Course:EOSC311/2022/An Imminent Crisis: The Effects of Resource Scarcity on the Global Supply Chain

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Introduction

Since commercialization first started gaining popularity in the mid-nineteenth century, there have been growing demands for more products[1]. Companies have had to focus on getting a steady stream of raw materials so that they can produce what they want with no interruptions. This led to the field of supply chain management (SCM), managing the flow of resources and materials as they move throughout the processing stages to add value till the point of delivery to the consumers. Raw materials make up the foundation of this process. Without a secure flow of unprocessed material, the whole supply chain gets disrupted and there will be multiple bottlenecks. As resources start becoming harder to access and scarcer, supply chain management stages like extraction, processing, and manufacturing will all require more effort and planning to keep running smoothly. Although in the bigger picture this may not seem like a huge deal if a new car is a few months late, the effects have widespread repercussions on the economy. In the following research, connections will be made linking geology and supply chain management. Specifically looking into real-world examples of critical raw materials and how their scarcity is having effects on the global supply chain.

Resource Scarcity

Most mineral resources are non-renewable meaning that whence we use up the easily accessible deposits of any resource they will not replenish. This lays the basis of resource scarcity, as we use up earth stores of materials that took billions of years to develop within a century we are cornering ourselves into a crisis of no longer having raw materials. More than a third of all Earth’s natural resources have already been destroyed or consumed in just the last thirty years according to a study completed by the World Wildlife Fund[2]. As we keep using up material reservoirs, bottlenecks which are congestion points in the supply chain will develop. When a bottleneck occurs the global supply chain will not be able to work at the maximum possible throughput capacity.   

Overview of How Minerals Formed

Following a supernova, dispersed clouds of gas and dust begin to condense. Eventually, rotation and gravity form a flat disk-like solar system with accreting protoplanets.
The graphic depicts specific geological features that are more likely to produce a particular mineral.

According to the solar nebular hypothesis, clouds of gas and particles are amassed due to the rotation and gravity of forming protoplanets[3]. The Earth has been through several developmental stages in which the composition of the Earth and its materials have undergone changes. Things such as meteor impacts, radioactive decay, intense compression, and high temperatures melted most of the material that was accreted. A high enough melting point was reached to allow for metal–silicate fractionation that formed the Fe-Ni core within Earth[4].

At the beginning of Earth’s development, most of the minerals were of mafic composition (igneous rock containing a lot of pyroxene, olivine, amphibole, and mica rich in magnesium and ferric oxides)[5]. However, with time the earth cooled and formed a solid crust allowing this mafic rock to undergo the rock cycle. Crustal reworking has shifted a mostly mafic planet to a more felsic composition throughout deep time[6]. The right conditions across different geologic features and parts of the Earth allowed some of this material and elements to change into the spectrum of diverse minerals we know today.

Take diamond as an example. They are rare earth materials which are generally only found near cratons, a geologic feature that transform existing materials[7]. In the case of diamons, carbon changes via physical processes (cool temperatures and intense pressure) and chemical processes (crystal lattice structure) into the new mineral[7]. Earth is such a dynamic planet with so many unique geologic features like plate boundary regions, volcanoes, streams, and oceans. These processes induce factors like pressure, temperature, time, fluid flow, and fugacity which initiate an enrichment process that could result in significant enrichment of minerals that become technically and economically more usable in our society[8]. Unfortunately, these processes require deep geologic time to occur, making the minerals susceptible to scarcity from over mining. Therefore, Earth's mineral amounts and distribution patterns are unlikely to change. It is important when managing a supply chain, to recognize that we are dealing with a finite number of resources, as minerals take billions of years to form.

Critical Raw Materials

The 2020 critical raw materials chart evaluates a resource based on its supply risk and economic importance. From that threshold, materials are placed on the chart. 30 materials have been determined to be critical.

Critical raw materials (CRMs) are defined as materials with relatively high economic importance and current supply risk[9]. In 2020, The European Raw Materials Initiative (RMI) determined that 30 raw materials are now classified in the critical area[8]. Some of these minerals include cobalt, lithium, titanium, indium, and magnesium. All of which are relevant materials in growing technological industries. This is a significant increase from 2011 when only 14 materials were classified as critical[10]. These critical raw materials often have irreplaceable physical properties making them necessary in certain production processes. With many materials not having an easy substitute, this puts strain on the lasting deposits and forces companies to face supply delays. It is inevitable that the list of CRMs will only increase in the coming years.

Insight on Lithium

Lithium is one of the most significant materials for global economies. In 2020, it was classified as a CRM. Lithium is an alkali metal and is the lightest and least dense solid element at room temperature. It also has the highest electrochemical potential of all metals and has great electrical conductivity[11]. All these specific physical and chemical properties make lithium extremely versatile in so many industries and products, especially in growing technology industries. Some top uses include making electrical equipment such as batteries, glass and ceramics, casting powders, pharmaceuticals, and use in aluminum alloys[11]. From lithium's uses, it is easy to see the major importance this material has for the economy across several industries.

Sources of Lithium

The Soquimich lithium mine in the Atacama desert in northern Chile. The lithium solution is placed in basins to evaporate excess water. The colours are from the different concentrations of lithium carbonate within the brine.
The chart compares the total reserves and production values of top lithium-supplying countries.

In nature, lithium is highly reactive and thus only appears in the form of inert compound minerals like silicate or brines and seawater[12]. Chile has the largest lithium reserves with over 8 million tons[13]. Other South American countries, namely Bolivia and Argentina, have been given the nickname of "lithium triangle" along with Chile for their large export amounts[14]. Australia has the second-largest reserve at 2.7 million tons, but they are the most important supplier, mining 51,000 tons annually[14]. These two countries mine their lithium in two different methods based on how the natural state of lithium has formed and the geology of the countries. In Chile lithium comes from tectonic basins like the Atacama salt desert[12]. It contains brines called salars. To extract the raw material from salars they must pump the lithium-containing saltwater from the underground reserves to the surface so that they can evaporate the solution in basins. After the excess liquid has evaporated they are left with a usable solution containing mostly lithium. In Australia, the lithium comes from ore mining in hard-rock mines. Lithium mineralizers in sedimentary or magmatic rock. So, the mines focus on extracting deposits of spodumene ore[15]. This ore is then refined to obtain lithium carbonate and hydroxide that is usable in the supply chain.

Real Example of Lithium Supply Chain Issues

Electric vehicles (EVs) have been increasing in popularity as more consumers are becoming concerned for the environment. Additionally, as oil and gas prices rise, electric vehicles are becoming a more affordable option. The International Energy Agency (IEA) conducted a report which concluded that by 2020 EV demand will increase to 12.76 million cars[16]. With large lithium batteries being the main component in EVs, the lithium demand is expected to increase to 3-4 million tons by 2030[17]. Last year's demand was only approximately 500,000 tons and already suppliers had trouble sourcing the amounts they needed. When demand is so high, but supply can’t match this need, prices will surge, and lithium prices have already increased a staggering 438% above what it was in 2021[18]. Tesla, one of the biggest names in EV manufacturing has had to recently delay a large U.S shipment of their long-range model by over a month[19]. CEO Elon Musk has even considered stopping taking new orders because delivery times are beginning to stretch to more than a year[19]. Despite the company’s best efforts to provide affordable electric cars, Tesla has had to raise the price of its entire lineup of vehicles by 5-10 percent to reflect the rise in raw material costs[20]. As countries begin to phase out gas cars in efforts to reduce climate change the pressures affecting EV manufacturers will only worsen.

Summary

Despite there still being over 86 million tons of lithium available according to The United States Geological Survey (USGS), it is considered a CRM because of the supply risk[12]. The demand for lithium is projected to increase dramatically which will put even more stress on the already fragile resource. In the next few years, we will see our reserves of lithium decrease to a point where the supply chain is critical and there will simply not be enough lithium left as a raw resource to keep up with demand. As a result, we can just expect prices to keep increasing as supplies dwindle down. Eventually, efforts will have to be placed on recycling of CRMs so that when naturally occurring reserves are used up in the coming years we still have the ability to access the material.

Statement of Connection

What is Supply Chain Management

The infographic shows six of the basic steps and processes within the realm of supply chain management.

Supply chain management (SCM) is simply the management of all the processes that convert raw materials into final products. In SCM the flow of goods and materials is optimized such that it maximizes customer value. SCM is comprised of activities that are involved in sourcing, procurement, conversion, and logistics management. There are five main functions that SCM hopes to accomplish.

  1. Acquiring and Procurement: Sourcing suppliers of raw materials is the most critical step in SCM. It is vital to have a reliable and steady source of all unprocessed materials the company will need. This prevents delays and allows manufacturing sites to process incoming orders. Procurement has to ensure the correct quantity and quality of material is delivered on time for minimal costs.
  2. Business Operations: When the raw materials and components are received the firm has to transform all the individual pieces into a product that meets the needs of the consumers. It has to perform the transformation in a way that is effective and efficient. The demand must be analyzed to ensure there are enough materials so that there are no bottlenecks while not having too much of a cost for high storage fees.
  3. Distribution and Logistics: This component refers to organizing storage and transportation such that products reach the end consumer with no interruption. Communication is essential to align the various departments that will have to interact.  
  4. Management of Resources: Resource management ensures technology, time, labour, and raw materials are all allocated optimally to increase operational efficiency. By taking into account the capabilities of a company’s resources they can avoid over-promising on orders to make sure the production plan is viable.
  5. Workflow of Information: The whole supply chain can break down in the presence of inefficient communication. Many supply chain interruptions can be avoided when the departments have a clear loop of feedback to iron out any issues.

SCM is constantly changing and evolving to better match the needs of the global supply chain. In more recent years SCM has had a bigger focus on sustainability.

What is the Connection?

Future of Supply Change Management Regarding Resource Scarcity

Resource Conscious Operations

With more and more resources verging on becoming scarce it is important that companies and supply chain managers take initiatives to reduce their impact on Earth’s resources. One way we can do this is through raw materials initiatives. The initiatives will have an impact or influence on one of three pillars which are the following:

  1. Guarantee fair and sustainable supply of raw resources from global markets
  2. Encourage sustainable supply of raw materials
  3. Enhance resource efficiency and supply of “secondary raw materials” through recycling

Specific Initiatives

Governments and NGOs are recognizing the increasing pressure that companies are placing on the raw material reserves. In an effort to reduce this strain and pursue sustainability, investments are being made to many resource related initiatives worldwide.

ProSUM is an initiative focused on prospecting secondary raw materials in the urban mine and mining wastes industries. It was founded in 2020 by European Union’s Horizon research and innovation program[8]. The goal of the project is to provide policymakers with a factual foundation of research and academia related to innovation and opportunities to recover CRMs through recycling[21]. This allows the policymakers to design appropriate legislation regarding the future of CRM recycling. For example, depending on the scarcity and supply risk of a given material, informed policymakers may decide to implement stricter recycling measures for products.

References

  1. ↑ Mercelis, Joris; Galvez-Behar, Gabriel; Guagnini, Anna (June 30, 2017). "Commercializing science: nineteenth- and twentieth-century academic scientists as consultants, patentees, and entrepreneurs". History and Technology. 33: 4–22. doi:10.1080/07341512.2017.1342308 – via Taylor & Francis Online.
  2. ↑ Townsend, Mark; Jason, Burke (July 7, 2002). "Earth 'will expire by 2050'". The Guardian. Retrieved June 20, 2022.
  3. ↑ Cameron, Alastair (January 2001). "From interstellar gas to the Earth-Moon system". Meteoritics & Planetary Science. 36: 9–22. doi:10.1111/j.1945-5100.2001.tb01806.x – via Wiley Online Library.
  4. ↑ Bouhifd, Mohamed; Clesi, V.; Boujibar, A.; Bolfan-Casanova, N. (June 20, 2017). "Silicate melts during Earth's core formation". Chemical Geology. 461: 128–139. doi:10.1016/j.chemgeo.2016.12.035 – via Elsevier Science Direct.
  5. ↑ Carlson, Richard; Garçon, Marion; O’Neil, Jonathan; Reimink, Jesse; Rizo, Hanika (December 2019). "The nature of Earth's first crust" (PDF). Chemical Geology. 530. doi:10.1016/j.chemgeo.2019.119321 – via Elsevier.
  6. ↑ Tang, Ming; Chen, Kang; Rudnick, Roberta (January 22, 2016). "Archean upper crust transition from mafic to felsic marks the onset of plate tectonics". Science (American Association for the Advancement of Science). 351: 372–375. doi:10.1126/science.aad5513 – via JSTOR.
  7. ↑ 7.0 7.1 Stachel, T.; Luth, R. (March 2015). "Diamond formation — Where, when and how?" (PDF). Lithos. 222: 200–220. doi:10.1016/j.lithos.2015.01.028 – via Elsevier.
  8. ↑ 8.0 8.1 8.2 Girtan, Mihaela; Wittenberg, Antje; Grilli, Maria; Oliveira, Daniel (April 7, 2021). "The Critical Raw Materials Issue between Scarcity, Supply Risk, and Unique Properties". Materials MDPI. 14: 1826–1844. doi:10.3390/ma14081826 – via PubMed Central.
  9. ↑ European Commission (2020). "Critical raw materials". European Commission. Retrieved June 20, 2020.
  10. ↑ Charles, Rhys; Douglas, Peter; Dowling, Mark (October 2020). "Towards Increased Recovery of Critical Raw Materials from WEEE– evaluation of CRMs at a component level and pre-processing methods for interface optimisation with recovery processes". Resources, conservation and recycling. 161: 104923. doi:10.1016/j.resconrec.2020.104923 – via Elsevier Science Direct.
  11. ↑ 11.0 11.1 Blengini, Andrea; El Latunussa, Cynthia; Umberto, Eynard; Torres De Matos, Cristina (2020). Study on the EU’s list of critical raw materials (2020). Europe: Publications Office of the European Union. pp. 287–322. doi:10.2873/631546. ISBN 978-92-76-21054-2.
  12. ↑ 12.0 12.1 12.2 International Lithium Association. "Lithium". International Lithium Association. Retrieved June 20, 2022.
  13. ↑ "Lithium". Volkswagen. 2020. Retrieved June 20, 2022. |first= missing |last= (help)
  14. ↑ 14.0 14.1 Government of Canada (March 10, 2022). "Lithium facts". Government of Canada. Retrieved June 20, 2022.
  15. ↑ Adams, Troy (June 15, 2022). "Lithium mining in Australia – history, top locations and companies". Global Road Technology. Retrieved June 20, 2022.
  16. ↑ Winton, Neil (November 14, 2021). "Lithium Shortage May Stall Electric Car Revolution And Embed China's Lead: Report". Forbes. Retrieved June 20, 2022.
  17. ↑ Azevedo, Marcelo; Baczyńska, Magdalena; Hoffman, Ken; Krauze, Aleksandra (April 12, 2022). "Lithium mining: How new production technologies could fuel the global EV revolution". McKinsey & Company. Retrieved June 20, 2022.
  18. ↑ Bove, Tristan (April 22, 2022). "A top lithium expert agrees with Elon Musk that there's not enough of the crucial metal to meet booming demand". Fortune. Retrieved June 20, 2022.
  19. ↑ 19.0 19.1 Parkinson, Giles (May 11, 2022). "Musk warns Tesla may stop taking EV orders because of huge delays". The Driven. Retrieved June 20, 2022.
  20. ↑ Vincent, James (March 15, 2022). "Tesla raises prices across entire range, with its cheapest car now starting at $46,990". The Verge. Retrieved June 20, 2022.
  21. ↑ "ProSUM- About the project". ProSum Project. Retrieved June 20, 2022.


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