbreviated as FP7). The sixth and seventh programmes have focussed on more than just research & development for specific projects, but also at nurturing the environment for innovation. Most directly relevant to the NFM industry is probably the programmes emphasis on cooperation, one of the four themes. This means supporting networks of excellence in 10 thematic areas. For the NFM industry, the two most important thematic areas include Nanotechnologies, Materials and Production Technologies with a budget of approximately EUR 3.5 billion over 2007-2013 and Energy, with a budget of approximately EUR 2.4 billion over the same period. One network of excellence that has been publishing results directly applicable to at least parts of the NFM industry is the 4M Network Multi-Material Micro Manufacture.170 Originally funded under the Sixth Framework Programme, this network continues to produce research applicable to the industry. As just one example, one project on which the network has published material was on the anodising of aluminium to realise nanoporous structures and nano-porous oxides for use as nano-templates, as gas-sensor systems and catalysis. Of course, more traditional research & development projects still exist under these Framework Programmes, and a number of projects linked to NFM have been completed, such as on aerospace, fuel cell and battery technologies, and energy efficiency.171 Overall, the Framework Programmes have contributed tangibly to the development of new technologies; however, it is still hard to assess their impact, as no clear insight is as yet available into the actual uptake / application of these new technologies into mainstream production. However, from the perspective of the wider innovation system, a number of observations can be made: Innovations increasingly take place across the value chain and this is reflected in R&D&I policies and programmes, in particular the Framework Programmes. Another example is the IPP, which has likely had a positive impact on the assessment of substances used in products and the NFM industry has been a part of innovations together with downstream clients based on new product applications, and further development and improvement of recycling rates;
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http://www.4m-net.org/. One example of an FP6 funded project in the NFM included the development of a new technology for the separation of non-ferrous metal waste from electric and electronic equipment WEEE based on multi and hyper spectral identification Given the scope and focus of this study, it was not possible to provide an exhaustive list, as there are thousands of projects and programmes.

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R&D investments and innovation in NFM sectors, especially further upstream are strongly linked to production and production technology; A great number of innovations in recent years have been in the area of energy efficiency and environmental technologies, which have a close link to the NFM industry; these achievements were driven by environmental regulations and cost considerations, more than by innovation policy, but support in this area has been important; In several EU countries, the role of research institutes appears to have been significant as partners to the industry in terms of product application innovations and energy efficiency. The extent of this involvement and impact of research institutions will need to be further verified and validated by stakeholders and industry experts.

3.6.2

Innovation in the NFM value chain The interdependence of the NFM industry with a wide range of sectors, including construction, information and communication technology, renewable energy technologies and transport equipment, implies that these sectors often work together closely on new product development and solutions. In recognition of this interdependence in finding solutions, the Commission introduced in its Green Paper on Integrated Product Policy (IPP) in 2001, a new concept whereby a product should be designed and manufactured to take into account its entire life cycle in order to reduce its negative environmental impact. This is relevant to substances produced by the NFM industry and to the nature of innovation across the value chain; it promotes collaborative innovation between NFM and end-users. An innovative NFM industry supports the competitiveness of the sectors that use its products. As one interviewee indicated, the level of interdependence and cooperation between the NFM producer and its clients and suppliers depends on the level of technology content of the products and of the legislative conditions (e.g. environmental regulations). Thus close linkages can be seen between the NFM and automotives industries and clean technology sectors. Aluminium VISION 2030 The aluminium industry also provided an example of activity taking place at the subsectoral level which includes the European aluminium Technology Platform, established in 2006 to ensure maximum cost, eco- and material efficiency by 2030 to support the sustainability and competitiveness of the EU aluminium industry (VISION 2030). As a collaborative programme, the EATP has developed a Network of Excellence composed of centres of academic & scientific excellence, all joined up to provide a multidisciplinary capability in investigating and developing the innovations and technologies required by the industry. The Platform is also linked to other industry platforms (for supplier and end user sectors), including the European Construction Technology Platform; MANUFUTURE, a platform focusing on technologies of the future; EUMAT, a technology platform focusing on advanced materials; and the technology platform focusing on sustainable mineral resources.

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The objectives being targeted by VISION 2030 mean that R&D and innovation programmes across various aspects of production and life cycles are important, including: Process related: to eradicate or significantly reduce the waste and environmental footprint of aluminium production; and to develop and implement cost-effective breakthrough technologies, which contribute to lowering energy usage; Product use and recycling: to minimise the waste of aluminium in product life cycles and maximise recycling rates; stronger contributions to helping customer sectors (e.g. construction, transport equipment) develop more sustainable, energy-efficient solutions; Product innovation: greater emphasis on design and innovation, working with customers, to develop new products/solutions for end-users/societys needs, and so support strong growth.

3.6.3

Innovation bottlenecks at a policy level The Framework Programmes and also the whole concept of a European Research Area is meant to address one of the fundamental issues which plagues innovation in Europe the balkanisation of knowledge at the national level. While products cross borders easily, ideas do not. The protection of those ideas is also unequal, with different intellectual property regimes ruling in different Member States, which encourages the isolation of ideas. This is not to suggest that there is a firewall between countries preventing the free flow of knowledge; nonetheless, national borders still represent boundaries which need to be crossed, which does require effort. As of yet, no European Patent Office exists which would allow companies to apply for a single patent to cover the whole European market. Here, even social policies are an issue. The laws that protect workers including intellectual workers are focussed on the national level, can reflect some fundamental differences in thinking. Badly needed skilled workers may hesitate about crossing borders for fear of what it can do for their personal security, hence exacerbating any skills shortage.

3.6.4

International comparison In terms of technological usage, emerging economies seem to have closed the technological gap, not least because of a substantial push for upgrading and technology development by their governments. As a representative of a globally operating aluminium producer indicated, China is building large-scale best-practice smelters swiftly and effectively. Learning curve efficiencies through the repetition of standard construction are significant. China has also significantly improved the quality of its own alumina (intermediate mineral) production, enabling it to substitute to an extent imports of relatively high value alumina with relatively low value bauxite.

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Yet, technological catch up should not be mistaken for technological superiority, and here, it remains crucial for the EU to widen the innovation gap between itself and its competitors. Here, as already mentioned, the EU (not NFM specific) falls behind in terms of research & development Euros spent, especially at a company level, when compared to other innovation rich countries, such as the United States and Japan. On another level, crossborder innovation investment also disadvantages the EU. As pointed out in a Green Paper on the European Research Area, European countries invest more in R&D in the United States, than US-based companies do in the EU. One of the primary problems for innovation, as mentioned in the previous section, is that the EU is still working towards achieving a single market for science and technology. Researcher networks need to be large enough to compete with economies the size of the United States or Japan. While we would argue that the BRIC countries are not as close to proper competition in terms of innovation than some suggest, the size of these potential S&T blocks cannot be ignored.

3.6.5

Labour costs and skills Labour costs in the EU are amongst the highest in the world. This is a more general issue, which affects EU companies across sectors. The NFM industry is no exception, as was clearly reflected in the relatively high share of labour cost in total conversion cost (see section 2.4). Labour cost as an issue, cannot be seen separate from productivity and skills issues. To an extent higher labour costs are off-set (or rather reflect) higher productivity and compensation for higher value added (higher skilled jobs). Data on these indicators are not available at sector specific level, but industry representatives have indicated that highskilled labour is still a relative strength of the industry. The recent NFM sector fiche published by the Trade Policy Committee also highlights labour skills as a relative strength of the industry. It also identifies this as a challenge for the future. In comparison to developed countries such as the US, and Japan, there is no real evidence that EU NFM industry productivity or skills lag behind. Labour costs are also in the same range172 and differentials between these various developed country producers are likely to be too small to have a substantial impact on relative competitiveness. High EU labour costs for EU NFM producers are mostly an issue in relation to emerging markets such as China and India, where labour costs are still substantially lower. To an extent this reflects lower levels of development. However, labour costs are determined not just by wage levels, but also by compliance costs to e.g. health and safety regulations. As with e.g. environmental compliance cost, these costs are substantially lower in
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Labour cost per employee were calculated based on EU KLEMS Growth and Productivity Accounts: November 2009 Release (www.euklems.org/euk09i.shtml#top) for the basic metal and fabricated metal sector (i.e. including ferrous metals) and showed a range of labour cost per employee between EUR 38,000 EUR 47,000 per employee per year.

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countries such as China and India, as regulations are less strict and/or less strictly enforced. Overall, the extent to which higher labour costs in the EU are off-set by higher productivity/skills is not entirely clear. China, in particular, is rapidly catching up technologically, implying its productivity is increasing as well. On the other hand, with rising awareness of bad labour conditions and the continued high economic growth rates in China, labour costs are likely to increase, as well, over time. From an EU perspective, the continued access to high-skilled labour resources may become an issue for the industry, tied in part to existing education and research facilities and enrolment rates in technical education. Internationally the issue of lower labour costs insofar they represent (unacceptably) lower labour standards should be addressed in e.g. dialogues and through international fora. Within the EU labour skills and productivity are the key areas to address, e.g. through education, training and research.

3.7

EU - NFM Competitiveness: Summary and conclusions


The EU NFM industry is strongly rooted in EU industrial history and continues to play an important, albeit decreasing, role globally. Driven in part by cost pressures, it has developed into a technologically advanced, capital intensive and resource efficient industry, producing high quality products and delivering these to clients with whom they have long standing cooperative relationships. Recycling and recovery rates within the EU NFM sector are amongst the highest in the world, further strengthening links within the value chain through the development of closed loops with clients. The context or framework conditions within which the EU NFM sector operates can be described as one with global prices, limited primary raw material sources, an open trade regime, high energy costs, and increasing environmental regulations. The direct implications of these conditions relate mainly to cost: it is no secret that the EU is a high cost environment. This is seen as a driving force behind the development of a qualitybased and resources efficient industry. However, given the global nature of the industry, the impact of the high cost environment can become prohibitive when the global playing field is uneven and markets distorted. This is the case in a number of areas relevant to the EU NFM, including notably: (1) the unilateral introduction of very strict environmental policies (including ETS) and energy policy; and (2) third country (States interventionist) industrial and trade policies to support NFM industries through e.g. export restrictive measures (raw materials), direct and indirect subsidies, dual pricing of energy, import measures, etc. The latter can be observed especially in countries such as China, Russia, India, and the Gulf States. Cost factors and an uneven global playing field are subsequently leading to a shift of investments in upstream activities towards countries with better access to raw materials and/or lower energy costs. Data provided by the industry shows that the number of NFM

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operators in the EU has decreased consistently since the early seventies. Further relocation of the NFM industrys production segments would cause job losses and possibly the flight of technology and know-how from the EU. However, there may also be risks associated with investing outside the EU, specifically in emerging and developing countries. Investment decisions always involve trade-offs between benefits and risks, and the EU NFM industry should therefore to know and understand these various trade-offs for different investment locations (including the EU). The magnitude and direction of main impacts of these framework conditions as assessed in this Chapter are summarised in Table 3.3.
Table 3.3 Overview of main policy and regulatory conditions impacting EU NFM competitiveness Policy / regulatory condition Competitiveness aspect Compliance costs (production costs) Access to / costs of production inputs Process efficiency (including energy efficiency) Technological development Product / process differentiation (incl. changes input mix) Recycling rate and recovery rate from recycling Export & trade competitiveness Value chain integration Investment in EU Most affected subsector(s) / segments Environmental policies EU ETS & climate change policies Energy markets & policies Trade policy issues R&D and Innovation policies

-/+ + +

-/+ 0 0

-/+/0 +

0 -/+ 0 +

0 0 + + +

++ +/+ +/Upstream primary

+/+/Upstream primary

+ -/+/Upstream primary producers, aluminium, copper, zinc

+/+/Raw material (primary & secondary) dependent segments, primary processing, energy intensive

+ 0/+ + +
All NFM, precious and minor metals

producers, lead producers, aluminium, copper (energy intensive)

Note: ++ = strong positive impact; + = positive impact; 0 = neutral; - is negative impact; -/- = substantial negative impact; +/- = can be positive or negative impact.

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In the following chapter we will look at the wider implications of these competitive challenges for the EU NFM industry in terms of the strategic outlook for the future and the policy options available to retain and possibly strengthen the competitiveness of the industry.

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4 Future Directions

As described in previous Chapters, the EU NFM industry is composed of a range of value chains that include among them highly concentrated capital- and energy-intensive primary product producers, secondary producers processing scrap and semi-fabricates producing companies many of them SMEs. For the NFM industry, the competitive challenges vary across the sub-sector and value chain segments. Very generally speaking the upstream energy-intensive producers are mostly under threat from high and fluctuating costs of electricity, while the EU ETS is seen as exacerbating these pressures even further. Increasing competition from imports affects the market prospects of installations throughout the value chains, while waste and recycling, varying in importance across sub-sectors and value chain segments, forms another cross-cutting issue. In order to present conclusions and recommendations that do justice to these tremendous variations within NFM industries and segments, we present our SWOT analysis for a number of (grouped) sub-sectors, according to their specific characteristics and needs. These SWOT analyses are followed by a strategic outlook for the sector, comprising of a vision on the future of these industries within the EU and the choices that it faces, both from a strategic and a policy perspective.

4.1

SWOT analyses for selected sub-sectors


What follows are SWOT analyses for each of the selected sub-sectors for the NFM industry. More general information about the structure of those industries on which these SWOTs are partly based can be found in Chapter 2.

4.1.1

Aluminium SWOT
Strengths Maturity of the industry and integrated value chain. The aluminium industry is well established in the EU, exemplified in strong and long term relations along the value chain starting from primary and secondary producers to fabricators. This facilitates on
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Weaknesses Aluminium smelting from primary raw material is highly energy-intensive, in both absolute terms, and relative to other NFM.
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Approximately 15 MWh are

needed to produce one tonne of aluminium (example from Italy), compared with 4 MWh for copper.

See Chapter 2.

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time delivery, and ensures constant demand and the ability to meet the specific requirements of clients especially in metal alloying, shaping, sizing, etc. Links within a region between primary aluminium producers and downstream semi-manufacturers are important in developing new alloys and other products. In addition, the presence of regional suppliers guarantees security of supply and helps with the inventory management of downstream users. Inventory management is a key issue for the industry. Smelting and rolling/extrusion usually take Primary aluminium is an important cornerstone for R&D developments of key NFM products like new shaped alloying. place in different plants, which are very often located close to each other. The proximity of plants aids the management and reduction of inventory. Rollers / extruders do not want to sit on stocks of high value Relatively high rate of recovery from scrap and relatively high share of recycled raw materials inputs as compared internationally. inputs and so it is important for them to be close to a smelter for the sake of quick and easy access to refined metal. By holding the stock, smelters carry all the risk during periods of volatile pricing on the LME. Deployment of high level of technology in product and process: The sector uses the highest level of technology available and achieves highest international standards in terms of quality in relation to products and processes. The major aluminium producers are research-intensive on a global and a European scale. Relatively small smelters (biggest capacity smelters established or being established outside EU). The average annual capacity of EU27 smelters is 150.0ktpa, and for smelters in countries outside the Skilled labour force. Given the industrys maturity and roots in the EU and given its levels of technological advancement, skilled labour force is essential and continues to be strength for the EU, in part offsetting higher labour costs. EU, the average is 202.3ktpa, i.e. more than a third (35%) larger. Scale economies for new smelters continue to 500ktpa and beyond. However, some experts argue that flexibility especially in the EU context is more important than scale economies. Fabricators, caught in-between smelters and endusers, want to limit their risk/exposure by minimising the stock they hold. Dependence on imported raw materials. Europe is an important source of world demand for aluminium but now has few natural resource advantages for its production. The major deposits of bauxite (the mineral ore) are found in Australia, South America, Africa and parts of the Pacific.

High level of social and environmental responsibility.

Close proximity and long established cooperation with customer industries. Direct relationships with major enterprises in the aerospace and defence (e.g. Airbus) and automotive sectors.

Productive and innovative downstream part of the sector, from which the complete value chain can benefit through extended (further) collaboration. The high-tech market and solutions are crucial to the primary aluminium market.

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Opportunities Own energy supply ensuring stable price and security of supply. If plant has own power station/generation capacity, this means it is not exposed to diversion of power to households in the event of purchases. Moreover, it can sell spare power back to grid/other generators; the amount of power lost in the course of transmission is minimised to virtually zero. Establishing this at individual plant level may be impossible, but clustering could provide a solution. In addition, forming consortia may provide better bargaining position for aluminium producers. E.g. Frances Exeltium consortium of electricityintensive users provides a route to long-term contracts.

Threats Continued increasing energy prices rising faster / higher than in competitor markets due to distortions at international levels (dual pricing practices, State control of energy prices, etc.) and the existence of cheaper sources of energy / lack of compulsory carbon pricing system elsewhere.

Continued disharmonised EU policy with regard to energy markets and environmental regulations markets and threat from termination of long term energy contracts by 2013 in most Member States, and unlikely renewal of such contracts, leading to more fluctuations and uncertainty over energy prices. The energy issues are compounded by environmental taxes/levies that are invariably added onto energy

As environmental regulations and possibly even ETS-like schemes are likely to be introduced across more and more (non-EU) countries, the EU aluminium sectors experiences and skills in dealing with this may provide opportunities in other markets.

costs. But this is done at a Member State level and so the application is inconsistent, reinforcing the price variations that already exist.

EU ETS Regulation and its direct and indirect cost effects for the upstream aluminium segments in

Improved access to scrap and non-energy raw material, as guided by the RMI. Various channels exist to improve the EU access to scrap and nonenergy raw material: Availability of urban mines. Usage and disposal rates of scrap from transport, building and packaging in the EU is relatively high, thus constituting an opportunity for better access to scrap by a) capturing more of the scrap currently being exported and b) by increasing the scrap collection rates, definition issues, scrap management, etc.; Addressing trade related aspects of WEEE and Waste Shipment Regulation, including more consistent enforcement of the latter and development of tools for Member States to do so. In addition address these issues in bilateral and multilateral trade and economic cooperation agreements.

particular.

Continued and expanded export restrictions on primary and especially secondary raw materials in third countries (e.g. India, Russia, Ukraine, etc.) and further increases of scrap prices and exports due to burgeoning demand in emerging economies, especially China.

Further fragmentation of the value chain and shift of particularly primary industry could have consequences further downstream and technology development overall. Anecdotally, there are examples of niche EU firms that would have to close if production of their (specialised) NFM inputs ceased in the EU; and, at the same time, the existence of endusers/a full supply chain in the EU supports innovation (e.g. energy intensity), which focuses on cost reduction and purification.

In the case of some specialised aluminium products for TVs and other electronics, the EU electronics sector is declining, and the key producers are Japan and China. EU producers can (and do) supply inputs but this lengthens the supply chain, which makes R&D collaboration with end-users harder. At the same time,

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China has been expanding its production capacity, which will compete with EU products.

A threat to the downstream part of the value chain is the restrictions on imports of high-quality aluminium end products from EU in certain markets. E.g. Russia levies an 80% import duty on EU aluminium products.

Other jurisdictions fail to adopt more stringent environmental charges on carbon, whether through emission trading or carbon taxes.

4.1.2

Copper SWOT
Strengths Close relationships between producers/customers. Copper is crucial for high-end products like cell phones, laptops, etc. Strong link between technology, innovation, and production. Trust is an important aspect of these relations. Relative energy intensity in primary raw materials Sizeable R&D activities and investments in Europe, especially Germany, which makes the European industry more attractive than the same industry in the emerging economies (i.e. China, India). processing in particular (lower than primary aluminium). Weaknesses Dependence on imported raw materials. Europe is an important source of world demand for copper but now has few natural resource advantages for its production.

Maturity of the industry and integrated value chain. The copper industry is well established in the EU, exemplified in strong and long term relations along the value chain starting from primary and secondary producers to fabricators. This facilitates on time delivery, and ensures constant demand and the ability to meet the specific requirements of clients especially in metal alloying, shaping, sizing, etc. Links within a region between primary copper producers and downstream semi-manufacturers are important in developing new alloys and other products. In addition, the presence of regional suppliers guarantees security of supply and also assists downstream users inventory management.

Relatively high rate of recovery from scrap and relatively high share of recycled raw materials inputs as compared internationally.

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Strengths Deployment of high level of technology in both product and process: The sector uses the highest level of technology available and achieves highest international standards in terms of quality, both in relation to products and processes.

Weaknesses

Skilled labour force.

High level of social and environmental responsibility. Opportunities As environmental regulations and possibly even ETS-like schemes are likely to be introduced across more and more (non-EU) countries, the EU copper sectors experiences and skills in dealing with this may provide opportunities in other markets. Threats Continued increasing energy prices rising faster / higher than in competitor markets due to distortions at international levels (dual pricing practices, state control of energy prices, etc.) and the existence of cheaper sources of energy / lack of compulsory carbon pricing system elsewhere. Improved access to scrap and non-energy raw material, as guided by the RMI. Various channels exist to improve the EU access to scrap and nonenergy raw material: Availability of urban mines. Usage and disposal rates of scrap from transport, building and packaging in the EU is relatively high, thus constituting an opportunity for better access to scrap by a) capturing more of the scrap currently being exported and b) by increasing the scrap collection rates, definition issues, scrap management, etc.; Addressing trade related aspects of WEEE and Waste Shipment Regulation, including more consistent enforcement of the latter and development of tools for Member States to do so. In addition address these issues in bilateral and multilateral trade and economic cooperation agreements. Continued and expanded export restrictions on primary and especially secondary raw materials in non-EU countries (e.g. India, Russia, Ukraine, etc.) and further increases of scrap prices and exports due to burgeoning demand in emerging economies, especially China. Other jurisdictions fail to adopt more stringent environmental charges on carbon, whether through emission trading or carbon taxes. Pending ETS Regulation and its direct and indirect cost effects for the upstream copper segments, in particular. Continued disharmonised EU policy with regard to energy markets and environmental regulations markets and threat from termination of long term energy contracts by 2013 in most Member States, and unlikely renewal of such contracts, leading to more fluctuations and uncertainty over energy prices. The energy issues are compounded by environmental taxes/levies that are invariably added onto energy costs. But this is done at a Member State level and so the application is inconsistent, reinforcing the price variations that already exist.

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4.1.3

Nickel SWOT
Strengths Specialisation in high-quality alloys and compounds / salts used in surface engineering for use in the aerospace, defence, energy and electronics sectors, batteries for electric vehicles and cordless applications and catalysts. Weaknesses Dependence on imported raw materials.

Relatively high rate of recovery from scrap and relatively high share of recycled raw materials inputs as compared internationally.

Deployment of high level of technology in product and process: The sector uses the highest level of technology available and achieves the highest international standards in terms of quality for products and processes. The major nickel producers are research-intensive on a global and a European scale.

Skilled labour force.

High level of social and environmental responsibility.

Close proximity and long established cooperation with customer industries. Direct relationships with major enterprises in the aerospace and defence (e.g. Airbus) and automotive sectors.

Productive and innovative downstream part of the sector, from which the complete value chain can benefit through extended (further) collaboration. The high-tech market and solutions are crucial to the primary nickel market. Opportunities Improved access to scrap and non-energy raw material, as guided by the Raw Materials Initiative. Various channels exist to improve the EU access to scrap and non-energy raw material: Availability of urban mines. Usage and disposal rates of scrap from transport, building and packaging in the EU is relatively high, thus constituting an opportunity for better access to scrap by a) capturing more of the scrap currently being exported and b) by increasing the scrap collection rates, definition issues, scrap Relatively slow recycling cycles. The stainless steel scrap cycle is a long one because output goes primarily into durable capital and consumer goods, scrap takes around ten years to arise. Stainless steelmaking by EU new Member States has used scrap as part of the metal charge, but the proportion is falling. Threats Depletion of high quality nickel ores.

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management, etc.; Addressing trade related aspects of WEEE and Waste Shipment Regulation, including more consistent enforcement of the latter and development of tools for Member States to do so. In addition address these issues in bilateral and multilateral trade and economic cooperation agreements.

Continued and expanded export restrictions on primary and especially secondary raw materials in non-EU countries (e.g. India, Russia, Ukraine, etc.) and further increases of scrap prices and exports due to burgeoning demand in emerging economies, especially China.

Nickel demand in the EU. Overall, EU demand is on a falling trend, as the industrial base gets smaller

The need for new extraction techniques to access lower nickel-content oxidised ores requires innovation, and Europe may be the right environment for these techniques to be developed and sold.

relative to the economy and to growth in Asia. The prospect of strong future demand from China is a threat to price and to security of supply.

Other jurisdictions fail to adopt more stringent environmental charges on carbon, whether through emission trading or carbon taxes.

4.1.4

Zinc SWOT
Strengths Maturity of the industry and integrated value chain. The zinc industry is well established in the EU exemplified in strong and long term relations along the value chain starting from primary and secondary producers to fabricators. This facilitates on time delivery, and ensures constant demand and the ability to meet the specific requirements of clients especially in metal alloying, shaping, sizing, etc. Links within a region between primary zinc producers and downstream semi-manufacturers are important in developing new alloys and other products. In addition, the presence of regional suppliers guarantees security of supply and helps downstream users with inventory management. Relatively low recycling rates for zinc due to end use and product lifespan of typical zinc products which tend to be long term. Zinc production is likely to move closer to manufacturing industries and total installed capacity can be relatively small to be efficient (installations of approximately 100,000 tonnes) This means it is easier to shift zinc facilities to e.g. China. Weaknesses Zinc smelting is energy-intensive, Estimates of energy costs of up to 36% of total costs.

Primary zinc is an important cornerstone for R&D developments of key NFM products like new shaped alloying. The contribution of intermediates from primary (smelter and refinery) metal processors as a raw material for critical raw materials (precious and hi tech metals) in the EU also needs to be noted.

Close proximity and long established cooperation with customer industries.

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Opportunities Own energy supply ensuring stable price and security of supply. If plant has own power station/generation capacity, this means it is not exposed to diversion of power to households in the event of purchases. Moreover, it can sell spare power back to grid/other generators; the amount of power lost in the course of transmission is minimised to virtually zero. Establishing this at individual plant level may be impossible, but clustering could provide a solution. In addition, forming consortia may provide better bargaining position for zinc producers. E.g. Frances Exeltium consortium of electricity-intensive users provides a route to long-term contracts, with users effectively paying now and these funds being used to develop future nuclear electricity capacity.

Threats Continued increasing energy prices rising faster / higher than in competitor markets due to distortions at international levels (dual pricing practices, state control of energy prices, etc.) and the existence of cheaper sources of energy / lack of compulsory carbon pricing system elsewhere.

Continued disharmonised EU policy with regard to energy markets and environmental regulations markets and threat from termination of long term energy contracts by 2013 in most Member States, and unlikely renewal of such contracts, leading to more fluctuations and uncertainty over energy prices. The energy issues are compounded by environmental taxes/levies that are invariably added onto energy costs. But this is done at a Member State level and so

As environmental regulations and possibly even ETS-like schemes are likely to be introduced across more and more (non-EU) countries, the EU zinc sectors experiences and skills in dealing with this may provide opportunities in other markets.

the application is inconsistent, reinforcing the price variations that already exist.

Pending ETS regulation and its direct and indirect cost effects for the upstream zinc segments in particular.

Improved access to scrap and non-energy raw material, as guided by the Raw Materials Initiative. Various channels exist to improve the EU access to scrap and non-energy raw material: Availability of urban mines. Usage and disposal rates of scrap from transport, building and packaging in the EU is relatively high, thus constituting an opportunity for better access to scrap by a) capturing more of the scrap currently being exported and b) by increasing the scrap collection rates, definition issues, scrap management, etc.; Addressing trade related aspects of WEEE and Waste Shipment Regulation, including more consistent enforcement of the latter and development of tools for Member States to do so. In addition address these issues in bilateral and multilateral trade and economic cooperation agreements. Main growth in demand is likely to occur outside EU, especially in emerging economies with strong growth in notably their construction industries. Further de-integration of value chain and shift of particularly primary industry, could have consequences further downstream and technology development overall.

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4.1.5

Precious and minor metals SWOT


Strengths Strong demand from high tech industries and especially new green technology industries, e.g. rechargeable batteries, Photovoltaic, catalytic converters, etc. High dependence on accessibility of urban mines from which, at present, full benefits are not (yet) Close links with a number of key clients in high tech sectors faced with increasing environmental requirements to their products, for which PGM & minor metals producers can provide solutions (e.g. catalytic converters and rechargeable batteries). derived (large shares are exported, while for certain end-of-life scrap economic recovery is not realistic. . Weaknesses High dependence on imported raw materials and very narrow raw material supply base.

High value added, making transportation, energy and even ETS costs relatively less burdensome.

High recovery rates from recycling and increasing recovery of these metals as by-products from base metals refining; existence of closed loops.

Contributing to innovations in clean technologies. Opportunities Further increase in recycling and recovery especially end-of-life products. Threats Shortages of global raw materials supply and, specifically, the threat of China and possibly other suppliers restricting exports. Improved access to scrap and non-energy raw material, as guided by the Raw Materials Initiative. Various channels exist to improve the EU access to scrap and non-energy raw material: Availability of urban mines. Usage and disposal rates of scrap from transport, building and packaging in the EU is relatively high, thus constituting an opportunity for better access to scrap by a) capturing more of the scrap currently being exported and b) by increasing the scrap collection rates, definition issues, scrap management, etc.; Addressing trade related aspects of WEEE and Waste Shipment Regulation, including more consistent enforcement of the latter and development of tools for Member States to do so. In addition address these issues in bilateral and multilateral trade and economic cooperation agreements; Developing into suppliers of high-end custom made products, forging ever closer and mutually Loss of valuable secondary raw materials due to illegal shipments and recycling of scrap / end-of-life products in lesser developed countries, where it often takes place in an unsustainable manner, while also not achieving the recovery rates manageable in the EU. Limited substitution possibilities.

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dependent relationships with suppliers / clients becomes ever more important.

Development of new products to meet new emission norms (and in new future systems for example in heavy duty diesel engines) in EU and international markets.

Development of alternative supply sources outside China; e.g. in Sweden and Finland, which have the potential to provide, in particular, for the European Region.

4.1.6

Recycling Trends Secondary scrap for recycling comes from two main sources: industrial waste streams and end-of-life products. In case of the former the recycling process remains largely within the NFM value chains. However, for the second waste stream, the recycling process starts with waste collection and pre-treatment, which is not considered part of the NFM value chain and industrial recycling as such, but is a crucial element of the feed in system of raw materials (and it is this waste stream management system that is also crucial to improving secondary raw materials management). Starting with these collectors, the whole recycling process for end-of-life scrap then involves: A large number of very small firms (collectors, pre-treaters and sometimes recyclers), primarily engaged in the collection of scrap and identification and sorting of many kinds of materials, including some basic separation, and trading in the sorted materials, some of which may be sold to secondary metal producers and some of which may be sold to larger firms in the industry who undertake further processing; A small number of large multinational firms engaged in more capital-intensive processing of scrap in large volumes to supply secondary metal production; large firms with EU operations (which typically have ferrous and non-ferrous operations) include such as Sims Metal Management, Kuusakoski and Stena Metal. Estimates from EUROMETREC put the number of EU firms engaged in collection and pre-treatment for recycling metals (both ferrous and non-ferrous, since firms may handle both) at over 7,000, with the majority employing fewer than 10 persons. Stronger growth in secondary production of metals in extra-EU markets than in the EU has driven growing net exports of scrap from the EU. Prior to the recession, over the period 2004-2008 the tonnage of EU imports of aluminium scrap grew modestly (and imports from Russia dropped to low levels) while EU exports of aluminium scrap doubled (reflecting substantial demand from China but also a surge in exports to Malaysia). EU net exports of copper also increased, although the disparity between import and export growth was not as large as for aluminium. Even so, over 2004-2008 EU exports of copper scrap to China rose by 66%. As already elaborated extensively in this report, this trade imbalance not only reflects extra-EU demand, but also restrictions

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on scrap exports in e.g. Russia and China. Thus in less than ten years, the EU has moved from being a balanced importer/exporter of copper scrap/end-of-life materials, to a net exporter of 0.7 mt of per scrap per year. The situation worsened in 2009 when net exports jumped 30% to 0.9 mt. Although the EU is still a net importer of nickel scrap and waste, its trade balance (by volume) has narrowed sharply over time.174 The regulatory regime also has an important impact on access to scrap. The long established regulatory principles of self-sufficiency and proximity in waste management are intended to ensure local responsibility and disposal of waste and minimise transportation, particularly where hazardous wastes are concerned. However, the recovery of materials from waste necessarily entails the aggregation and transportation of scrap in commercially viable volumes. The EU legislation and regulation now recognises the differences between waste for disposal and waste for recycling, but there remain some issues that constrain firms operations in ways that affect efficiency and profitability. The EU regulatory environment (transition arrangements in the Waste Shipment Regulation) still prevents free movement of recyclable material within the EU. The future exception will be for scrap that had been sorted and processed into near single material substance or metal alloy, as a secondary raw material in accordance to strict conditions and criteria. Currently the legislation does not distinguish fully between waste that needs sorting and processing and processed scrap that can be directly used in a non-ferrous metal works furnace. The Annex VII Form of the Waste Shipments Regulation requires all buyers, sellers and transporters of waste to be revealed along the supply chain, which allows both domestic and foreign buyers of scrap access to the information they need to identify sources of scrap. In a context where some countries ban the export of scrap, this requirement to reveal information works in favour of a net loss of scrap to the EU. Other key issues with regard to scrap handling and recycling were dealt with in Chapter 3 when discussing access to raw materials, the RMI and trade related issues, and the section on recycling there. Considering the entire process of recycling, including industrial and end-of-life recycling, the following SWOT can be made. SWOT
Strengths Environmental standards of recycling in the EU. Weaknesses Loss of valuable secondary raw materials due to illegal shipments. Strong tradition and high rate of recovery from scrap and relatively high share of secondary production in total metals production. High labour costs. There is competition from low labour cost countries in the sorting of scrap using labour-intensive methods. The EU industrys response Development of closed loops in industrial recycling in particular. is to adopt more automated methods with large volumes. However, the result can be that scrap handlers find it more profitable to export unprocessed

174

INSG (2009), World Nickel Statistics November 2009, Vol.18, No. 12, C.10 & C.11.

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Relative energy efficiency and contributions to environmental improvement.

scrap rather than process it in the EU.

This leads to loss of valuable scrap for EU producers, Innovation in larger companies in sorting and processing methods. Expertise and innovation in the manufacture of recycling equipment. Land transport costs. Fuel costs are a significant element in overland transport within the EU, compared with sea transport costs (and hence for export). Opportunities Taking advantage of an improved EU regulatory environment. The regulatory environment was much improved with the revision of the Waste Framework Directive (Directive 2008/98/EC) and the Waste Shipments Regulation (Regulation (EC) No 1013/2006). Assuming that the end-of-waste provisions are reflected in implementation by Member States, there is the opportunity for collecting and pretreatment firms to take advantage of the greater freedom to trade more widely scrap that is close to being raw material, principally in the internal market. However companies need to put in improved quality management systems to take up these opportunities. As certain third countries may (further) restrict their exports of scrap, this may further reduce access to scrap for EU-based scrap buyers and NFM producers. Threats Strong growth in secondary production and hence the market for scrap in Asia, putting increasing pressures on scrap availability for EU producers. while recovery rates as well as environmental and labour standards are often much lower.

Improving recycling rates through improved collection and waste stream management, better research, data collection and awareness raising.

R&D&I directed towards the processing of more complex materials for which separation has so far proved difficult.

R&D&I directed towards the improved design of products with the explicit objective of making recycling easier.

Promotion of separate collection of metals waste in Member States.

4.2

Outlook and vision on future of the EU NFM industry


The EU NFM industry has a long history and strong links to other industries. With age, however, came competitive pressure as the rise of emerging economy producers and resource scarcity are squeezing the industry from both sides. Scarce resources come in all forms, and in the case of the EU NFM, concern is specifically for energy and non-energy raw material inputs.

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At the same time, the EU lives under a political reality that further squeezes industry. The EU has chosen to take a lead on environmental protection and sustainability. For some industries, this has proven a benefit. Denmark has become a world leader in wind technology due to prudent government policy and smart industrial players. Arguably, however, the spill-over benefits of environmental legislation generally help new and emerging industries, while the more traditional commodity based manufacturing takes place in upstream production segments of the NFM industry, is less likely to experience a net benefit and more likely to feel the pressures from high regulatory compliance and energy cost. Consequently, at present, value chains are fragmenting and consolidation is taking place in the EU, while new large scale investments are taking place outside the EU. Medium- to long-term prospects look to continue the trend. Energy prices are likely to increase, while environmental regulations will continue to be important. Chinas emergence as a global player with increasing technological capacity and subsequent pressures on primary and secondary raw materials is set to continue, as is the emergence of a number of other key players such as Russia and countries in the Middle East. Expansion of productive capacity in upstream activities for aluminium, copper, and zinc, in particular, is likely to occur outside of the EU, while import penetration for these segments, will likely increase further. However, advantages for the EU NFM industry should not be discounted. The industry has strong roots and substantial built-up capacity in the EU. Moreover, it can still build on a highly qualified and skilled labour force; the relatively stable market in the EU (compared to e.g. China or Russia); the high productivity rates of European smelters; high recycling rates and recovery rates for recycling processes, with emergence of closed loops; and its strong linkages with its client base in the EU, which sets high requirements with regard to quality and technology. Many NFM producers provide crucial inputs for high-tech industries and are considered of economic importance for emerging technologies. Technologically, the sector is still at the forefront in many sub-sectors and segments (e.g. precious and minor metals), particularly in higher value added and high quality fabricated products and high quality fabricated products, which are tailored to the needs and often developed in cooperation with main client industries. All in all, there still appear to remain important incentives for many companies to retain their production capacity and R&D activities in the EU. However, cost differences between the EU based companies and their international competitors (especially then related to energy, climate change and environmental topics) should stay reasonable otherwise the benefits of being EU based will be outweighed by these costs.

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4.3

Strategic and policy choices175


The strategic and policy choices that the European Commission faces in regards to the NFM industry are stark. On the one hand, they have an economic choice to make that could be conducted based on a cost-benefit analysis of compensation measures for companies (e.g. in relation to the EU ETS) provided by the Commission versus jobs retained / created. On the other hand, regardless of the outcome of such a purely economic analysis, there is a political justification for supporting these industries. For example, the European Commission may consider keeping production viable in critical materials in the strategic interests of the EU. As witnessed with security of supply problems in the field of energy and critical raw materials, the EU does not operate in a level playing field and as such needs to consider its political interests. Our recommendations, however, lean mostly on economic rather than political analysis. The recommendations as such should be taken within this political context and they do take into account the field of play in terms of various other jurisdictions with which the EU competes. A further point to keep in mind is which jurisdictions the EU wishes to compete with. As mentioned in the discussion on innovation, the EU can compete with high-innovation countries or low-cost countries. The Lisbon Agenda and Strategy 2020 documents clearly demonstrate the EUs belief that it cannot compete on cost alone and that innovation is a key competitive factor. As regards the rise of China as a competitor, in particular, it is questionable how long a low-cost, high-growth path will be sustainable. While the present situation may be one of lack of enforcement of environmental regulation, state subsidies and controlled energy prices leading to lower production costs in China, the long-term environmental and social viability of this Chinese model are increasingly being questioned. As environmental pollution becomes more pressing, international diplomatic pressures mount and maybe more importantly as a consequence of economic growth, China will likely (have to) improve on its environmental performance and social compliance issues. Moreover, labour costs are bound to increase, especially as growth in the West lags behind substantially as a consequence of the crisis, while it continues at a high rate in China. Already, China is investing in state of the art technology and processes, which will be less polluting and less energy intensive as their economic development continues. However, what is fundamentally different is the approach taken with respect to whom bears the costs of these processes. In the case of China, the State is likely to continue to be actively involved in its industrial and economic development and NFM industries are seen as crucial to this development.

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We have not, by purpose, make a distinction between direct and indirect costs as there is no added value doing so. Indirect costs are costs that are not directly accountable to a cost object (like taxes, administration, personnel, etc). These costs are not seen by the NFM industry as a major issue. Energy costs are (for the primary NFM industry) accountable to a specific product and are thus seen as direct cost. .

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It must be absolutely stressed that the EU NFM industry has legitimate concerns from these competitive imperatives, but the strategic choice to be made is whether the NFM industry can be made more competitive within the European policy framework, some aspects of which are non-negotiable. The EU will not dismantle social protections for workers; it will not lessen environmental protections. It will, of course, consider changes to make the system more efficient. Workforces can be more flexible; regulations can be leaner. But the framework will largely remain. Similar pressures are evident in other high-innovation environments like North America, Australia, Japan and, to a lesser extent, South Korea. Moreover, EU policies in this respect provide a case of leading by example and ultimately through diplomacy, dialogue, negotiations and agreements, the idea is that countries outside the EU will rise to the same standards, thus creating the necessary level playing field. Steps can be taken to help the NFM industry, while other steps must be avoided. The following is a discussion of some of the important issues facing the industry and recommendations for potential solutions.

4.3.1

Stable decision making energy environment While stable electricity market prices are highly desirable for the NFM industry, the EU should continue to pursue its policy of competition in a single electricity market and in this context also find a constructive solution to the fact that a short-term marginal price based market will not lead to internationally competitive power prices for the NFM industry. The NFM industry is concerned about the lack of long-term stability. Long-term uncertainty makes risk calculations more difficult, and means that profit margins need to be higher before a decision to invest is taken. The highest uncertainty now is the CO2 price. A proper regime for EU ETS financial compensation could take away that carbon uncertainty, also for power producers. This could also be done in coordination with the constructive stimulation of long-term contracts by policy makers. One particular problem identified by industry was the lack of long-term contracts provided by electricity companies. The questions to answer here, however, are two-fold: (1) why do electricity companies not offer these long-term contacts and (2) are lack of certainty in energy prices the most important barrier to investment? While answering the first question remains somewhat outside of the scope of this study, one can speculate with some confidence about two reasons that prevent these long-term contracts: 1. Energy incumbents dominate the markets. They charge short-term power prices and are hesitant to make long-term commitments in an uncertain environment; 2. Given the huge fluctuations in prices for particular carbon, and also raw materials such as oil, it is not in the best interest of the electricity generating companies to sign long-term contracts for the moment. While, in all likelihood, the world will see market price increases for electricity, particularly in the EU, where prices are based on marginal prices with EU ETS pass through and renewable energy costs. Given the

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current (lower) electricity prices, it is in the interest of NFM producers to secure long-term electricity contracts. For the majority of the world industry, in countries with true long term contracts or regulated prices, increases will be more limited. In the first case, the European Commission has a role to play to speed up decisionmaking, lead the way to also provide other than short-term electricity products on the market and provide a relatively stable environment with proper signals about future changes that could be coming down the pipeline in the medium-turn. However, given the complexity and uncertainly of the climate change debate and bottom-up approach of governance in the EU it would be unrealistic to provide this as a recommendation, per se. In the second case, the European Commission could, in theory, regulate the energy industry (by price regulation or by speeding up the liberalisation process for example by obliging the incumbents to sell parts of their portfolio), or provide compensation to industry to give them the desired stability , like in many regions in the world. However, this seems wrong-headed. The current EU marginal power price system with EU ETS transfers risk from the power industry to the (industry) users and ultimately taxpayers. The government has a role to play in risk mitigation, but the question is how? As the second question of whether reducing the uncertainty in energy prices will lower barriers to investment, it seems a truism, but theres little evidence to support that it would make a significant difference because the far greater problem is higher energy prices compared to some jurisdictions. True, if energy prices will increase substantially, locking in now would prove to be a large incentive for investment, but as mentioned earlier, the government would be assuming significant burdens and risks. On the other hand, effective implementation of CO2 compensation as mandated by the ETS Directive, would both take away the CO2 uncertainty and (in a well working market) lower electricity prices.

4.3.2

Leveraging trade policy and dialogue to achieve an international level playing field for EU NFM producers Using trade policy initiatives to foster an international level playing field for NFM should (continue to) be a high priority for EU NFM industry policies, in particular in relation to access to raw materials and in combination with related internal policies. Through its trade policy the EU can pursue a number of avenues that should contribute to achieving a level international playing field, as is also outlined in a working document from the Trade Policy Committee.176 The main avenues or policy responses identified in this document include: a. Multilateral and bilateral trade policy negotiations; b. Dialogue; c. Trade Defence Instruments; d. Trade Raw Materials Strategy including export of waste and scrap;
176

Working document of the Trade Policy Committee, December 2010 .

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e. Investment policy. These policy options should be developed and further enhanced in tandem and close coordination with other (non-trade) policy initiatives. 1) With the exception of precious metals, there is no sectoral initiative for NFM discussed under the WTO DDA round. Any effects for the NFM industry will thus stem from general tariff reductions under NAMA. In addition, the EU has put forward a proposal for disciplines on export duties, and a proposal on rules (dual pricing policies). As such, the EUs positions in the DDA negotiations are of specific relevance. In addition, Russias accession to the WTO will require specific attention with regard to NFM relevant issues, particularly tariff schedules, disciplines on export taxes and restrictions for scrap exports and dual pricing for energy. Such tariff issues, disciplines and rules will also be of key relevance to the industry in ongoing and new negotiations with India, Mercosur, Ukraine, Canada and ASEAN. Partnership and cooperation agreements (PCAs) with Russia and possibly Kazakhstan and Mongolia in the future, are other possible avenues for putting these issues forward. 2) Dialogues at various levels (ranging from high-level summits to working groups and technical committees) particularly with partners such as China and Russia should be further enhanced and specific NFM issues brought to the fore, as such dialogue facilities provide useful platforms for discussing regulatory convergence and NTB issues in a constructive manner. Industry participation in such fora, at technical level, should be encouraged. 3) TDI should be used to address measures that distort trade. Care must nonetheless be taken that these are only used as temporary, last resort measure, as they do not address the root causes of trade and market distortions such as e.g. State aid. They thus form flanking rather than focal policy measures. 4) The EUs trade raw materials strategy is already taking form in several ways. Trade disciplines most relevant to raw materials are being integrated in ongoing trade negotiations and dialogues. These initiatives should be further enhanced. The current EU Raw Materials Initiative is an example of EU action to address the problem of access to raw materials using a multi-pronged approach: by addressing the problem externally through trade policy solutions with resource rich countries, by including provisions on access to and sustainable management of raw materials in all bilateral and multilateral trade agreements and through regulatory dialogue. In addition, the EU addresses the problem internally through the promotion of efficient and sustainable use of raw materials and encouragement of the use of scrap. Secondary production (i.e. the recycling of scrap, which is used in 40-60% of EU NFM output), is significantly less energy and CO2 intensive than primary production within the industry. Thus it is of strategic importance to preserve scrap for the EU market. Short to medium term options, which are already being explored, include tightened rules and controls for scrap and waste exports so as to comply with the WEEE Directive.

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5) Barriers to investments (e.g. legal uncertainty with regard to investments in third countries) that play a role in specific markets should also be addressed in the relevant negotiations and agreements.

4.3.3

The role of import tariffs Import tariffs should be reduced or eliminated, at least for aluminium; simultaneously other competitiveness issues related to e.g. high energy costs or aluminium scrap market distortions should be addressed through other policy measures. Using import tariffs as a form of compensation for high costs, such as for energy, is not the preferred strategy and, in fact, can be considered inefficient. Import tariffs do not address the basic competitiveness issue behind the high cost environment in the EU, whether related to energy or labour. Such issues would be better addressed through e.g. an appropriate EU energy policy, labour laws or possibly other trade policies (see our second recommendation below). Moreover, with respect to the aluminium tariff, in particular, the effects of import tariffs on all value chain segments should be taken into account. Insofar the benefits of integrated value chains, skills and R&D capability in the EU present an economic advantage to the primary aluminium industry, there appears to be little justification to use import tariffs to maintain these benefits of clustering. We refer to annex D, for an extensive explanation on this topic. However, it is clear from the above that we are not in favour of using a complex tariff system to deal with a fundamental problem (the unbalance between the benefits of being based in the EU and the costs related to energy and climate change), which is not only an issue for the NFM sector but for all energy intensive industries in Europe. We believe it is appropriate to come with a structural solution taking into account the whole EU energy intensive industry. The main findings of our assessment of the EU tariff regime are the following: Duties on primary aluminium raise revenues for primary producers, but at the same time raise the costs of inputs for downstream producers. It is estimated that a reduction in the import duty tariff by 1% would result in a loss of revenue for the primary sector of EUR 45 million177 and reduce costs in the downstream sector by EUR 117 million.178 Semi-fabricate producers outside the EU that have duty free access to the EU have a cost advantage compared to EU producers of semi-fabricates because they pay less for primary aluminium;

The EU secondary aluminium industry faces competition from Ukraine and Russia where secondary producers have access to scrap at lower costs on account of export restrictions. The EU secondary industry operates with small processing margins. Consequently changes in import duties and resulting changes in prices will have an important impact on these margins and the profitability of the secondary aluminium
Assuming production of 3 million tonnes and a price of EUR 1,500. Assuming annual use of 7.8 million tonnes.

177 178

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industry. However, as secondary alloyed aluminium prices are correlated with primary aluminium, and as it is difficult to determine the physical difference between primary alloyed and secondary alloyed aluminium, it is recommended to maintain the parity in import tariff treatment between primary and secondary aluminium alloys. At the same time, appropriate policies to improve the supply of scrap for EU processors should be designed and implemented. The Raw Materials Initiative is an important step in this direction;

In considering reductions in tariffs on primary aluminium, one also needs to consider the tariff on imports of aluminium semi-fabricates (7.5%). It is clear that reducing tariffs for semi-fabricates, to the extent that they are passed on in the form of lower product prices, would result in reduced costs for downstream users, such as the automobile industry, building and packaging; It is difficult to isolate the impact on imports and production of the 2007 reduction of the import duty on unalloyed aluminium; the data suggests that these effects were modest. Changes in imports and production since 2007 broadly followed developments in demand by downstream industries which were dominated by the global economic crisis.

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Annex A

Production and Use of NFM

Global production and use of non-ferrous metal products


Aluminium
Figure A.1 World Aluminium Total Production and Growth Rates

Source(s): WBMS World Metal Statistics Yearbook 2010.

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Figure A.2

Share of World Aluminium Total Production

Source(s): WBMS World Metal Statistics Yearbook 2010.

Figure A.3

Share of World Aluminium Primary Production

Source(s): WBMS World Metal Statistics Yearbook 2010.

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Figure A.4

Share of World Aluminium Secondary Production

Source(s): WBMS World Metal Statistics Yearbook 2010.

Copper
Figure A.5 World Refined Copper Production

Source(s): ICSG Statistical Yearbook 2010.

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Figure A.6

Share of World Refined Copper Production

Source(s): ICSG Statistical Yearbook 2010.

Figure A.7

Share of Primary Refined Copper Production

Source(s): ICSG Statistical Yearbook 2010.

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Figure A.8

Share of Secondary Refined Copper Production

Source(s): ICSG Statistical Yearbook 2010.

Figure A.9

World Refined Copper Usage

Source(s): ICSG Statistical Yearbook 2010.

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Figure A.10

Share of Refined Copper Usage

Source(s): ICSG Statistical Yearbook 2010.

Lead
Figure A.11 World Lead Total Production and Growth Rates

Source(s): WBMS World Metal Statistics Yearbook 2010.

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Figure A.12

Share of World Lead Total Production

Source(s): WBMS World Metal Statistics Yearbook 2010.

Figure A.13

Share of World Lead Secondary Production

Source(s): WBMS World Metal Statistics Yearbook 2010.

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Figure A.14

Share of World Lead Usage

Source(s): WBMS World Metal Statistics Yearbook 2010.

Nickel
Figure A.15 World Nickel Production and Growth Rates

Source(s): WBMS World Metal Statistics Yearbook 2010.

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Figure A.16

Share of World Nickel Production

Source(s): WBMS World Metal Statistics Yearbook 2010.

Figure A.17

World Nickel Usage and Growth Rates

Source(s): WBMS World Metal Statistics Yearbook 2010.

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Figure A.18

Share of World Nickel Usage

Source(s): WBMS World Metal Statistics Yearbook 2010.

Zinc
Figure A.19 World Zinc Production and Growth Rates

Source(s): WBMS World Metal Statistics Yearbook 2010.

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Figure A.20

Share of World Zinc Production

Source(s): WBMS World Metal Statistics Yearbook 2010.

Figure A.21

World Zinc Usage and Growth Rates

Source(s): WBMS World Metal Statistics Yearbook 2010.

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Figure A.22

Share of World Zinc Usage

Source(s): WBMS World Metal Statistics Yearbook 2010.

Tin
Figure A.23 World Tin Production and Growth Rates

Source(s): WBMS World Metal Statistics Yearbook 2010.

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Figure A.24

Share of World Tin Production

Source(s): WBMS World Metal Statistics Yearbook 2010.

Figure A.25

World Tin Usage and Growth Rates

Source(s): WBMS World Metal Statistics Yearbook 2010.

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Figure A.26

Share of World Tin Usage

Source(s): WBMS World Metal Statistics Yearbook 2010.

European production and use information of non-ferrous metal products


Aluminium
Figure A.27 EU Aluminium Total Production, 2009

Source(s): WBMS World Metal Statistics Yearbook 2010.

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Figure A.28

EU Aluminium Primary Production, 2009

Source(s): WBMS World Metal Statistics Yearbook 2010.

Figure A.29

EU Aluminium Primary Usage, 2009

Source(s): WBMS World Metal Statistics Yearbook 2010.

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Copper
Figure A.30 EU Refined Copper Production

Note(s): Data are for EU27. Source(s): ICSG Statistical Yearbook 2010.

Figure A.31

EU Primary Refined Copper Production, 2009

Note(s): Scandinavia is Sweden, Finland and Norway (WBMS data suggest that in 2009 Sweden accounted for 60%; Finland 30% and Norway 10%). Source(s): ICSG Statistical Yearbook 2010.

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Figure A.32

EU Refined Copper Usage, 2009

Note(s): Scandinavia is Sweden and Finland (WBMS data suggest that in 2009 Sweden accounted for 70% and Finland 30%). Source(s): ICSG Statistical Yearbook 2010.

Lead
Figure A.33 EU Lead Total Production, 2009

Source(s): WBMS World Metal Statistics Yearbook 2010.

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Figure A.34

EU Lead Secondary Production, 2009

Source(s): WBMS World Metal Statistics Yearbook 2010.

Nickel
Figure A.35 EU Nickel Production, 2009

Source(s): WBMS World Metal Statistics Yearbook 2010.

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Figure A.36

EU Nickel Usage, 2009

Source(s): WBMS World Metal Statistics Yearbook 2010.

Zinc
Figure A.37 EU Zinc Production, 2009

Source(s): WBMS World Metal Statistics Yearbook 2010.

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Figure A.38

EU Zinc Usage, 2009

Source(s): WBMS World Metal Statistics Yearbook 2010.

Precious Metals
Figure A.39 EU Precious Metals Production

Note(s): Data are for EU27. Source(s): PRODCOM (Eurostat).

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Minor Metals
Figure A.40 EU Minor Metals Production, 2009

Note(s): Data show the distribution of minor metals production in the EU27 in 2009. Data on minor metals production are available for 2008 and 2009 only (prior to 2008 data are available for manganese only). Data for total minor metals production indicate that the EU27 produced 1,592 tonnes of minor metals in 2008 and 695 tonnes of minor metals in 2009. Source(s): PRODCOM (Eurostat).

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Annex B

Trade in NFM

Trends in global and European trade of non-ferrous metal products


Aluminium
Figure B.1 EU Aluminium Trade

Source(s): WBMS World Metal Statistics Yearbook 2010.

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Figure B.2

World Aluminium Net Exports, 2009

Source(s): WBMS World Metal Statistics Yearbook 2010.

Copper
Figure B.3 EU Copper Trade

Note(s): Data are for EU25 up to 2006; data from 2007 onwards are for EU27. Source(s): ICSG Statistical Yearbook 2010.

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Figure B.4

World Refined Copper Net Exports, 2009

Source(s): ICSG Statistical Yearbook 2010.

Zinc
Figure B.5 EU Slab Zinc Trade

Source(s): WBMS World Metal Statistics Yearbook 2010.

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Figure B.6

World Zinc Slab Net Exports, 2009

Source(s): WBMS World Metal Statistics Yearbook 2010.

Precious Metals
Figure B.7 EU Precious Metals Trade

Note(s): Data are for extra-EU27 trade. Source(s): COMEXT (Eurostat).

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Minor Metals
Figure B.8 EU Minor Metals Trade

Note(s): Data are for extra-EU27 trade. Source(s): COMEXT (Eurostat).

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Annex C

List of Main Companies with Production in EU

Mining Copper Boliden; KGHM; Somincor; Mandesur Andevalo; Minas de Aguas Tenidas (MATSA); Rio Narcea. Aurubis;

Smelting

Refining

Other

Aurubis; Atlantic Copper; Boliden; Metallo Chimique; Montanwerke Brixlegg; KGHM

SX-EW: Cobre Las Cruces; Hellenic Copper Mines.

Atlantic Copper; Boliden; Metallo Chimique; Montanwerke Brixlegg; KGHM.

Nickel Talvivaara Mining; Larco; Lundin Mining Corporation; Belvedere Resources; Eramet;* XtrataNickel;* Vale*. Boliden; Talvivaara Mining; Eramet;* XtrataNickel;* Vale*. Norilsk (Harjavalta); VALE; Eramet. Ferronickel: Larco; Treibacher Industrie.

* in New Caldeonia as part of the French Territory

* in New Caledonia as part of the French Territory

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Mining Zinc Tara Mines; Anglo Base Metals (Ireland); Boliden; Lundin Mining Corporation; Talvivaara Mining; Minas de Aguas Tenidas (MATSA); Hellas Gold.

Smelting

Refining

Other

Asturiana de Zinc; Xstrata Zinc Gmbh; Huta Cynku Miasteczko Slaskie; Nyrstar; KMC SA; Sometra.

Boliden; Nyrstar; Xstrata Zinc; Glencore; Metal Europe; Weser GmbH; Portovesme; Zaklady Gorniezo Hutzieze; Umicore.

Lead Lundin Mining; Boliden; Tara Mines; Anglo Base Metals (Ireland); Hellas Gold; Miniere Iglesiente; Minas de Aguas Tenidas (MATSA); Lappland Goldminers. Aluminium Silver & Baryte Ores Mining; Aluminium de Grece. Alcoa Italia; Alcoa Inespal; Rio Tinto Alcan; BaseMet (Klesch); Hydro; Trimet Aluminium; Aluminium de Grece (Mytilineos); Kubikenborg Aluminium (Rusal) ; Alro; Alumina refiners: Aughinish Alumina Ltd (Rusal); Aluminium de Grece; Alumina Espanola; Eurallumina (Rusal); Aluminium OxidStade; Rio Tinto Alcan; Ajka. Aluminium refiners Aughinish Alumina Ltd (Rusal); Aluminium de Grece; Alumina Espanola; Eurallumina (Rusal); Aluminium OxidStade; Rio Tinto Alcan. Metaleurop; Eco-Bat Technologies; S.E.del Acumulador Tudor (Exide); Campine; Boliden; Varta Batterie AG Hanover; Piomboleghe; EnviroWales; Perdigones Azor. Xstrata Plc; Metaleurop; Glencore; Ecobat; Varta Batterie AG Hanover; Campine; Umicore; S.E. Del Acumulador Tudor (Exide); Boliden Bergsoe.

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Mining Precious and minor metals Boliden; KGHM Polska Miedz. Umicore; Aurubis. Talum; Slovalco.

Smelting

Refining

Other

Umicore; Johnson Matthey; Heraeus; Plansee; H.C. Starck; Campine Vale; Boliden; Aurubis; KGHM Polska Miedz; Britannia Refined Metals; Metalor.

Source(s): Reuters, Eurometaux, EAA, different EU companies.

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Annex D

Assessment of the Impact of Tariff Removal for Unwrought Aluminium

Review of EU import duty regime for aluminium


Approach This review assesses the EU import tariff regime for aluminium and its impact on the competitiveness of this industry. As a special case study, we examine the autonomous suspension of the import duty on unalloyed, unwrought aluminium from 6% to 3%, introduced in May 2007. The Annex is organised as follows: A brief summary of the structure of the value chain for the aluminium industry, particularly the upstream primary and secondary alloyed aluminium producers and the downstream producers of semi-fabricates. This provides a clear picture of the production environment affected by import tariffs; An analysis of changes in production and imports in the value chain, as these are primarily affected by changes in tariffs; An assessment of the impact on revenues and production costs for primary and downstream producers. Structure of the aluminium industry Primary aluminium or unwrought aluminium can be categorised into unalloyed and alloyed aluminium. Primary aluminium is made in three separate steps. In the first step, bauxite ore is mined. In the second step, alumina (aluminium oxide) is extracted from the bauxite ore in an alumina plant. The alumina is then shipped to a primary aluminium smelter for the third and final step in the process. The aluminium smelters either produce alloys or pure aluminium (unalloyed) in ingots, slabs, T-bars or billets. Secondary processing of aluminium scrap also produces alloyed aluminium. Two processes can be applied in the secondary processing of scrap, refining and remelting. Refining uses mostly old scrap as inputs and produces castings, mainly for the automobile industry, such as in engine blocks. In re-melting, new scrap is used to produce billets and slabs, which, for the most part, are processed further by extruders and rollers. Downstream processing consists of rolling mills, extruders, casters and wire producers. The primary aluminium production sector in the EU is dominated by six companies, of which three are of non-EU origin (Hydro, Rio Tinto/Alcan and Alcoa). The three smaller ones include Klesch & Company, Trimet and Aluminium de Grece. These companies

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operate a total of 21 smelters with a capacity of just over 3,000 kt. In recent years, two smelters were closed, one in Poland and one in the UK with a combined capacity of 200 kt. In May 2010 another smelter, Fusina, in Italy was idled. Other companies in Germany and Italy are under threat of closure. Energy cost pressures are the main threat to the ability to compete for EU smelters.179 In downstream processing, the rolling sub-sector consists of one large plant located in Germany and 50/50 owned by Novelis and Hydro.180 Among extruders, Sapa and Hydro account for around one quarter of EU production. The casting plants are generally small to medium-sized. An overview of the aluminium value chain is presented in the figure below.
Figure D.1 Aluminium sector in EU (2009)

TOTAL = BAUXITE 12.7 Mt ALUMINA 5.7 Mt METAL 9.3 Mt

PRODUCTION 2.5 Mt 4 plants 5.7 Mt 9 plants 2.2 Mt PRIMARY 22 plants

Net IMPORTS
10.2 Mt

0 Mt

3.5 Mt RECYCLED 265 plants

3.6 Mt

SEMIS

3.4 Mt ROLLED 51 plants Foil (22%)

2.2 Mt EXTRUDED 231 plants

1.8 Mt CASTINGS +2100 plants

0.6 Mt Wire, powder, slugs

BL May 10
Source: EAA (2009).

Table D.1 presents the number of plants and employment in the industry and clearly illustrates that the majority of the workers are employed in the production of semifabricates (85% in 2008). The table also shows that within the group of semimanufacturers, casting plants are the largest category in terms of employment.

179 180

The Fusina smelter in Italy was idled because of increasing power costs. This plant is the largest rolling plant in the world.

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Table D.1

Number of plants and employment in the EU aluminium industry in 2008 Value chain segment Primary production plants Recycling plants Semi manufactures Rolling plants Extruders Castings Wire, powder, slugs 51 231 2,100 30 2,412 2,436 24,800 39,100 98,500 7,500 169,900 192,700 12.4 19.6 49.4 3.8 85.3 100.0 Plants 24 265 Employment 22,800 6,500 % distribution 11.4 3.3

Sub-total semi manufacturing Overall total

Note: It was not possible to update this Table with 2009 data. As can be seen from the figure above, the number of primary production plants has declined in 2009 from 24 to 22, also resulting in a reduction in employment. The number of plants in all sub-activities has remained the same. The number of workers may have fallen because of lower levels of activities in 2009. Source(s): Estimates obtained from EAA.

Up until the early-2000s, the global bauxite and alumina producing companies opted for downward integration. As the price of metals increased during the 2000s, this trend reversed and several of the large companies divested their downstream processing activities. At present in the EU, Norsk Hydro is the only fully integrated entity from alumina to semi-manufactures. Rio Tinto/Alcan still has a rolling and an extrusion division, but these are up for divestment. Alcoa has sold a large part of its extrusion activities to Sapa, but still maintains a rolling unit and a small extrusion unit. Aluminium production in the EU EU production trends of primary and secondary alloyed aluminium are presented in Table D.2. The table shows that primary aluminium production has declined since 2005 after a period of fairly steady growth since the mid-1990s. As a result of the economic crisis, the downturn in primary aluminium production was especially severe in 2009.
Table D.2 Primary and secondary alloyed aluminium production in the EU 27, 2003-2009 (1,000 tonnes) 2003 Primary production Secondary alloyed aluminium production
Source: EAA

2004 3,251

2005 3,279 4,500

2006 3,058 4,600

2007 3,093 5,100

2008 3,049 4,400

2009 2,159 n.a.

3,101

Eurostat PRODCOM data distinguish between unalloyed and alloyed aluminium production (Table D.3).181 It shows that most primary aluminium production in the EU is alloyed aluminium because users generally require aluminium alloyed with other metals; unalloyed aluminium, mainly used in castings, accounts for less than one-quarter of primary production.
181

There is a difference between the EAA estimates of primary aluminium production as presented in Table D.2 and the Eurostat (PRODCOM) estimates presented in Table D.3. This difference relates to differences in measuring intra-company use of the aluminium produced. EU production data as given by PRODCOM are slightly overstating total production because of alloying elements, and a double counting with use of internal scrap by the smelters. The difference is estimated by EEA to be about max 300 kt, or 10%.

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Table D.3

EU primary aluminium production broken down by non-alloyed and alloyed aluminium (1,000 tonnes) 2006 Unwrought aluminium alloys Unwrought unalloyed aluminium Total primary production
Source: Eurostat PRODCOM data.

2007 2,591 825 3,416

2008 2,593 788 3,381

2009 2,119 552 2,671

2,670 748 3,418

Prices A key factor affecting developments in the aluminium industry is the price of aluminium, which is heavily determined by quotations at the London Metal Exchange (LME). Prices of aluminium have fluctuated considerably in response to changes in demand. Since 2000 the price of aluminium has risen from about USD 1,300 per tonne peak to USD 3,250 per tonne in mid-May 2006 as a result of high demand, especially from China and India. Since mid-2008, as a result of the international economic crisis and the resulting decline in demand, prices fell to as low as USD 1,250 per tonne in beginning March 2009. Since then the LME price has partly recovered (up to levels of nearly USD 2,500 per tonne at the end of October 2010).
Figure D.2 Aluminium prices for the period: 11-11-2005 to 29-10-2010

Source: Global InfoMine (www.infomine.com).

In addition to the LME price, buyers in larger markets pay a regional premium over the LME price. This premium includes transportation costs to these markets; they also reflect regional differences in demand. In the case of the European market, a premium is applied based on passing through the port in Rotterdam. Buyers need to pay additional logistics costs from Rotterdam to their location in Europe, amounting to USD 30-60 per tonne. For

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the European market, a further distinction is made between duty paid and duty unpaid premiums. The EU Data on regional premiums over the past years for the markets in the US, Japan and the EU are presented in table D.4. Further discussion of premiums with respect to the impact of duties is presented in the section EU Import tariff regime for aluminium below. Premiums - both duty paid and duty unpaid are time observations and as such snapshots or partial observations. Hence the listed numbers for 2009-2010 should for instance be considered in the light of the economic crisis.
Table D.4 Prices and premiums of primary aluminium, 2003-2010 (USD/tonne) Prices and premiums LME 3 months Premiums EU duty unpaid EU duty paid Japan US Mid-West Duty-paid minus duty-free premiums, divided by LME price (%) Note: While data for December 2010 could not be provided, various sources indicate that prices tended upwards until the end of 2010, but are expected to decrease again in the first quarter of 2011. Source: Various issues of Metals Bulletin Research. 4.4 3.9 3.6 5.5 3.8 1.7 1.1 2.8 34 97 49 116 56 124 57 126 53 155 69 70.55 40 85 80 94.80 44 62 97 103.60 1,428 1,721 1,899 1,259 2,662 2,620 1,701 2,135 Sept. 125 185 122 136 2003 2004 2005 2006 2007 2008 2009 2010
182

Trade As can be seen in table D.5, imports meet a substantial share of close to 60% of the EU usage of primary aluminium (alloyed and unalloyed) in recent years; this import share increased from 56.6% in 2006 to 60.5% in 2007. The share of imports fell back to 56.8% in 2009 as EU primary aluminium production fell less than EU usage.

182

For example: Shanghai Metal Market site: article 31/1/2011: Steady US aluminium premium defies seasonal drag: refers to a US Mid-West price of 6.35-6.5 per lb (US$139.70 to US$ 143 per ton) for late November, early December 2010 (expected to go down slightly in the first quarter of 2011); Metal first.com 15-12-2010: reported that for the fourth quarter of 2010 aluminium premium for the Japanese market amounted to US$116-118, which were expected to weaken to US$112-113 in the first quarter of 2011; Platts: 12 November 2010: European spot aluminium premium edge up, focus on next year. Reported that for November the aluminium premium had edged up by US$5 to US$195-205 per ton (duty-unpaid: US$125135).

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Table D.5

Production, trade and usage of primary aluminium in the EU 2006-2009 (1,000 tonnes) 2006 Production EU imports EU exports EU usage Import share in usage (%) 3,418 4,637 85 7,970 58.2 2007 3,416 5,119 71 8,464 60.5 2008 3,381 4,633 62 7,952 58.3 2009 2,670 3,358 123 5,905 56.9

Note: Usage is measured as production plus imports minus exports.183 Source(s): Eurostat (PRODCOM and COMEXT data).

Just over half of primary aluminium imported to the EU is unalloyed aluminium as shown in D.6. The share of unalloyed aluminium as a percentage of total primary aluminium imports declined. The table also shows that about half of unalloyed aluminium imports are duty free. For alloyed aluminium, this share was between 70 and 85%. Over time, the volume of duty-free imports of primary aluminium has fluctuated more than that of dutypaid imports.184 Since 2007 especially, duty-paid imports fell much more rapidly than duty-free imports as reflected by a sharp increase in the share of duty free imports, especially in 2009.
Table D.6 Imports of unwrought aluminium into the EU 2003 to 2009 (1,000 tonnes) 2003 EU27 imports of unalloyed aluminium Duty-free imports Duty-paid imports Share of duty-free in EU imports (%) 2,523 966 1,557 38.3 2004 2,586 913 1,659 35.3 2005 2,261 1,064 1,197 47.1 2006 2,794 1,335 1,459 47.8 2007 3,018 1,309 1,706 43.4 2008 2,510 1,218 1,278 48.5 2009 1,847 1,194 650 64.8

EU27 imports of alloyed aluminium Duty-free imports Duty-paid imports Share of duty-free in EU imports (%) Share of unalloyed in total primary aluminium imports (%)
Source(s): Eurostat COMEXT data.

1,397 1,114 283 79.7

1,753 1,444 309 82.4

1,734 1,452 282 83.7

1,843 1,405 438 76.2

2,101 1,495 606 71.2

2,123 1,596 527 75.2

1,511 1,287 224 85.2

64.4

59.6

56.6

60.3

59.0

54.2

55.0

The main supplier of unalloyed aluminium subject to duties is Russia, which accounts for about a quarter of all EU imports of unalloyed aluminium and about 45% of EU imports of duty-paid unalloyed aluminium. Brazil is the second-largest supplier, although its share of EU imports falls well below that of Russia. For alloyed aluminium the main duty-paid sources are the Middle East (UAE and Bahrain), Brazil and Russia. With respect to secondary alloyed aluminium (made from scrap) there is little competition from imported secondary alloyed aluminium; imports meet only 4-8% of the
183

184

EAA has estimated slightly lower EU usage level based on estimates made by industry experts. Accordingly: 2006: 7.365 mt; 2007: 7.736 mt; 2008: 7.184 mt; and 2009: 5.4 mt. Primary aluminium and semi-fabricates of aluminium are imported duty free from countries with which the EU has Preferential Trade Agreements.

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EU market demand for secondary alloyed aluminium ingots (Table D.7). The data also suggest a falling trend in the share of imported secondary alloyed aluminium.
Table D.7 Exports, imports, production, export and import shares of secondary alloyed aluminium, 2006 to 2009 (1,000 tonnes) Exports 2006 2007 2008 2009 97 90 116 120 Imports 231 307 188 104 Production 3,664 3,724 3,411 2,639 Export/Production (%) 2.6 2.4 3.4 4.5 Imports/Usage (%) 6.1 7.8 5.4 4.0

Note: These production estimates include only refining and exclude remelting. Source: Eurostat PRODCOM data.

A key factor for maintaining the competitiveness of the EU secondary alloyed aluminium industry is to have continued access to scrap. Access to scrap for EU secondary alloyed producers is threatened by (i) the increasing amount of scrap exported from the EU, particularly to China and India and (ii) the reduced availability of scrap from countries outside the EU that generate substantial scrap because some of these countries have imposed export restrictions. Russia has imposed an export tax of 50% on the export of scrap and Ukraine has introduced a total ban. The data in Table D.8 confirm that since 2000 the amount of scrap exported from the EU increased substantially, more than doubling by 2009, whereas the import of scrap fell by half over the same period. It also shows that China and India were the destination for about two-thirds of EU scrap exports, except in 2007 and 2008 when these shares were significantly lower. It is not clear what caused this temporary reduction in export shares to China and India in these two years.
Table D.8 Import and export of scrap (1,000 tonnes) Year Export Import Export share China (%) 2001 2002 2003 2004 2005 2006 2007 2008 2009 439.3 474.4 509.5 552.1 740.3 642.1 1,085.7 1,063.8 1,126.7 472.5 337.7 325.9 353.5 308.7 363.3 425.4 375.2 251.1 37.0 31.9 53.8 55.1 50.8 49.9 25.9 22.0 46.7 Export share India (%) 7.3 9.4 8.0 10.2 18.5 13.7 10.0 15.2 20.4

Source(s): Eurostat COMEXT data.

Table D.9 presents extra-EU imports and exports of aluminium semi-fabricates. Both imports and exports have increased for most products since 2000. Imports exceed exports for bars, rods and profiles and for wires. Imports and exports are more or less equal for plates, sheets and strips, and exports exceed imports for foil. Two countries stand out in terms of increasing their share in the EUs imports: Turkey and China. Other significant sources of the EUs imports of semi-fabricates are Switzerland, Norway, Russia and the United States, though the import shares of these countries have declined.

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Table D.9

Imports and exports of selected semi-manufactures of aluminium, 2000-2009 (1,000 tonnes) 2000 Imports Bars, rods and profiles Aluminium wire Plates, sheets and strips Aluminium foil Exports Bars, rods and profiles Aluminium wire Plates, sheets and strips Aluminium foil 132.7 38.9 391.9 259.4 128.4 39.7 412.9 283.4 130.5 49.3 444.6 289.4 147.4 45.5 530.6 301.7 153.5 53.4 655.9 306.1 160.6 53.6 746.3 308.8 187.6 55.6 730.3 314.7 196.0 45.0 680.5 292.7 196.3 43.4 665.8 271.6 154.7 49.6 503.6 236.2 185.6 167.0 407.6 95.3 166.1 168.0 416.0 95.8 163.0 201.1 401.2 105.0 178.9 236.8 458.1 121.0 184.5 281.6 508.0 126.7 212.0 236.9 530.7 135.5 269.6 223.5 612.8 134.7 335.1 272.9 694.1 191.8 347.4 263.2 684.4 173.0 261.1 215.1 525.6 145.5 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source(s): Eurostat COMEXT data.

Table D.10 shows that the EU exports 10-15% of its production of semi-fabricates to markets outside the EU, except for foil, of which about 30% of production is exported. In the period 2006-2008 export shares were relatively stable. Import shares in EU usage vary from a low of 8-9% for bars, rods and profiles, to 12% for plates, sheets and strips, to 20% for foil and almost 50% for wires. Import shares in usage appear to show a modest increasing trend. On the whole, these data suggest that the EU manufacturers of semi-finished products have maintained their competitive position vis--vis suppliers outside the EU, but that the threat of competition from imports, particularly from China and Turkey is increasing.
Table D.10 Imports, exports and production of aluminium semi-manufactures in the EU (1,000 tonnes) and share of exports in EU production and share of imports in EU usage, 2006, 2007, 2008 and 2009 Exports Imports Production Usage Exports/ Production (%) 2006 Bars, rods and profiles Aluminium wire Plates, sheets and strips
185

Imports/ Usage (%)

187.6

269.6

3,136.1

3,218.4

6.0

8.4

55.6 730.3

223.5 612.8

358.0 5,230.6

525.8 5,113.4

15.6 14.0

42.5 12.0

Aluminium foil 2007 Bars, rods and profiles Aluminium wire Plates, sheets and strips Aluminium foil

314.7

134.7

996.3

816.3

31.6

16.5

196.0

335.1

3,301.6

3,440.7

5.9

9.7

45.0 680.5

272.9 694.1

306.5 5,475.6

534.4 5,489.2

14.7 12.4

51.1 12.6

292.7

191.8

1,045.6

944.7

28.0

20.3

185

The production data for plates, sheets and strips (called rolled products) include double counting of further processes such as painting.

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Exports

Imports

Production

Usage

Exports/ Production (%)

Imports/ Usage (%)

2008 Bars, rods and profiles Aluminium wire Plates, sheets and strips Aluminium foil 2009 Bars, rods and profiles Aluminium wire Plates, sheets and strips Aluminium foil 236.2 145.5 789.8 699.1 29.9 20.8
Source: Eurostat PRODCOM data.

196.3

347.4

3,027.1

3,178.2

6.5

10.9

43.4 665.8

263.2 684.4

303.3 5,084.8

523.1 5,103.4

15.5 13.1

52.6 13.4

271.6

173.0

887.3

788.7

30.5

21.9

154.7

261.1

2,228.1

2,334.5

6.9

11.2

49.6 503.6

215.1 525.6

279 4,152.8

444.5 4,174.8

17.8 12.1

48.4 12.6

EU import tariff regime for aluminium


The EU import tariff regime for the aluminium sub-sector imposes the following import duty rates:186 Alloyed primary aluminium: 6%; Unalloyed primary aluminium: 3% (Council Regulation 501/2007 of 7 May 2007 introduced a partial suspension of the autonomous customs duty for unwrought unalloyed aluminium from 6% to 3%, to be reviewed after a period of three years); Secondary alloyed aluminium: 6%; Semi-finished aluminium products such as bars, rods, profiles, wire, sheets, foils and sheets: 7.5%; Waste and scrap of aluminium 0%; Finished aluminium products (frames, pipes, containers, stranded wire, kitchen and sanitary ware, fittings, nails): 6%. Primary aluminium and semi-fabricates of aluminium are imported duty free from countries with which the EU has Preferential Trade Agreements (PTAs), such as Norway, Iceland, Bosnia and Herzegovina, Croatia, Montenegro, Serbia, Turkey and Egypt and from ACP countries (e.g. Ghana, Mozambique). In addition imports of semi-fabricates from GSP countries are subject to a reduced import tariff rate of 4%. The main countries that have GSP status and export significant amounts of semi-fabricates to the EU include: Russia, Brazil, Bahrain, Thailand and India.

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Unalloyed primary aluminium: aluminium without alloying elements where the minimum aluminium content is specified to be greater than 99,00%; Alloyed primary aluminium: aluminium which contains alloying elements, where aluminium predominates by mass over each of the other elements and where the aluminium content is not greater than 99.00%; Secondary alloyed aluminium is either refined or remelted aluminium from scrap.

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Table D.11 presents comparative information on the import duty structure in the main aluminium markets, the US, Japan and China. Japan has the most liberal tariff structure for primary aluminium applying a zero rate to all primary imports. This regime reflects developments in the Japanese primary aluminium industry where all primary production facilities were closed as a result of increasingly high energy costs. Downstream processors such as Mitsubishi have instead invested in shares in primary production facilities abroad (Australia and Venezuela) to ensure access to primary aluminium for its downstream processing needs. The US and China also levy low or no import duties on primary aluminium.
Table D.11 Comparative import duty rates for aluminium products for the EU, US, Japan and China in 2008 (%) Product Unalloyed unwrought aluminium Alloyed aluminium Semi-manufactures Finished products EU 0-3 0-6 0-7.5 0-6 US 0-2.6 0-2.6 0-6.5 0-5.7 Japan 0 0 7.5 0-3 China 0 7 5-8 8-25

Source(s): WTO import tariff data base. These represent the most recent data available from the WTO.

Globally, the general trend was to liberalise international trade in goods by reducing import duties, because this stimulates investment and production at the most efficient locations. However, international negotiations on further liberalisation were suspended, at least temporarily. The following analysis seeks to answer the question: Should further reductions be made to EU import tariffs for aluminium? The analysis examines the main grounds for the present regime of import duties for aluminium products; these include, in particular, the need to compensate EU industry for market imperfections resulting in relatively high (direct and indirect) costs of energy (the indirect costs are related to the EU ETS policy) and maintaining the advantages of clustering along the value chain, and export tariffs imposed and subsidies provided in third countries. From a policy perspective, these interests, in turn have to be balanced with concerns about the competitiveness of the downstream EU aluminium industry. Electricity costs and costs related to ETS For primary aluminium production, a main argument for imposing an import duty is the relatively high cost of energy in the EU (further increased by the set up of ETS). As discussed earlier in this report, these high energy costs are the result of a number of factors: 1. An inefficiently operating EU power market based on marginal price setting; 2. High and increasing costs of environmental measures and emission charges which are less extensive in many competing countries; 3. Electricity companies which incorporate the ETS cost in their final electricity prices. As pointed out in this report, energy costs in the EU are likely to increase further in the coming years, especially as a result of the further effects of the EU ETS after 2012. Our assessment is that using import tariffs as a form of compensation for high costs, such as for energy, is not preferable. Import tariffs do not address the basic competitiveness issue of the high cost of energy for EU producers; this issue would be better addressed
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through an appropriate EU energy policy. In addition, the use of import tariffs isolates the EU sector internationally and constrains further competitiveness developments and exports to third countries, particularly for downstream industries. Retaining integrated value chains A supplementary argument used to support the presence of EU-based primary aluminium production through import duties is that an integrated value chain within the EU will have a positive impact on cooperation and networking with EU-based downstream users. Such networking facilitates R&D and new product development to meet the needs of downstream processors in terms of alloying, shaping and sizing primary aluminium and also to allow just-in-time delivery. Smaller-scale, primary producers located relatively close to each other can more easily tailor their output to the requirements of downstream users than the large-scale production facilities at more distant locations. Relocation of the primary aluminium industry to countries outside the EU will result in additional costs for downstream producers to meet their special requirements, i.e. by having to invest in their own alloying facilities (casting houses) or sourcing specialty requirements from outside the EU (with the associated additional transport costs). An additional cost would be the loss of the EU primary aluminium industrys R&D capacity. In interviews, representatives of EU downstream producers confirmed the importance of research and quality for their competitiveness. However, producers of semi-fabricates can also source quality products from primary aluminium producers outside the EU, as is illustrated by the Swedish experience elaborated in the Box below:

Case: Alumiumriket Alumiumriket, in the region of Smland/Blekinge in south-eastern Sweden, hosts over 300 companies producing aluminium related products. The cluster has grown substantially over the past few decades and consists mainly of SMEs. In 2006, the Swedish aluminium industry consumed about 200,000 tonnes of primary aluminium per year.
187 188

Between 55,000 65,000 tonnes of aluminium are recycled each year in Sweden.

If one

includes recycled aluminium the market uses about 250,000 tonnes per year (2006). Swedens only aluminium producer is the smelter run by Kubal in Sundsvall (650km from Smland/Blekinge). It produces 100,000 tonnes of aluminium per year from which 50% is delivered to the Swedish market and 50% is exported.
189

Producers of semi-fabricates in Sweden therefore import about 60 percent of the

aluminium used. Available data also show that there is an upward trend in imported aluminium in Sweden (see table D13), reflecting increased import dependency of producers of aluminium semifabricates.

This case study shows therefore, that while there is a high local demand, the only Swedish smelter is exporting circa 50% of its production. At the same time local Swedish downstream companies are importing their primary aluminium. In the case of Alumiumriket, there seems to be at most a weak link between the processors of primary aluminium and the Swedish primary aluminium producer. In this

187

188

189

Lagerholm, M. (2007) Kunskap och innovation i ett moget kluster: En ekonomisk-geografisk studie av aluminiumindustrin i Smland-Blekinge. Geografiska regionstudier 74. 169 pp. Uppsala. ISBN 978-91-506-1940-9 Henryson, J. and M. Goldmann (2007) tervunnen rvara en god affr fr klimatet. Report developed for tervinnings Industrierna, April 2007.. http://www.kubal.se/eOmKubal.htm

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case, the added value of being closely located to each other in the value chain seems to be relative small.
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Table D.12

Import and exports of alloyed unwrought aluminium for Sweden (in metric tonnes)

Import Export

2006 310,220 272,790

2007 402,570 259,998

2008 387,009 273,452

2009 340,902 270,448

2010 400,110 351,425

Another argument for supporting the primary aluminium industry through import duties is to keep the R&D capacity developed by the primary industry within the EU. There is the debate on the effects of the tariff on retention of R&D or more broadly speaking the technology base and the wider implications of the loss of this technology base. While the various arguments seem reasonable, there is no real proof or confirmation that due to tariffs, R&D will stay in the EU, nor is their compelling evidence that removing them would lead to an outflow of R&D activities and serious damage to the technology base. At the same time, R&D is also undertaken at the level of semi-fabricate producers, who in collaboration with their clients, seek to upgrade the quality and use of their products in order to maintain competitiveness There are several cases of positive links between the presence of primary industry and R&D. A good example is the link between Hydro and the NTNU (Technical University of Trondheim). Hydro is sponsoring two professorships to support the university's leading position in the area of aluminium and to have the option of recruiting the brightest graduates. Outside the EU, an example of strong links between the aluminium industry and R&D is from Canada, the worlds second-largest exporter of primary aluminium. The National Research Council of Canada (NRC) has set up the Aluminium Technology Centre, located at the Universit du Qubec. The centre is government funded and provides aluminium producers with technical support, expertise and lab facilities to develop value-added aluminium products and processes (employing 60 NRC staff and 20 guest researchers). One of the aims is to move beyond primary aluminium production and to develop and export innovative, value-added aluminium products. The above assessment shows that primary aluminium producers stimulate R&D, some of which will be lost when the primary industry moves out of the EU. Substantial R&D is also associated with the production of semi-fabricates, which would be stimulated by a more costs competitive production of semi-fabricates. The Canadian example illustrates that there is indeed benefit in R&D supporting an integrated value chain of primary producers and producers of semi-fabricates. Whether the tariff is an effective instrument to keep the primary aluminium industry in the EU and therewith primary aluminiumrelated R&D capacity could not be demonstrated in this study based on available evidence. The available evidence does suggest, however, that R&D can be effectively supported with external funding whether from governments or the Commission.

190

Source: data complied from www.scb.se (SITC code 648)

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Impact of import tariffs


Impact on premiums The EU import duty on primary aluminium raises its cost in Europe for downstream processors. The extent of this price increase is reflected by the difference between the duty-paid premium paid by importers of primary aluminium and the duty-unpaid premium. For example, in 2006, the difference between the duty-paid and unpaid premiums was USD 65 adding 4% to the LME price of aluminium, which was on average USD 1,594 per tonne (see Table D.4). The difference between the duty paid and the duty unpaid premium has typically been lower than the full duty rate, as a percentage of the LME price. The difference between the duty effect on the premium and the full duty reflects the part of the duty that is borne by suppliers. The duty paid premium price is the price paid for all primary aluminium used in the EU whether it is sourced from countries for which duties apply or from duty free sources.191 There is a debate about the extent to which the duty raises the premium for the EU market above premiums in other regional markets. Available data show that in 2007 and in the first half of 2008 a period of increasing LME prices the duty-paid premium on the European market was higher than in competing markets such as Japan and the US. However, in other years the EU duty-paid premium has been lower than for Japan and the US. As Table D.4 shows, for 2009, when the LME price was lower, the duty paid premium was USD 62 for Europe, whereas the premium was USD 97 for Japan and USD 103.60 for the US. During 2010, the premium for aluminium delivered in Rotterdam has increased strongly to USD 185 per tonne (September 2010) and has risen substantially above the premiums for the Japanese or the US markets. An explanation for the strong increase in EU premiums in 2010 is that, in the course of 2010, demand and prices for aluminium have increased strongly in the Asian market. As a result smelters outside the EU were able to negotiate high premiums on the EU market in order to continue supplying the EU market. Another factor contributing to the high premiums in 2010 is speculative financing of inventories of unalloyed aluminium which had accumulated during the second half of 2008 and much of 2009. This was done by banks resulting in withholding these inventories to the market when demand started to increase again in late 2009 and 2010, thus exacerbating scarcity of the metal in the market and pushing up premiums. The data for September 2010 as presented in Table D.4 reveal that for that month the basic duty-unpaid premium for the EU is similar to the premiums for Japan and the Mid West USA, but that the duty effect pushes the EU premium to a level higher than in other markets. It is clear that the duty raises the EU aluminium premium, but that regional differences in market conditions also impact on the regional premiums. It appears that especially in times of scarcity and thus high LME prices the EU duty-paid premium increases to a level higher than the premium in other markets. Another important finding regarding the difference between the duty paid and unpaid premium for the EU market, is that this difference is higher in periods of tighter market conditions than in periods of depressed market conditions when EU smelters need the

191

This finding on the impact of the duty on the market price of aluminium in the EU has been confirmed by representatives of several companies producing semi-fabricates and importing primary aluminium interviewed for this study.

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195

support provided by the duty most. As can be observed in D10, this difference became very low in 2008 and 2009 when the global depression struck hardest. In addition to the premium on standard primary aluminium, there are separate premiums for billet alloy ingots, which are used by extrusion plants. These premiums are generally substantially higher for the EU (in September 2010 around USD 400) than for other main markets, i.e. Asia (USD 180-200), the US (USD 330) and the Middle East (USD 250280). The duty clearly has an impact on the EU premium, though variations in the premiums and differences between regions are also impacted by changing market conditions. Impact on revenues and cost of production Given that imports account for a large share of EU primary aluminium usage, it would be expected that EU primary aluminium prices would fall in response to reduced import duties. Consequently, the processing margins of primary producers would be reduced and, if primary producers pass on lower prices, then the costs of aluminium would be reduced for producers of aluminium semi-fabricates.192 The primary aluminium industry operates with a processing margin (price minus raw material and energy costs) of about 35%. As a result, a 1% reduction in price would reduce the processing margin by 3%,193 which would mean a noticeable deterioration in the profitability of the industry. For producers of semi-fabricates, the costs of primary aluminium amount to about two-thirds of the total price. A reduction in the price of primary aluminium by 1% could therefore reduce the price of semi-fabricates by around two-thirds of 1%, assuming that the reduction in cost reduction will be passed on to users further downstream, which is likely.194 D.14 summarises the effects of a 1% reduction in tariffs on revenues of EU producers and costs of users. It is assumed that the price of aluminium is EUR 1,500. Moreover, 2008 production and usage levels are assumed to prevail. It is also assumed that all primary aluminium users pay a price for aluminium that includes the duty. The latter assumption implies that the import duty reduction will benefit all primary aluminium users. The table shows that the 1% import duty reduction would reduce revenues of primary producers by EUR 45 million and reduce costs for downstream producers by EUR 117 million, resulting in a net positive effect for the value chain of EUR 72 million.

192

193 194

Interviews with industry representatives confirm that the market of aluminium is sufficiently subject to competitive pressures that a change in tariffs will result in a similar reduction in the price of aluminium. Estimated as the ratio of the 1% price reduction to the processing margin of 35% (1/35 is approximately 3%). Interviews with producers of semi-fabricates confirm that cost increases/decreases related to the costs of raw material are passed on to their clients.

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Table D.13

Effect on revenues of primary producers and costs of downstream producers of reducing the import duty on primary aluminium by 1%
195

EU production/ usage of primary aluminium in 2008 (mln tonnes) Reduction in revenue for primary producers Reduction in costs for downstream processors Net effect
Source: ECORYS.

1% price effect in EUR (at EU market price of EUR 1,500) 15

Total effect (million EUR ) -45.0

3.0

7.8

15

117.0 72.0

Impact on secondary alloyed aluminium producers The main justification for an import duty on secondary alloyed aluminium is the threat posed by countries with lower production costs, particularly Ukraine, Russia and China. As noted earlier in this study, Ukraine and Russia have imposed restrictions on the export of scrap, meaning that their secondary alloyed producers can access scrap at lower costs. Data on the cost structure of secondary alloyed aluminium show that the industry works with relatively low processing margins amounting to about 20% or less of the price of secondary alloyed aluminium, the remaining 80% being accounted for by the cost of scrap.196 A reduction in the price of secondary alloyed aluminium by 1% as a result of, for example, a lower import duty, will therefore reduce the processing margin earned by processors by about 5%. The response of secondary alloyed aluminium prices on the EU market to changes in import tariffs is not likely to be large, given that imports currently account for only about 5% of EU secondary alloyed aluminium usage (Table D.7). It should be noted that there is substitution between primary alloyed and secondary alloyed aluminium. As a result, the price of secondary alloyed aluminium is influenced by the price of primary aluminium. Lowering import tariffs for primary aluminium therefore puts downward pressure on secondary alloyed aluminium prices. Moreover, because it is not possible to distinguish between primary alloyed and secondary alloyed aluminium, maintaining import duty rates for primary alloyed and secondary alloyed aluminium at the same level is recommended. Semi-fabricates The analysis above assesses the impact of the duty on primary aluminium on the costs of production of the producers of semi-fabricates. It should be noted that the EU tariff regime also includes a 7.5% import duty for semi-fabricates. The producers of semifabricates feel that this tariff is needed to compensate for the higher costs of primary aluminium for EU producers of semi-fabricates caused by the import duty on primary aluminium and by other costs (energy costs, costs of environmental compliance). It is also pointed out that similar levels of import duties are applicable in competing producing
195

196

It is clear that this represents a highly stylised estimation of the impact of a 1 percent tariff reduction. It is assumed that the tariff reductions will be passed on to users, which in the light of the interviews conducted appears to be a realistic assumption. In the calculation no impact is assumed of the price effect on the quantity of primary aluminium consumed. Usually price reductions will result in an increase in demand, i.e. more use of aluminium by downstream users. As presented, for example, in EC Directorate General of Environment, McKinsey and Company, and Ecofys, EU ETS Review, Report on International Competitiveness, December 2006.

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197

countries such as China, the US and Japan (Table D.11). In the EU, this tariff advantage for EU producers is being eroded by increasing imports of semi-fabricates from countries which can export duty free to the EU. Table D.14 shows that for most semi-fabricates more than 50% is imported duty free. A further significant amount of imports is subject to a GSP tariff rate of 4%.197
Table D.14 Share of duty-free imports in total imports of semi-fabricates, 2000, 2005 and 2009 (in percentages) Type of fabricates Bars, rods and profiles Aluminium wire Plates, sheets and strips Aluminium foil Tubes and pipes
Source: estimated from the Eurostat COMEXT data.

2000 66.5 42.2 66 53.8 39.3

2005 61.1 37.2 64.5 53.2 47.1

2009 59.9 45.1 72.4 48.4 60.1

With respect to users further downstream, such as the automobile industry, building and packaging, it is clear that a reduction in tariffs will result in lower costs of aluminium and will promote the use of aluminium, possibly substituting competing materials. Tariff reform proposals In response to increasing calls to reduce aluminium tariffs, the industry has itself come up with tariff reform proposals. One tariff reform proposal, which has the backing of a substantial share of both upstream and downstream manufacturers in the value chain, proposes the following tariff adjustments to be implemented by July 2012:198 reducing the import tariff for alloyed primary aluminium from 6% to 4%; maintaining the tariff on unalloyed primary aluminium at 3%; maintaining the import tariff of secondary alloyed aluminium at 6%. This reform proposal remains modest in scope, but would result in some reduction of primary aluminium prices for downstream processors. This tariff reform proposal aims at maintaining the tariff on secondary alloyed aluminium at 6%. However, in light of the findings presented above (prices of primary and secondary alloyed aluminium are correlated and distinguishing between the two products is difficult), implementing a tariff regime with different import duty rates for primary and secondary alloyed aluminium will be difficult. The main arguments for the need to maintain import duties on primary and secondary aluminium imports are: Relatively high costs faced by EU smelters (energy, emission charges) which in part are seen as exacerbated by unfair competition due to direct and indirect subsidies and the absence of ETS in competitor countries; To retain R&D and the benefits of clustering within the EU; To prevent the industry from moving out of the EU. A section of the industry representing producers of semi-fabricates, especially in Southern Europe, have proposed a more substantial reduction in import tariffs for primary
197

198

For 2008 imports from GSP countries amounted to 13.3 percent for plates and sheets, 18.8 percent for tubes and pipes, 16.4 percent for bars, rods and profiles, and 11.4 percent for foil. This proposal has been made by EAA, which has its members, both primary producers as well as producers of semifabricates.

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FWC Sector Competitiveness Studies EU NFM Industries

aluminium, i.e. from 3% to 0% for unalloyed aluminium and from 6% to 3% for alloyed primary and secondary alloyed aluminium.199 Their arguments for substantially reducing import duties include: The duty on primary aluminium increases the costs of raw material for producers of semi-fabricates and reduces their competitiveness; The duty raises the costs of primary aluminium across the board even when it comes from countries with duty free access to the EU; Only a small part of the increased costs for semi-fabricate producers represent benefits for EU primary producers. A large part of the benefits go to importers sourcing aluminium duty free, or to producers/exporters in countries which have duty free access to the EU. In many cases, these are companies that also operate in the EU and therefore get double benefits: i.e. their operation in Europe and their operations in countries that export duty free to the EU; The duty also results in unfair competition between producers of semi-fabricates that are part of integrated companies and that can pass on lower prices from duty free access to their semi-fabricate plants (although we are not sure to which extent this actually happens) and independent semi-fabricate producers that do not have the option of accessing duty free aluminium; The protective effect of the duty does not really work well. In periods when the smelters need it most, i.e. when the LME prices are low, the duty paid premiums are also low; conversely when prices are high and smelters need it less, the duty paid premium increases more than proportionally, because of increased scarcity; The compensation for the higher costs of primary aluminium inputs provided by the 7.5% duty on semi-fabricates is eroded by increased imports of semi-fabricates from countries which have duty free access to the EU (Turkey, Morocco, Switzerland, Norway, etc). These proposals suggest though that a consensus is starting to develop on the need to reduce import tariffs on primary aluminium. Further reduction of EU import duties on primary aluminium will contribute to improving the competitive position of the EU downstream processors of aluminium (producers of semi-fabricates).

Impact of tariff reduction for unalloyed primary aluminium


A test case for assessing the effects of reducing import duties on the aluminium sector comes from the partial suspension of the autonomous customs duty for unwrought unalloyed aluminium from 6% to 3% introduced in May 2007 (to be reviewed after a period of three years). The reason for this partial suspension was to improve the competitive position of downstream industries. It was argued that many firms, especially SMEs, had difficulty accessing primary aluminium at a competitive price. Moreover, with the expansion of the EU to 27 members, the number of SMEs processing unwrought, unalloyed aluminium into semi-finished and finished products had increased significantly (especially with the inclusion of Poland). These companies had difficulties accessing primary or unwrought aluminium that was imported duty free from countries covered by
199

This proposal is made by FACE, an association which has as its members semi-fabricates producers, mainly from Italy, and two main non-EU aluminium producers one based in Russia and one based in the UAE.

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199

preferential trade agreements. The available data enable an assessment of the following effects of the duty reduction: The impact on the EU aluminium premium; The impact on imports and EU production. It should be noted that the period of time for which we have data to assess these impacts coincides with the global recession, hence it is difficult to distinguish the impact of the change in the tariff and thus to draw robust conclusions. Effect of duty reduction on the aluminium premium The reduction in the EU import duty rate from 6% to 3% clearly impacted on the level of the duty-paid premium. Available data show that immediately following the cut in the EU import duty rate for unalloyed aluminium (from 6% to 3%) in May 2007, the EU dutypaid premium fell from USD 170 to about USD 135 by mid-2007 and then gradually fell further to just below USD 120 by the end of 2007 at a time that the LME price for aluminium remained high. The ratio of the difference between the duty-paid and dutyunpaid premiums over the LME price dropped from 3.3% in 2007 to 1.9% in 2008 as a result of the duty reduction. By September 2010 it increased to 2.8% as a result of tightening demand, but remained well below earlier levels. It can be concluded, therefore, that the import duty reduction did result in a decline in the costs of primary aluminium for downstream producers. Effect on imports and production Data on changes in imports and production can help assess the impact of the tariff change. One would expect that lower import duties on unalloyed aluminium would reduce the import price and boost the volume of imports. Imports of unalloyed aluminium increased in 2007, but fell in 2008 and 2009. The duty reduction did not accelerate imports of unalloyed aluminium compared with alloyed aluminium. In 2007, imports of unalloyed aluminium increased by a little less than imports of alloyed aluminium with the share of unalloyed aluminium in total primary aluminium imports largely unchanged. The duty reduction did not appear to slow down the trend of increased duty-free imports as reflected by an increasing share of duty-free imports in total unalloyed imports (from 38% in 2003 to 48% in 2006 to 65% by 2009). Overall, movements in imports of unalloyed aluminium since the duty was reduced in 2007 appear to reflect changes in demand in downstream usage in the EU, still increasing in 2007, but falling in 2008 and 2009 as a result of the global economic crisis. It is impossible to distinguish the impact of the tariff reduction from those of the global economic crisis. One would expect that lower import duties would adversely affect sales of domestic primary aluminium producers within the EU as the prices of imports from outside the EU become more attractive. Sales of primary aluminium producers in the EU remained fairly constant over the period 2006-2008 and may therefore not have been significantly hurt by the import tariff reduction. Tentative data for 2009 suggest a considerable drop in primary production, but without a commensurate increase in the import share. The decline in demand likely caused the decline in production rather than increased competition from imports.

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The dual import regime for non-alloyed and alloyed aluminium has furthermore potentially benefited remelters, offering an artificial cost advantage to remelt unalloyed primary aluminium into alloyed aluminium.

Summary of findings
The main findings of this assessment of the EU tariff regime are the following:

Under the current tariff regime, primary aluminium production in the EU has not grown; investments to expand production have taken place outside the EU as also illustrated in Chapter 2 of this report and the EU demand for primary aluminium is increasingly met by imports. The question whether without tariffs aluminium production would have declined or will decline cannot be answered without being speculative. We are concluding that the grounds for having import tariffs are not very strong. One of the main cost factors which the import duty is expected to compensate, is the cost of electricity. However, using import tariffs as a form of compensation for high energy costs does not address the basic competitiveness issue of the high cost of energy for EU producers; addressing this issue is best done through an appropriate EU energy policy and policies to address the EU ETS implications; Whereas, duties on primary aluminium raise revenues for primary producers, they also raise the costs of inputs for downstream producers. A considerable share of primary aluminium is imported duty free into the EU (65% in the case of unalloyed primary aluminium and 85% in the case of alloyed primary aluminium). However, for all semi-fabricate producers, the cost of aluminium includes the cost of duty irrespective of its origin200. A somewhat simplified calculation suggests that reducing the import duty tariff by 1% (or EUR 15 at a price of EUR 1,500) would result in a loss of revenue for the primary sector of EUR 45 million, at an EU production level of 3 million tonnes. In addition it would reduce costs in the downstream sector by EUR 117 million, given that 7.8 million tons of primary aluminium are consumed by the producers of semi-fabricates. Semi-fabricate producers outside the EU that have duty-free access to the EU or have GSP preferential treatment, have a cost advantage compared to EU producers of semi-fabricates because they pay less for primary aluminium; Proposals for tariff reforms were presented by different segments of the industry. They propose aluminium import duty reductions, though the extent and time scheduling differ. In the light of the ongoing trend towards liberalisation of trade, and the limited effectiveness of the tariff instrument to compensate primary producers for EU cost disadvantages, further reductions in the EU import tariff for aluminium will improve the competitive position of the EU producers of semi-fabricates. Simultaneously, there is a need to address the factors that distort the level playing field for EU primary aluminium producers, such as those raising the cost of electricity in the EU;
Maybe except for those producers of semi-fabricates that are part of integrated companies and that can pass on lower prices from duty free access to their semi-fabricate plants.

200

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201

The EU secondary alloyed aluminium industry faces competition from Ukraine, China and Russia where secondary alloyed producers have access to scrap at lower costs on account of export restrictions. The EU secondary alloyed industry operates with small processing margins. Consequently changes in import duties and resulting changes in prices will have an important impact on these margins and the profitability of the secondary alloyed aluminium industry. However, as secondary alloyed aluminium prices are correlated with primary aluminium, it is recommended to maintain a degree of parity in import tariff treatment between primary and secondary aluminium alloys when lowering this tariff. An argument for maintaining full parity in the import tariff treatment for primary and secondary aluminium could be that it is difficult to distinguish between primary and secondary aluminium. This issue of the possibility to distinguish between the two products is still being examined. At the same time, appropriate policies to improve the supply of scrap for EU processors should be designed and implemented. The RMI is an important step in this direction, as argued elsewhere in this report; In considering reductions in tariffs on primary aluminium, one also needs to consider the tariff on imports of aluminium semi-fabricates (7.5%). It is clear that reducing tariffs for semi-fabricates, to the extent that they are passed on in the form of lower product prices, would result in reduced costs for downstream users, such as the automobile industry, building and packaging. Regarding import duties for secondary aluminium, we propose the same treatment as for primary aluminium, reducing these at the same pace both for practical reasons (it is difficult to distinguish between primary and secondary aluminium, though an examination is going on aiming to verify this) and for economic reasons (primary and secondary aluminium are substitutes as mentioned in the report). Recycling also has a substantially different structure in terms of costs (much less energy required). We understand that the argument for tariffs on secondary aluminium are not so much based on the fact that the process saves on energy, but that competing countries have access to subsidised inputs (export bans/limitations in Russia and Ukraine).

Finally, it is difficult to isolate the impact on imports and production of the 2007 partial suspension of the autonomous customs duty for unwrought unalloyed aluminium from 6% to 3%; the data suggests that these effects were modest. Since 2007, changes in imports and production have broadly followed developments in demand by downstream industries which were dominated by the effects of the global economic crisis.201

201

No change in the relative position of imports from Russia could be observed (i.e. the share of imports from Russia in total imports of non-alloyed aluminium did not increase). mports of unalloyed aluminium declined after the reduction in tariffs instead of an expected increase. The decline was due to lower demand because of the economic downturn. From this we concluded that the effects of the reduction in the import tariff were difficult to identify and therefore at most modest.

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Annex E

List of Interviewees202

Organisation Alcoa

Person Simon Baker

Subject area Energy

Contact details Avenue Giuseppe Motta 31-33 CH-1202 Geneva, Switzerland

Interviewed by Tony Cockerill

T: +41 22 919 6180 F: +41 22 919 6030 E: simon.baker@alcoa.com Assiral Eugenia Chiodoni Aluminium C/o Assomet Via dei Missaglia, 97 IT - 20142 Milan, Italy Ecorys

T: +39 0289303679 F: +39 0289303783 Aurubis Belgium N.V./S.A Dr. Mukund Bhagwat EU ETS Aurubis Belgium N.V./S.A. 31 Rue due Marais B-1000 Brussels, Belgium Ecorys

T: +32 2 227 1205 F: +32 2 227-1254 E: m.bhagwat@aurubis.com BaseMet B.V. Karsten Pronk Aluminium Evert van de Beekstraat 310 1118 CX Schiphol Centre, The Netherlands Ecorys

T +31 20 654 18 55 info@basemet.com Eramet Jean-Luc Lafitte Nickel production and marketing Tour Maine-Montparnasse 33, avenue du Maine 75755 Paris cedex 15, France Tony Cockerill

T: +33 1 45 38 42 42 F:+33 1 45 38 41 28

202

This is the list of physical interviews; the consortium spoke with many more stakeholders by phone.

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203

Organisation Eurometaux

Person Monique Jones

Subject area Trade, Competitivene ss

Contact details Avenue de Broqueville 12 B - 1150 Brussels, Belgium

Interviewed by Cambridge Econometrics

T: +32 2 775 63 11 F: +32 2 779 05 23 E: jones@eurometaux.be Eurometaux Robert Jeekel Energy, EU ETS Avenue de Broqueville 12 B - 1150 Brussels, Belgium Ecorys

T: +32 2 775 63 11 F: +32 2 779 05 23 E: jeekel@eurometaux.be European Aluminium Association Patrick de Schrynmakers Aluminium Avenue de Broqueville 12 B- 1150 Brussels, Belgium Ecorys

T: + 32 (0)2 775 63 63 F: + 32 (0)2 779 05 31 E: schrynmakers@eaa.be European Aluminium Association Bob Lambrechts Aluminium Avenue de Broqueville 12 B- 1150 Brussels, Belgium Ecorys

T: + 32 (0)2 775 63 63 F: + 32 (0)2 779 05 31 E: lambrechts@eaa.be European Copper Institute John Schonenberger Copper Avenue de Tervueren 168, b-10 B-1150 Brussels, Belgium Cambridge Econometrics

T: +32 2 777 7070 F: +32 2 777 7079 E: js@eurocopper.org European Copper Institute Graud Servin Copper Avenue de Tervueren 168, b-10 B-1150 Brussels, Belgium Ecorys

T: +32 2 777 7070 F: +32 2 777 7079 E: gs@eurocopper.org European Metal Trade & Recycling Federation (EUROMETREC) T: +32 (0)2 627 57 72 Ross Bartley Recycling Avenue Franklin Roosevelt, 24 B - 1050 Brussels, Belgium Tony Cockerill

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Organisation

Person

Subject area

Contact details E: eurometrec@eurometrec.org

Interviewed by

Federation of Aluminium Users in Europe (FACE)

Malcolm McHale

Aluminium

Rond Point Schuman 6, Box 5 B-1040 Brussels, Belgium

Ecorys

T: +32-2-2347711 (Std) F: +32-2-2347911 (Dir) E: face@facealuminium.com Hydro Roxana Lesovici Aluminium Rue Archimde, 17 B-1000 Brussels, Belgium T: +32 2 286 48 84 F: +32 2 286 48 99 E: Roxana.Lesovici@hydro.com International Aluminium Institute Ron Knapp, Chris Bayliss and Katy Tsesmelis Air emissions New Zealand House Haymarket, London, SW1Y 4TE, United Kingdom Tony Cockerill Ecorys

T: + 44 (0)20 7930 0528 F: + 44 (0)20 7321 0183 E: iai@world-aluminium.org International Lead Association David Wilson Lead 17a Welbeck Way, London, W1G 9YJ, United Kingdom Ecorys

T: +44 (0)20 7499 8422 F: +44 (0)20 7493 1555 E: enq@ila-lead.org Kubal Eddy Magnusson Aluminium Kubikenborg Aluminium SE-851 76 Sundsvall Sweden Ecorys

Tel:+46 (60)166100 Fax:+46(60)166350 Metra SPA Mr. Mario Bertoli Aluminium Via Stacca, 1 25050 Rodengo Saiano (BS), Italy Ecorys

Tel. +39 30 68 19 270 Fax +39 30 68 19 990 Profilati S.p.A. Marco Galliani Aluminium Via Pietro Galliani, 135 40059 Fossatone di Medicina (Bo), Italy Ecorys

T. +39 51 69 60 211

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205

Organisation

Person

Subject area

Contact details F. +39 51 69 60 277 E: m.galliani@profilati.com

Interviewed by

NedZink B.V.

Hans Leenaerts

Zinc

Postbus 2135, 6020 AC Budel, The Netherlands

Ecorys

T: (0495) 45 57 00 F: (0495) 45 57 90 E: info@nedzink.com Norilsk Nickel Europe Ltd Jorge Romanoff Nickel Cassini House 6th Floor, 57 St James' Street London SW1A 1LD, United Kingdom Tony Cockerill

T: +44(0)20 7565 6444 F: +44(0)20 7565 6463 E: jorge.romanoff@nornickel.net Novelis AG Adrian Klotzbcher Aluminium Bellerivestrasse 36 8034 ZA Zurich, Switzerland T: +41 44 386 2381 E: adrian.klotzbuecher@novelis.com Novelis AG Joan Chesney Aluminium Bellerivestrasse 36 8034 ZA Zurich, Switzerland T: + 44 (0)1789 414 737 E: joan.chesney@novelis.com Nyrstar Anne Decker Zinc Tessinerplatz 7 8002 Zurich, Switzerland Ecorys Ecorys Ecorys

T: +41 44 745 8118 F: +41 44 745 8110 E: anne.dekker@nyrstar.com Nyrstar Geert Lambrechts Zinc Zinkstraat 1 B-2490 Balen, Belgium Ecorys

T: +32 14 449 646 E: geert.lambrechts@nyrstar.com Organisation of European Aluminium Refiners and Remelters T: +49 211 4796 441 Gnther Kirchner Recycling Am Bonneshof 5 40474 Dsseldorf, Germany Cambridge Econometrics

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FWC Sector Competitiveness Studies EU NFM Industries

Organisation

Person

Subject area

Contact details F: +49 211 4796 447 E: office@oea-alurecycling.org

Interviewed by

Rio Tinto

Hugh A Porteous

Strategy

Avenue de Tervueren 212 B-1150 Brussels, Belgium T: +32 2 234 3935 F: +32 2 234 3939 E: hugh.porteous@riotinto.com

Ecorys

Rio Tinto Alcan

Wyn Jones

Aluminium

Avenue de Tervueren 212 B-1150 Brussels, Belgium

Tony Cockerill

T: +32 2 234 3935 F: +32 2 234 3939 E: wyn.jones@riotinto.com Sapa Profiles Europe Flemming Larsen Aluminium Kortemarkstraat 52 B - 8810 Lichtervelde, Belgium Ecorys

T: +32 51 72 98 11 F: +32 51 72 54 41 E: info.profiles.be@sapagroup.com Sapa Profiles Europe Paul Wybo Aluminium Kortemarkstraat 52 B - 8810 Lichtervelde, Belgium Ecorys

T: +32 51 72 98 11 F: +32 51 72 54 41 E: info.profiles.be@sapagroup.com Umicore Stephan Csoma and Tim Weekes Precious and rare metals, recycling and RMI T: +32 2 227 70 41 F: +32 2 227 70 54 stephan.csoma@umicore.com Vale Nick Williams Nickel Gordon House 10 Greencoat Place London SW1P 1PH, United Kingdom Tony Cockerill Rue du Marais 31 B - 1000 Brussels, Belgium Ecorys

T: +44(0)20 7932 1514 F: +44(0)20 7931 7799 E: nick.williams@valeinco.com Vale Manuela Smits Nickel Vale Europe Limited Gordon House 10 Greencoat Place Tony Cockerill

FWC Sector Competitiveness Studies EU NFM Industries

207

Organisation

Person

Subject area

Contact details London SW1P 1PH

Interviewed by

T: +44(0)20 7932 1514 F: +44(0)20 7931 7799 M: +44(0)7903 300693 E: manuela.smits@valeinco.com

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Annex F

Data Sources

Table/ chart Table 2.10 Table 2.11 Table 2.14

Table/chart title

PRODCOM/COMEXT code used to define metal(s)

Trade in Aluminium Waste and Scrap Trade in Copper Waste and Scrap Comparison of the EU NFM sector with manufacturing by firm size, 2007

SITC 288.23 (HS07 -7602.00)

SITC 288.21 (HS07 -7404.00)

Manufacturing is the NACE R1.1 section 'D'; the NFM sector is NACE R1.1 sector DJ274 (Manufacture of basic precious and NFM ) plus a CE-estimated proportion of DJ275 (Casting of metals)

Table 2.15

Comparison of the US NFM sector with manufacturing by firm size, 2007

Manufacturing is NAICS sectors 31-33 and the NFM is industries 3313 (Alumina and Aluminium Production and Processing) and 3314 (Nonferrous Metal (except Aluminium) Production and Processing) in www2.census.gov/econ/susb/data/2007/us_6digitnaics_empl_2007.xls. Manufacturing is section F and the NFM is industry 24 in the industry classification adopted in the 2006 Establishment and Enterprise Census of Japan (www.e-stat.go.jp/SG1/estat/XlsdlE.do?sinfid=000001129428)

Table 2.16

Comparison of the Japanese NFM sector with manufacturing by firm size, 2006

Figure A.39

EU Precious metals production

PRODCOM

24411030

Silver, unwrought or in powder form (including plated with gold or platinum)

24411050

Silver, in semi-manufactured forms (including plated with gold or platinum) (excluding unwrought or in powder form)

24412030

Gold, unwrought or in powder form for non-monetary use (including plated with platinum)

24412050

Gold, in semi-manufactured forms for non-monetary use (including plated with platinum) (excluding unwrought or in powder form)

24412070 24413030

Monetary gold (including gold plated with platinum) Platinum, palladium, rhodium, iridium, osmium and ruthenium, unwrought or in powder form

24413050

Platinum, palladium, rhodium, iridium, osmium and ruthenium, in semi-manufactured forms (excluding unwrought or in powder form)

24413070 24414000

Platinum catalysts in the form of wire cloth or grill Base metals or silver, clad with gold, semi-manufactured but not further worked

FWC Sector Competitiveness Studies EU NFM Industries

209

Table/ chart

Table/chart title

PRODCOM/COMEXT code used to define metal(s)

24415030

Base metals clad with silver, semi-manufactured but not further worked

24415050

Base metals, silver or gold, clad with platinum, semimanufactured but not further worked

Figure A.40

EU Minor Metals Production, 2009

PRODCOM

24453013

Tungsten (wolfram) and articles thereof (excluding waste and scrap), n.e.c.

24453017

Molybdenum and articles thereof (excluding waste and scrap), n.e.c.

24453023

Tantalum and articles thereof (excluding waste and scrap), n.e.c.

24453025

Magnesium and articles thereof (excluding waste and scrap), n.e.c.

24453027

Cobalt mattes and other intermediate products of cobalt metallurgy; cobalt and articles thereof (excluding waste and scrap), n.e.c.

24453030

Bismuth and articles thereof, including waste and scrap, n.e.c.; cadmium and articles thereof (excluding waste and scrap), n.e.c.

24453043

Titanium and articles thereof (excluding waste and scrap), n.e.c.

24453047

Zirconium and articles thereof (excluding waste and scrap), n.e.c.; antimony and articles thereof (excluding waste and scrap), n.e.c.

24453055

Beryllium, chromium, germanium, vanadium, gallium, hafnium (celtium), indium, niobium (columbium), rhenium and thallium, and articles of these metals, n.e.c.; waste and scrap of these metals (excluding of beryllium, chromium and thallium)

24453057

Manganese and articles thereof, including waste and scrap, n.e.c.; cermets and articles thereof, including waste and scrap, n.e.c.

Figure B.7

EU Precious Metals Trade

COMEXT

Silver, unwrought or in powder form (including plated with gold or platinum) 7106 10 00 7106 91 10 7106 91 90 Powder Of a fineness of not less than 999 parts per 1,000 Of a fineness of less than 999 parts per 1,000

Silver, in semi-manufactured forms (including plated with gold or platinum) (excluding unwrought or in powder form) 7106 92 20 7106 92 80 Of a fineness of not less than 750 parts per 1,000 Of a fineness of less than 750 parts per 1,000

Gold, unwrought or in powder form for non-monetary use (including

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Table/ chart

Table/chart title

PRODCOM/COMEXT code used to define metal(s)

plated with platinum) 7108 11 00 7108 12 00 Powder Other unwrought forms

Gold, in semi-manufactured forms for non-monetary use (including plated with platinum) (excluding unwrought or in powder form) 7108 13 10 Bars, rods, wire and sections; plates; sheets and strips of a thickness, excluding any backing, exceeding 0,15 mm 7108 13 80 Other

Monetary gold (including gold plated with platinum) 7108 20 00 Monetary

Platinum, palladium, rhodium, iridium, osmium and ruthenium, unwrought or in powder form 7110 11 00 7110 21 00 7110 31 00 7110 41 00 Unwrought or in powder form Unwrought or in powder form Unwrought or in powder form Unwrought or in powder form

Platinum, palladium, rhodium, iridium, osmium and ruthenium, in semimanufactured forms (excluding unwrought or in powder form) 7110 19 10 Bars, rods, wire and sections; plates; sheets and strips of a thickness, excluding any backing, exceeding 0,15 mm 7110 19 80 7110 29 00 7110 39 00 7110 49 00 Other Other Other Other

Platinum catalysts in the form of wire cloth or grill 7115 10 00 Catalysts in the form of wire cloth or grill, of platinum

Base metals or silver, clad with gold, semi-manufactured but not further worked 7109 00 00 Base metals or silver, clad with gold, not further worked than semi-manufactured Base metals clad with silver, semi-manufactured but not further worked 7107 00 00 Base metals clad with silver, not further worked than semi-manufactured Base metals, silver or gold, clad with platinum, semi-manufactured but not further worked 7111 00 00 Base metals, silver or gold, clad with platinum, not further worked than semi-manufactured

Figure B.8

EU Minor Metals Trade

COMEXT

Tungsten (wolfram) and articles thereof (excluding waste and scrap), n.e.c. 8101 10 00 Powders

FWC Sector Competitiveness Studies EU NFM Industries

211

Table/ chart

Table/chart title

PRODCOM/COMEXT code used to define metal(s)

8101 94 00

Unwrought tungsten, including bars and rods obtained simply by sintering

8101 96 00 8101 99 10

Wire Bars and rods, other than those obtained simply by sintering, profiles, plates, sheets, strip and foil

8101 99 90

Other

Molybdenum and articles thereof (excluding waste and scrap), n.e.c. 8102 10 00 8102 94 00 Powders Unwrought molybdenum, including bars and rods obtained simply by sintering 8102 95 00 Bars and rods, other than those obtained simply by sintering, profiles, plates, sheets, strip and foil 8102 96 00 8102 99 00 Wire Other

Tantalum and articles thereof (excluding waste and scrap), n.e.c. 8103 20 00 Unwrought tantalum, including bars and rods obtained simply by sintering; powders 8103 90 10 Bars and rods, other than those obtained simply by sintering, profiles, wire, plates, sheets, strip and foil 8103 90 90 Other

Magnesium and articles thereof (excluding waste and scrap), n.e.c. 8104 11 00 8104 19 00 8104 30 00 Containing at least 99,8 % by weight of magnesium Other Raspings, turnings and granules, graded according to size; powders 8104 90 00 Other

Cobalt mattes and other intermediate products of cobalt metallurgy, cobalt and articles thereof (excluding waste and scrap), n.e.c. 8105 20 00 Cobalt mattes and other intermediate products of cobalt metallurgy; unwrought cobalt; powders 8105 90 00 Other

Bismuth and articles thereof, including waste and scrap, n.e.c., cadmium and articles thereof (excluding waste and scrap), n.e.c. 8106 00 10 8106 00 90 8107 20 00 8107 90 00 Unwrought bismuth; waste and scrap; powders Other Unwrought cadmium; powders Other

Titanium and articles thereof (excluding waste and scrap), n.e.c. 8108 20 00 8108 90 30 8108 90 50 8108 90 60 8108 90 90 Unwrought titanium; powders Bars, rods, profiles and wire Plates, sheets, strip and foil Tubes and pipes Other

Zirconium and articles thereof (excluding waste and scrap), n.e.c., antimony and articles thereof (excluding waste and scrap), n.e.c.

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Table/ chart

Table/chart title

PRODCOM/COMEXT code used to define metal(s)

8109 20 00 8109 90 00 8110 10 00 8110 90 00

Unwrought zirconium; powders Other Unwrought antimony; powders Other

Beryllium, chromium, germanium, vanadium, gallium, hafnium (celtium), indium, niobium (columbium), rhenium and thallium, and articles of these metals, n.e.c., waste and scrap of these metals (excluding of beryllium, chromium and thallium) 8112 12 00 8112 19 00 8112 21 10 8112 21 90 8112 29 00 8112 51 00 8112 59 00 8112 92 10 8112 92 21 8112 92 31 8112 92 81 8112 92 89 8112 92 91 8112 92 95 8112 99 20 8112 99 30 8112 99 70 Unwrought; powders Other Alloys containing more than 10% by weight of nickel Other Other Unwrought; powders Other Hafnium (celtium) Waste and scrap Niobium (columbium); rhenium Indium Gallium Vanadium Germanium Hafnium (celtium); germanium Niobium (columbium); rhenium Gallium; indium; vanadium

Manganese and articles thereof, including waste and scrap, n.e.c., cermets and articles thereof, including waste and scrap, n.e.c. 8111 00 11 8111 00 19 8111 00 90 8113 00 20 8113 00 40 8113 00 90 Unwrought manganese; powders Waste and scrap Other Unwrought Waste and scrap Other

FWC Sector Competitiveness Studies EU NFM Industries

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