Shortages of natural resources—minerals such as copper, aluminum and mercury—could lead to cascading shocks and eventual instabilities in the global trade system, according to a study published in the journal Science Advances.
Mineral resources and rare earth metals in particular, are increasingly important in the production of electronic devices ranging from mobile phones to medical technologies to tanks and missiles. The resources are mined and shipped around the world through increasingly complex global trade networks.
“Regional shortages of minerals necessary for the manufacture of modern technologies could ripple throughout the trade system, leading to a sharp increase in the price volatility of such minerals in the global markets,” says Peter Klimek, a researcher at the Medical University of Vienna, who led the study in collaboration with International Institute for Applied Systems Analysis (IIASA) researchers.
The study examined trade flows of 71 mineral commodities between 107 countries, using new methodology to assess the systemic risk in commodity trade networks. Minerals produced as byproducts of other processes—for example, rare earth metals produced as a byproduct of phosphorus mining for fertilizer—are the most susceptible to price volatility leading to systemic instabilities, says IIASA Advanced Systems Analysis researcher Stefan Thurner.
Some of these high-risk byproducts include gallium and vanadium, produced by aluminum and uranium mining respectively. Another high-risk mineral is tellurium, mined as a byproduct of copper and crucial for manufacturing solar panels, the study notes.
“Commodity markets, like financial markets, are highly international and interconnected,” says Thurner. “Understanding these networks gives us a handle to explain and possibly predict a large portion of the instabilities in terms of price volatility in the markets.”
In particular, the study points out shortcomings in the management of non-fuel mineral resources that increase the systemic risk, and provides a method for countries to assess their resilience with respect to such rippling network effects. The authors also propose policy measures, such as a tax based on commodity risk that could create more stable markets.
This isn’t the first time researchers have noted that a shortage of such minerals and metals could potentially disrupt entire supply chains and economies. In 2012, PricewaterhouseCoopers research noted that the manufacturing, chemicals, automotive, energy/renewable energy, aviation, metals, infrastructure and high-tech hardware industries could all be seriously effected by shortages of minerals and metals. The automotive, chemicals and energy sectors in particular would be hit hardest by what PwC then called, “a ticking time-bomb.”
At the time, China, which mined but also used most of the rare earths, had imposed significant quotas to limit their export. It also raised export taxes on rare earths to as much as 25 percent, on top of value-added taxes of 17 percent.
Those policies led to market-based responses, involving both supply and demand. For instance, new supplies were already in the pipeline at the time China restricted its exports, partly because countries and companies alike had realized global demand was poised to outpace the output of China’s mines and processing facilities. Furthermore, Siemens, Samsung, Toyota and other major technology manufacturers also began to design products that use fewer rare earths or substitute materials, so demand fell as well.
That doesn’t mean, however, that shortages of various minerals couldn’t have a crippling impact on various global supply chains. I look forward to learning more about how countries may assess their resilience to resource shortages, and potentially predict market instability.