Building Resilient Mineral Supply Chains

Why in News?

• In his Independence Day address, Prime Minister Modi encouraged the country to pursue Aatmanirbharta in energy by focusing on clean energy technologies.
• The article stresses upon the need to secure access to key minerals such as lithium, cobalt, nickel and rare earth metals etc. for building resilient and indigenous supply chains for clean energy technologies.

 

Background

• As countries around the world scale up their transition towards clean energy, demand for critical minerals, which are essential for clean energy and other technologies is projected to expand significantly in the coming decades.
• Also, India’s concerns grew in the backdrop of not finding a place in the recent Minerals Security Partnership.

 

About Minerals Security Partnership (MSP)

• Description: It is an 11 member ambitious new US-led partnership to secure supply chains of critical minerals, aimed at reducing dependency on China.
• Objective: The goal of the MSP is to ensure that critical minerals are produced, processed, and recycled in a manner that supports the ability of countries to realize the full economic development benefit of their geological endowments.
• Key Focus: Focus would be on the supply chains of minerals such as Cobalt, Nickel, Lithium and also the 17 “rare earth” minerals.
• Alternative to China: The alliance is seen as a part of a global ‘China-plus-one’ strategy adopted post the Covid-19 pandemic that caused massive supply-chain disruptions.
  • China has created a processing infrastructure in rare earth minerals and has acquired mines in Africa for elements such as Cobalt.
  • China Plus One: It is the business strategy to avoid investing only in China and diversify business into other countries.

 

About Critical Minerals

• Definition: The “critical mineral” is defined as a non-fuel mineral/mineral material essential to the economic or national security and which has a supply chain vulnerable to disruption.
  • These are the building blocks of essential modern-day technologies.
• Significance: These are critical as the world is fast shifting from a fossil fuel-intensive to a mineral-intensive energy system.
• Examples: Graphite, Lithium and Cobalt are used for making EV batteries.
  • Aerospace, communications and defence industries also rely on several such minerals as they are used in manufacturing fighter jets, drones, radio sets and other critical equipment.

 

Significance of critical minerals for India

• Shift in the mobility space: One of the key elements of India’s growth strategy is powered by an ambitious plan to convert a large percentage of its transport to electric, and it would require critical minerals.
  • According to the plan, 80 percent of the country’s two- and three-wheeler fleet, 40 percent of buses, and 30 to 70 percent of cars will be EVs by 2030.
• Electronics manufacturing push: The government’s vision document envisages electronics manufacturing in India to quadruple to $300 billion by 2026 which underlines the need to secure the supply of critical minerals.
• Imported inflationary pressures: Exposure to volatile oil and gas markets also pose risks to macroeconomic growth and stability, particularly for India, import-dependent for around 85% of its oil and half of its gas needs.
  • Thus, securing access to key minerals such as lithium, cobalt, nickel and rare earth metals is critical for building resilient and indigenous supply chains for clean energy technologies.
• Global instability: Concerns over the pricing and availability of oil and gas in the wake of the Ukraine crisis continue to fuel global policy debates on energy security.
  • However, the fragility of clean energy supply chains obscures pathways for countries to reduce dependence on fossil fuels.

 

A challenging task

• Limited availability: First, reserves are often concentrated in regions that are geopolitically sensitive or fare poorly from an ease of doing business perspective.
• Global competitors: Second, a portion of existing production is controlled by geostrategic competitors.
  • For example, China wields considerable influence in cobalt mining in the Democratic Republic of Congo through direct equity investments and its Belt and Road Initiative.
• Pre-determined agreements: Third, future mine production is often tied up in offtake agreements, in advance, by buyers from other countries to cater to upcoming demand.
  • Offtake agreements are agreements to buy or sell, in advance, future goods. An off-taker agrees to purchase substantially all of the project output.

 

India’s earlier steps regarding Critical Minerals

• Critical Minerals Investment Partnership: It was signed between India and Australia in 2022 to strengthen their partnership in the field of projects and supply chains for critical minerals.
• Lithium Agreement: In mid-2020, India signed an agreement with an Argentinian firm to jointly prospect lithium in the South American country that has the third largest reserves of the metal in the world.
• Public undertaking: The Indian government established Khanij Bidesh India Limited (KABIL) in 2019 with the mandate to secure mineral supply for the domestic market.
• Draft strategy: India’s Department of Science and Technology, in collaboration with the Council on Energy, Environment and Water, drafted the Critical Minerals Strategy for India in 2016, with a focus on India’s resource requirements till 2030.
  • The Indian Critical Minerals Strategy has identified 49 minerals that will be vital for India’s future economic growth.

 

Steps to source strategic minerals

• Compute domestic industry’s mineral requirements: It could be accomplished by a task force which includes the ministries of power, new and renewable energy, heavy industry, and science and technology.
  • Outlaying framework: Creating five-year road maps with clear targets for deployment and indigenous manufacturing across clean energy applications would provide visibility to domestic investors.
  • Estimate production: Further, assess the technology mix that would support this deployment and determine the quantities of minerals necessary to support indigenous manufacturing.
• Necessary intervention: The domestic industry can help determine where strategic interventions by the government would be necessary.
  • For instance, KABIL could collaborate with domestic industry to bolster its market intelligence capabilities for tracking global supply-side developments.
  • A quotation of available and committed production capacities economy-wide and sector-specific policy developments can develop an informed perspective on mineral supply.
  • The private sector should also be encouraged to secure minerals for its own requirements in conducive geographies.
• Offtake agreements : In absence of conducive investments opportunities, KABIL should pre-emptively sign offtake agreements with global mineral suppliers to secure future production.
  • Centralized procurement: Such large-scale centralised national procurement by KABIL could accumulate a reliable supply of minerals for domestic requirements and sign sales agreements with the domestic industry.
• Joint investment: The government could jointly invest in mining assets with geostrategic partners or private sector entities with expertise in specific geographies.
  • The External Affairs Ministry could initiate conversations with partner countries, like establishing resilient clean energy supply chains is a priority for the Quad, for instance.
• Tailored technology: Government should support technologies that utilize domestically available materials and could also propose co-development of such technologies with geostrategic partners.
  • For instance, the deployment of technologies such as sodium-ion batteries could reduce requirements for sourcing minerals from beyond India’s borders.
• New policy framework: The policies on urban mining aimed at recycling mineral inputs from deployments that have completed their useful life could be developed. These could help further reduce dependence on international sourcing.

 

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Source: Building Resilient Mineral Supply Chains