COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS TACKLING THE CHALLENGES IN COMMODITY MARKETS AND ON RAW MATERIALS
Date: 2011-02-02
Institutions: European Commission
Subjects: EU market, EU policy, price fluctuation, primary product, raw material

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EUROPEAN COMMISSION 

Brussels, 2.2.2011 
COM(2011) 25 final 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

TACKLING THE CHALLENGES IN COMMODITY MARKETS AND ON RAW 
MATERIALS 

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1. 

INTRODUCTION 

Commodity  markets  have  displayed  increased  volatility  and  unprecedented  movements  of 
prices in recent years. Prices in all major commodity markets, including energy, metals and 
minerals,  agriculture  and  food,  increased  sharply  in  2007  to  reach  a  peak  in  2008,  declined 
strongly from the second half of 2008 and have been on an increasing trend again since the 
summer  of  2009.  To  varying  degrees,  these  price  swings  have  been  reflected  in  consumer 
prices, at times leading to social unrest and deprivation. 

At  the  heart  of  current  developments  lies  a  series  of  changes  in  global  supply  and  demand 
patterns as well as short term shocks in key commodity and raw material markets. The years 
2002 to 2008 were marked by a major surge in demand for raw materials, driven by strong 
global  economic  growth,  particularly  in  emerging  countries  such  as  China.  This  increase  in 
demand will be reinforced by the further rapid industrialisation and urbanisation in countries 
such as China, India and Brazil. China is already the largest consumer of metals in the world – 
its share of copper consumption, for example, has risen from 12% to about 40% over the last 
10  years1.  Price  movements  have  been  exacerbated  by  various  structural  problems  in  the 
supply and distribution chains of different commodities, including the availability of transport 
infrastructure and services. These developments occur at a time when the competitiveness of 
European industry requires efficient and secure access to raw materials.  

In  addition,  markets  are  experiencing  the  growing  impact  of  finance,  with  a  significant 
increase  in  financial  investment  flows  into  commodity  derivative  markets  in  recent  years. 
Between  2003  and  2008,  for  example,  institutional  investors  increased  their  investments  in 
commodities  markets  from  13  billion  euro  in  2003  to  between  170  and  205  billion  euro  in 
2008. While the financial crisis interrupted the upward trend, financial positions approached 
or even exceeded their 2008 peaks on many markets in 2010 and investment by index traders 
in  particular  has  increased  strongly.  While  the  debate  on  the  relative  importance  of  the 
multiple factors influencing commodities prices is still open, it is clear that price movements 
across different commodity markets have become more closely related, and that commodities 
markets have become more closely linked to financial markets2. 

These developments have led to increased calls for policy responses to mitigate the negative 
effects of such movements on both producers and consumers, especially the most vulnerable 
ones.  They  have  generated  attention  at  the  highest  political  level  including  the  latest  G20 
summits.  

The challenges of commodity prices and raw materials are closely intertwined and touch on 
policies in the areas of financial markets, development, trade, industry and external relations. 
The  European  Commission  has  therefore  taken  a  number  of  initiatives.  In  2008  it  already 
drew attention to the strategic importance of defining policies for raw materials by launching 

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World Metals Statistics Bureau – 2009 Yearbook. 
CFTC "Staff report on commodity swap dealers and index traders with Commission recommendations", 
Washington, 2008. American Economic Review; Commission Communication COM(2008) 821 "Food 
prices in Europe" and its accompanying staff working document SEC(2008) 2971 "Task force on the 
role  of  speculation  in  agricultural  commodities  price  movements  -  Is  there  a  speculative  bubble  in 
commodity markets?". 

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the raw materials initiative3. Since then, it has taken actions within this framework to address 
sustainable  access  to  raw  materials  both  within  and  outside  the  EU,  as  well  as  on  resource 
efficiency  and  recycling.  It  also  began  an  in-depth  reflection  on  commodities  market  in 
general  and  on  food  prices  and  security  of  food  supply  in  particular4.  In  response  to  the 
financial crisis, it has launched a range of measures to improve the regulation, integrity and 
transparency of financial markets, and most recently it has made a proposal for the regulation 
of energy markets.  

This Communication presents an overview of what has been achieved in each of these areas 
and of the steps which are planned to take the work forward. This work is part of the Europe 
2020  strategy  to  ensure  smart,  sustainable  and  inclusive  growth  and  is  closely  linked  to  the 
flagship initiative for a resource efficient Europe5. It will feed into the work of the G20 which 
agreed at the Pittsburgh summit "to improve the regulation, functioning, and transparency of 
financial  and  commodity  markets  to  address  excessive  commodity  price  volatility"6.  This 
commitment was reinforced in November 2010 by the G20 summit in Seoul which pledged to 
address food market volatility and excessive fossil fuel price volatility7.  

2. 

DEVELOPMENTS ON GLOBAL COMMODITIES MARKETS 

Fundamentals,  including  unexpected  changes  in  global  economic  conditions  linked  to  the 
strong  growth  in  demand  of  emerging  market  economies  have  played  a  key  role  in  driving 
developments on commodity markets8. Other factors that have also played a role are supply 
shortfalls  and  monetary  policy,  and  in  recent  years,  various  ad  hoc  policy  interventions. 
Export  restrictions,  border  measures,  and  shifts  in  storage  policies  had  an  impact  on  food 
prices  in  the  run  up  to  the  2008  food  price  crisis.  Increased  use  of  agricultural  land  for  the 
production  of  renewable  energy  has  strengthened  the  link  between  developments  in 
agricultural  and  energy  prices.  Price  movements  have  also  been  exacerbated  by  various 
structural problems in the supply and distribution chains of different commodities9.  

Each commodity market functions differently depending on the nature of the commodity, the 
needs of traders and historical developments. There is no single model for the organisation of 
commodity markets and hence of how prices evolve. Some commodity trading exhibits a high 
degree  of  standardisation,  while  on  other  markets  the  way  in  which  trades  are  done  may 
change  according  to  the  particular  needs  of  individual  market  participants.  Derivative 
markets10 based on commodities have existed for a long time and play a role in the hedging of 
exposures  of  both  producers  and  users  of  various  commodities.  Just  as  the  underlying 
commodities  can  be  traded  in  different  ways,  derivatives  can  be  traded  on  a  bilateral  basis, 
generally  called  over  the  counter  or  OTC,  or  using  organised  exchanges.  Additionally,  the 

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COM(2008)  699  “The  raw  materials  initiative  -  meeting  our  critical  needs  for  growth  and  jobs  in 
Europe”. 
COM(2009) 591 "A Better Functioning Food Supply Chain in Europe" and COM(2010) 127 "An EU 
policy framework to assist developing countries in addressing food security challenges". 
COM(2010) 2020 "Europe 2020", and COM(2011) 21 "A resource-efficient Europe: flagship initiative 
under the Europe 2020 strategy". 
See http://www.pittsburghsummit.gov/mediacenter/129639.htm  
See http://www.g20.org/Documents2010/11/seoulsummit_declaration.pdf 
See for example, IOSCO, Task Force on Commodity Futures, Report to the G20. November 2010. 
COM(2009) 591 "A Better Functioning Food Supply Chain in Europe",  
A derivative can be defined as a financial asset, generally a contract between two or more parties, that 
derives its value from other assets, securities or even indices. 

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role of financial institutions as well as the importance of derivatives is very different from one 
market to another. The following sections examine specific developments on the markets for 
energy and agricultural commodities and the increasing interdependence of commodities and 
related financial markets. 

2.1. 

Developments on the physical markets  

2.1.1.  Energy (oil, electricity gas) 

Oil and petroleum markets are integrated, liquid and global, and are widely considered to be 
driven notably by economic fundamentals, but also by geopolitical considerations, the role of 
the Organization of the Petroleum Exporting Countries (OPEC), and by non-physical trades. 
There  have  been  significant  developments  in  terms  of  financial  and  derivative  investment 
instruments  and  trading  technologies.  The  G20  at  the  Seoul  summit  has  highlighted  the 
importance  of  well-functioning  and  transparent  energy  markets  for  economic  growth.  It  has 
been working on physical market transparency, fossil fuel price volatility, and the phasing out 
of inefficient fossil fuel subsidies. 

The  gas  market,  which  is  increasingly  influenced  by  the  development  of  non-conventional 
sources,  has  traditionally  been  based  on  long-term  over-the-counter  (OTC)  contracts.  As  a 
result of the proliferation of Liquefied Natural Gas (LNG), gas is also increasingly traded on a 
global and liquid market which is being commoditized. Electricity is the least global energy 
market as its transport over long distances is restricted for physical reasons of non-storability 
and energy loss. The geographic scope of the market is therefore smaller than for other energy 
commodities.  

EU electricity (and gas) markets are increasingly integrated as a result of the internal market. 
They have seen the development of energy exchanges or other organised markets and broker 
facilitated OTC markets which can be used both for physical delivery and hedging. It remains 
the  case  that  market  prices  are  highly  sensitive  to  the  availability  of  actual  and  expected 
generation as electricity cannot be stored on an industrial scale.  

2.1.2.  Agriculture and security of food supply 

Most agricultural commodities, in particular crops, are subject to strong seasonal production 
patterns, and their supply cannot always adjust rapidly to changes in prices or demand. This 
means that agricultural markets are characterised by a certain degree of variability. Structural 
factors such as demographic growth, pressure on agricultural land and the impacts of climate 
change may add to growing tensions on agricultural markets. However, the volatility of prices 
of  agricultural  commodities  has  recently  increased  to  unprecedented  levels.  This  is  the  case 
both on the EU and international markets, and on spot and futures markets. Within the  EU, 
successive  reforms  of  the  Common  Agricultural  Policy  (CAP)  have  significantly  reduced 
support prices and related measures. As a result, commodity producers and traders are more 
exposed  to  market  price  developments  and,  although  it  is  not  the  case  in  all  agricultural 
sectors,  are  thus  more  prone  to  use  futures  markets  to  hedge  risks.  Trade  in  options  and  in 
over-the  counter  derivatives  is  also  growing.  These  factors  explain  to  some  extent  the 
increased activity on European-based exchanges and raise two issues in particular: security of 
food supply and the need for increased transparency on agricultural derivatives markets.  

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Security of food supply has been identified as one of the main drivers for future reform in the 
CAP11. A strong agricultural sector is vital for the highly competitive food industry to remain 
an  important  part  of  the  EU  economy  and  trade  and  a  major  contributor  to  international 
markets. This is why, in the context of the Doha Development Round the EU has agreed to an 
important  agricultural  package,  conditional  on  reaching  an  ambitious,  balanced  and 
comprehensive overall agreement. 

Excessive  volatility  of  food  prices  affects  producers  and  consumers  alike,  and  has  serious 
effects on security of food supply for food importing developing countries. During food price 
spikes  –  such  as  in  2007-08  -  many  of  the  poor  in  developing  countries  reduced  their  food 
intake12.  The  2010  food  price  increases  may  lead  to  another  increase  in  malnutrition, 
humanitarian needs and social tensions and unrest among the weaker consumers in the world. 
While  higher  global  prices  could  stimulate  agricultural  production,  price  transmission 
mechanisms are often imperfect. In many developing countries, commodity markets are often 
disconnected from world markets or, at best, world price signals are transmitted to domestic 
markets with considerable lags so that a domestic supply response is often delayed. 

Several analyses by the Food and Agricultural Organisation, OECD, Commission and others 
have focused on supply and demand developments, exacerbated by short-term economic and 
policy  factors  (including  restrictions  on  exports)  that  explain  part  of  the  observed  extreme 
price volatility, including factors specific to financial markets that may have amplified price 
changes. Despite remaining uncertainties, based on the outlook for agricultural commodities 
established  by  several  organisations,  including  the  latest  Commission  medium  term 
projections, three conclusions are clear for agricultural commodities: 

–  Agricultural  commodity  prices  are  expected  to  stay  higher  than  their  historical  averages, 

reversing their long-term downward trend, at least for the foreseeable future. 

–  Price  volatility  is  also  expected  to  remain  high,  although  uncertainties  with  respect  to  its 

causes and duration persist. 

–  The  level  of  input  prices  used  in  agriculture  is  also  likely  to  remain  higher  than  its 

historical trends. 

The combination of the above factors implies that higher prices for agricultural commodities 
will  not  necessarily  result  in  higher  incomes  for  farmers,  especially  if  their  margins  are 
squeezed by increased costs. In addition, potential problems for net food importing countries 
and  more  generally  for  the  most  vulnerable  consumers  are  evident,  stemming  from  price 
impacts  on  food  inflation.  While  a  certain  degree  of  variability  is  an  intrinsic  part  of 
agricultural markets, excessive volatility does not benefit producers neither users. 

2.1.3.  Raw materials 

Raw  materials  include  metallic  minerals,  industrial  minerals,  construction  materials,  wood, 
natural rubber. Unlike electricity, raw materials are traded globally. In relation to prices and 
markets, the key distinction is between those that are traded on stock exchanges and those that 
are  not.  For  example,  base  metals  such  as  aluminium,  copper,  lead,  nickel,  tin  and  zinc  are 
traded on stock exchanges of which the London Metals Exchange (LME) is a global leader. 

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COM(2010) 672 "The CAP towards 2020".  
FAO, WFP, The State of Food Insecurity in the World, October 2010. 

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However, many of the EU’s critical raw materials, such as cobalt, gallium, indium and rare 
earths, are not traded on the LME. The market for these materials is less transparent and the 
volumes traded are very small in comparison to other materials.  

The global metal and mineral markets generally follow a cyclical pattern based on supply and 
demand.  However,  the  period  2002-2008  was  marked  by  a  major  rise  in  demand  for  raw 
materials driven by strong global economic growth, in particular in emerging countries. This 
was reflected in unprecedentedly high price levels. Recent trends indicate that demand for raw 
materials will be driven once more by the future development of emerging economies and by 
the rapid diffusion of key enabling technologies.  

A  growing  concern  in  these  markets  relates  to  measures  imposed  by  certain  countries  to 
ensure privileged access to raw materials for their domestic industry including through export 
restrictions. These  measures create distortions in the global markets and uncertainties in the 
regular flows of commodities. Such measures may affect developed and developing countries 
alike as virtually no economy is self-reliant for all raw materials. Least developed countries in 
particular  can  be  particularly  dependent  on  commodity  imports  and  therefore  can  be 
negatively affected by the absence or inadequacy of multilateral rules in some disciplines such 
as export duties. Furthermore, companies respond to price fluctuations in various ways, such 
as  stockpiling,  negotiating  long-term  contracts  or  price  hedging  in  the  form  of  futures 
contracts. Some of these reactions may exacerbate the tightness of supply.  

2.2. 

Growing interdependence of commodities and related financial markets 

Commodity derivatives allow producers and users to hedge the risks associated with physical 
production  and  price  uncertainty.  They  are  also  increasingly  seen  purely  as  financial 
investments.  In  this  context,  financial  investment  flows  into  commodity  derivative  markets 
have grown significantly in recent years (see graph 1). 

Commodity and financial markets are thus increasingly intertwined sharing a growing number 
of participants in search of risk management tools and investment opportunities. The liquidity, 
efficiency  and  accessibility  of  spot  markets  are  strengthened  by  well-functioning  derivative 
markets, and vice versa. Adequate and reliable information on market fundamentals such as 
volumes  of  production  and  consumption,  network  and  pipeline  capacity  etc,  as  well  as  the 
amount of trading that takes place in the commodity is necessary for transparent and orderly 
price formation both on the spot and derivative markets. Derivative markets are however not 
only  used  by  commercial  companies  for  risk  management  purposes,  but  also  by  financial 
institutions as part of their risk allocation strategies. In addition prices of commodity futures 
(i.e.  derivatives  listed  on  organised  trading  venues)  often  serve  as  benchmarks  for  example 
influencing retail energy and food prices for EU consumers. 

Graph 1: Transactions on commodity derivative markets (Total open interest of futures and options) 

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01/01/2003

01/01/2004

01/01/2005 01/01/2006

01/01/2007

01/01/2008

01/01/2009 01/01/2010

01/01/2011

CBOT  Corn, wheat, rice, soybean oil

CME Live and fedder cattle, milk

CME S&P commodity index

CMX Gold, silver, copper

ICE Cocoa, coffee, cotton, orange juice, sugar

KBC and  MGE Wheat

NYME Crude oil, natural gas

NYME Palladium, platinum

Source: U.S. Commodity Futures Trading Commission. (via Reuters Ecowin) 

The  very  nature  of  a  derivative  contract  is  that  its  value  depends  on  the  value  of  the 
underlying market to which it refers. This is particularly the case where the underlying market 
is  a  physical  market.  The  prices  of  commodity  derivatives  and  underlying  physical 
commodities  are  therefore  interlinked.  Commodity  derivatives  markets  therefore  cannot  be 
regarded in isolation from commodity markets and vice versa.  

Identifying  which  way  causation  flows  in  the  interaction  between  financial  and  physical 
markets  is,  however,  a  complex  issue.  Establishing  these  correlations  is  complicated  by  the 
fact that not all physical markets have the same features. A variety of factors have an impact, 
some of which are specific to individual markets and, as a result, different market dynamics 
are at play in the different sectors. At this stage, assessing the exact nature and extent of the 
links between the price formation process on commodity markets and the growing importance 
of  derivatives  markets  is  made  even  more  difficult  by  the  lack  of  transparency  in  these 
markets.  

While it is clear that there is a strong correlation between positions on derivative markets and 
spot prices, it is still difficult to assess fully the interactions and the impact of movements in 
the derivative markets on the volatility of the underlying physical markets. Establishing these 
correlations  is  further  complicated  by  the  fact  that  not  all  physical  markets  have  the  same 
features  and  different  market  dynamics  are  at  play  in  the  different  sectors.  Further  work  is 
therefore needed to deepen understanding of these developments13.  

At  this  stage,  however,  it  is  already  clear  that  the  degree  of  transparency  and  reporting 
obligations  on  both  the  underlying  physical  markets  and  the  derivative  markets  should  be 
enhanced.  Increased  transparency  and  easily  accessible  information  on  the  physical  markets 

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Part of which is already under way (see section 3.2) in close cooperation with the relevant international 
counterparts, in particular the United States, with a view to ensure regulatory consistency. 

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will  allow  investors  to  make  informed  decisions,  contribute  to  an  appropriate  price  finding 
process  and  facilitate  the  identification  and  prevention  of  any  abuse.  But  in  addition,  the 
recent price volatility has shown that for physical market actors the possibilities to hedge their 
price risks must be maintained, while close and efficient monitoring of market developments 
needs to be ensured. This is particularly important for food-importing developing countries. 
Additional  targeted  regulatory  measures,  such  as  the  introduction  of  position  limits  when 
deemed necessary, could also be considered in this context. 

3. 

EU POLICY RESPONSE TO DEVELOPMENTS ON COMMODITIES MARKETS 

At EU level, there has been an initiative to increase oversight, integrity and transparency of 
trading  in  energy  markets14.  There  have  also  been  a  number  of  initiatives  to  improve  the 
functioning of the food chain and transparency on agricultural commodities markets. As part 
of  the  ongoing  reforms  of  the  regulatory  framework  for  financial  markets,  the  Commission 
has  also  identified  measures  to  increase  the  integrity  and  transparency  of  commodity 
derivatives markets. 

3.1. 

Physical markets  

3.1.1.  Energy (oil, electricity gas) 

The  Commission  has  shown  its  readiness  to  act  to  ensure  the  orderly  functioning  of  energy 
markets  in  its  proposal  to  establish  clear  rules  prohibiting  market  abuse  on  wholesale 
electricity and gas markets backed up by an EU wide market monitoring framework and new 
enforcement  powers  for  energy  regulators15.  This  approach  will  help  to  ensure  that  the 
benefits of the internal market are realised for Europe's businesses and citizens, and provides 
a good model for how to address the challenges resulting from the growing interdependence 
of  commodity  and  related  financial  markets.  The  proposed  Regulation  on  Energy  market 
Integrity and Transparency16 will provide European and national authorities with the tools to 
identify instances of market abuse in traded wholesale markets for electricity and gas:  

–  The European Agency for the Cooperation of Energy Regulators (ACER) Market will be 

responsible for monitoring to uncover possible cases of abuse.  

–  Traders will be prohibited from using inside information to benefit from their transactions 
or manipulate the market by artificially causing prices to be higher than would be justified 
by the availability, production cost or capacity to store or transport energy.  

–  Cooperation  will  be  enhanced  between  physical  (ACER)  and  financial  (ESMA)  market 

regulators.  

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The market in allowances within the carbon Emissions Trading System for the EU is not dealt with in 
this  Communication  as  the  allowances  are  not  commodities  in  the  generally  understood  sense.  The 
Commission  has  produced  a  Communication  on  this  issue;  COM(2010)  796  "Towards  an  enhanced 
market oversight framework for the EU Emissions Trading System". 
This section does not address other energy related issues such as the safety and security or the overall 
consistency and effectiveness of EU external energy policy. They are dealt with in the Communication 
Energy 2020 A strategy for competitive, sustainable and secure energy - COM(2010) 639. 
Proposal for a Regulation of the European Parliament and of the Council on energy market integrity and 
transparency - COM(2010) 726, December 2010. 

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The  Commission  is  committed  to  ensuring  that  transparency  requirements  for  fundamental 
data in gas and electricity markets are effective and meet market needs.  

3.1.2.  Agriculture and security of food supply 

Given that there are many causes of price volatility, there is no single and simple solution to 
the  identified  problems.  This  is  even  more  the  case  given  the  specificity  of  agricultural 
production  (links  to  security  of  food  supply,  the  environment,  and  the  latter  including  the 
dependency of agricultural production on life cycles, weather and seasons, sanitary and pest 
conditions) which complicates the potential impact of policy options further. 

Nevertheless, one key area of work concerns improving market information. The agricultural 
sector  benefits  from  a  wealth  of  information  on  agricultural  production,  consumption  and 
stocks  from  public  sources  (WB,  FAO/OECD,  USDA,  EU,  ABARE)  or  commodity  bodies 
(especially  the  International  Grains  Council).  This  is  in  clear  contrast  to  information  in 
commodities  such  as  metals,  minerals  and  energy,  where  market  information  is  proprietary 
and  mainly  available  from  industry.  However,  the  quality  and  timeliness  of  information  on 
national  and  regional  food  stocks,  and  on  projections  for  food  production  and  consumption 
could  be  improved  further.  The  G-20  has  requested  the  "World  Bank  to  work  with  other 
relevant  international  agencies  to  develop  measures  to  improve  information  on  national  and 
regional food stocks and food production projections" and this is work which the Commission 
will fully support. 

Given the increasing market orientation of its Common Agricultural Policy, information and 
transparency  on  commodity  market  developments  have  become  key  features  in  efforts  to 
ensure the proper functioning of the agri-food chain:  

–  Member States  regularly  communicate  a  wide range of data to the Commission  which is 

published on the internet17 and discussed with advisory committees of stakeholders.  

–  A food price monitoring tool has been set up by the Statistical Office of the Commission to 
increase price transparency18 and discussions are on-going on how to improve this tool.  

–  The Commission services regularly produce and publish a medium-term outlook for major 

agricultural commodity markets19. 

The  Commission  has  established  a  High  Level  Forum  for  a  better  functioning  Food  Supply 
Chain20. While it does not deal with price volatility as such, it addresses the transmission of 
price developments throughout the supply chain, examining business to business relations, the 
competitiveness of the food industry, agri-food logistics and the food price monitoring tool. 

The food price spikes have highlighted the underinvestment in agriculture in many developing 
countries in recent decades21. EU development policy has recognised the need to reverse this 

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See for instance http://ec.europa.eu/agriculture/markets/prices/monthly_en.pdf 
See http://epp.eurostat.ec.europa.eu/portal/page/portal/hicp/methodology/prices_data_for_market_monitoring  
http://ec.europa.eu/agriculture/publi/caprep/prospects2010/index_en.htm 
See http://ec.europa.eu/enterprise/sectors/food/competitiveness/forum_food/index_en.htm 
Fewer than ten African States meet the Maputo target set in 2003 of ten percent of public investment to 
agriculture.  

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trend. As indicated in the Green Paper on EU Development Policy22, it can play an important 
role  in  reducing  the  impact  of  price  volatility  on  the  most  vulnerable.  The  Commission  has 
already adopted  a policy framework  on  food security23, indicating that the EU and Member 
States should contribute to improved food market functioning at global, regional and national 
levels,  including  through  improved  market  transparency.  This  would  entail  support  in 
developing  countries  to  strengthen  farmer's  organisations,  to  improve  price  transparency,  to 
increase agricultural productivity on a sustainable basis, and to develop and apply regulatory 
frameworks.  Developing  agricultural  production  will  increase  resilience  and  adaptability  to 
food shocks. 

Finally, given that unilateral actions by certain governments are also a factor that can affect 
physical  markets  and  cause  price  volatility,  there  is  a  need  for  improved  governance  and 
international dialogue in this area.  

3.2.  Regulation of financial markets  

There  is  a  broad  agreement  that  it  is  desirable  to  increase  the  integrity  and  transparency  of 
commodity derivatives market. In line with G20 principles and conclusions, the Commission 
has launched a number of initiatives to do so: 

–  It  has  adopted  a  proposal  for  a  regulation  on  OTC  derivatives  trading24,  which  aims  to 
reduce systemic risk and improve transparency for regulators in all derivatives, including 
commodity derivatives.  

–  The review of the Market Abuse Directive25 in spring 2011 will aim to clarify what trading 
in  commodity  markets  constitutes  abuse,  and  to  ensure  that  all  venues  and  transactions 
where abusive practices can occur are properly covered under pan-EU rules.  

–  The review of the Packaged Retail Investment Products (PRIPS)26 will examine the need 
for additional rigour and enhanced quality of information when retail investors are offered 
structured commodity investment products.  

–  The  Alternative  Investment  Fund  Management  Directive27  will  increase  transparency  of 
these funds for investors and national supervisors, and give a better insight of the impact of 
these funds on the markets for commodity derivatives.  

–  The review of the Markets in Financial Instruments Directive28 in spring 2011, will aim to 
improve further the transparency of trades and prices in commodity derivatives by setting 
conditions for when commodity derivative products should trade exclusively on organised 
trading venues. It will also explore the need for more systematic and detailed information 
on the trading activities of different types of market participants in commodity derivatives, 

22 

23 

24 
25 
26 

27 
28 

COM(2010) 629 "EU development policy in support of inclusive growth and sustainable development. 
Increasing the Impact of EU development policy". 
COM(2010) 127 – An EU Policy Framework to assist developing countries in addressing food security 
challenges. 
COM(2010) 484, 15.9.2010 
Directive 2003/6/EC (OJ L 96, 12.4.2003). 
26th  November 
A 
consultation 
http://ec.europa.eu/internal_market/finservices-retail/investment_products_en.htm#consultation 
COM(2009) 207, 30.4.2009. 
Directive 2004/39/EC (OJ L 145, 30.4.2004). 

PRIPS  was 

launched 

public 

2010, 

on 

on 

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10 

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more comprehensive oversight by regulators of commodity derivative positions, including 
the need for imposing position limits when deemed necessary.  

–  Finally  the  creation  of  the  European  Securities  Markets  Authority  (ESMA)  will  ensure 
consistency  of  technical  rules  applicable  to  these  markets  and  be  instrumental  in 
strengthening collaboration with regulators of the underlying physical markets29. 

3.3. 

The interaction between physical and financial commodities markets  

The measures described above will help to ensure that increasing investment flows are more 
transparent, are better accounted for, and are less able to distort the functioning of commodity 
markets.  However  the  Commission  acknowledges  that  a  better  understanding  of  the 
interaction  between  physical  and  financial  commodities  markets  is  needed.  Against  this 
background, the Commission will: 

–  carry out further analysis of developments on financial and physical commodities markets 
to  improve  understanding  of  the  relationships  between  them,  support  similar  efforts 
underway at global level (G20, IOSCO, IEA, FAO, UNCTAD, OECD, IMF etc). 

–  Promote further improvements in the transparency and accessibility of information on the 
physical commodity markets, including through the relevant regulators and institutions, to 
ensure the proper functioning of these markets.  

4. 

THE EUROPEAN RAW MATERIALS INITIATIVE  

Beyond  developments  related  to  price  volatility  and  the  interaction  between  physical  and 
financial  commodities  markets,  the  question  of  physical  supplies  of  raw  materials  remains 
essential.  In  2008  the  Commission  launched  the  "Raw  Materials  Initiative"30  (RMI)  which 
established  an  integrated  strategy  to  respond  to  the  different  challenges  related  to  access  to 
non-energy and non-agricultural raw materials.  

The RMI is based on three pillars: ensuring a level playing field in access to resources in third 
countries; fostering sustainable supply of raw materials from European sources, and boosting 
resource efficiency and promoting recycling. An element of the strategy is the need for a “raw 
materials  diplomacy"  anchored  in  wider  policies  towards  third  countries  such  as  promoting 
human  rights,  good  governance,  conflict-resolution,  non-proliferation  and  regional  stability. 
This section examines results to date on identifying critical raw materials, and in the areas of 
trade, development, research, and resource efficiency and recycling. Section 5 looks at next 
steps. 

29 

30 

Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 
establishing  a  European  Supervisory  Authority,  amending  Decision  No 716/2009/EC  and  repealing 
Commission Decision 2009/77/EC (OJ L 331, 15.12.2010, p. 84). 
COM(2008) 699 Communication “The raw materials initiative - meeting our critical needs for growth 
and jobs in Europe”. 

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4.1. 

Identifying critical raw materials 

The  Commission  has  identified  14  critical  raw  materials  at  EU  level  (see  annex),  with 
Member States and stakeholders, and has developed a transparent, innovative and pragmatic 
methodological approach to defining “criticality”31.  

Critical raw materials are those which display a particularly high risk of supply shortage in the 
next  10  years  and  which  are  particularly  important  for  the  value  chain.  The  supply  risk  is 
linked  to  the  concentration  of  production  in  a  handful  of  countries,  and  the  low  political-
economic stability of some of the suppliers. This risk is in many cases compounded by low 
substitutability and low recycling rates. In many cases, a stable supply is important for climate 
policy objectives and for technological innovation. For example, rare earths are essential for 
high  performance  permanent  magnets  in  wind  turbines  or  electric  vehicles,  catalytic 
converters  for  cars,  printed  circuit  boards,  optical  fibres,  and  high 
temperature 
superconductors. The EU is completely dependent on imports, with China accounting for 97% 
of world production in 2009. At the same time, no recycling or substitution processes for rare 
earths are currently commercially viable. 

The  work  on  identifying  critical  raw  materials  also  revealed  the  need  for  better  data  and 
knowledge, and on the need to update regularly the list of raw materials to take into account 
market  developments,  technological  developments  (for  example,  lithium,  hafnium  and 
nickel),  or  new  information  on  the  environmental  impact  of  a  material.  It  further  concluded 
that policy actions should not be limited to critical raw materials exclusively. 

4.2. 

Implementing the EU trade strategy for raw materials 

There have been a number of achievements under the trade policy chapter since 2008. An EU 
trade  strategy  for  raw  materials  has  been  defined  and  a  first  annual  report  has  been 
published32. To date the following results can be reported in the three main areas:  

–  the EU proposed trade disciplines on export restrictions (including bans, quotas, duties and 
non-automatic  export  licences)  in  all  relevant  negotiations,  bilateral  or  multilateral  (for 
example in the Free Trade Agreement with Korea and in provisions on export duties on a 
series of raw materials, including wood, in the context of Russia's WTO accession).  

–  regarding enforcement, the Commission has continued to tackle barriers primarily through 
dialogue, but when no progress was registered has been ready to use other tools including 
WTO dispute settlement.  

–  In  terms  of  outreach,  the  Commission  has  addressed  the  raw  materials  issue  in  various 
bilateral  dialogues  and  in  the  OECD.  Following  the  co-organisation  of  a  workshop 
dedicated  to  the  issue  at  the  end  of  2009,  the  topic  was  put  on  the  OECD's  work 
programme for 2011-2012. 

31 

32 

“Critical  raw  materials  for  the  EU”.  Report  of  the  RMSG  Ad-hoc working  group on  defining  critical 
raw materials June 2010. 
DG Trade - Raw materials policy - 2009 annual report (http://ec.europa.eu/trade/creating-
opportunities/trade-topics/raw-materials/). 

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12 

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4.3. 

Development instruments 

Actions have been launched under the 10th EDF mainly within the good governance approach 
("strengthening  states").  Projects  were  also  financed  by  the  EU-Africa  Infrastructure  Fund, 
through  the  EIB  lending  to  mining  projects  or  the  Seventh  Framework  Programme  for 
Research  and  Development  for  geological  surveys.  The  Commission  is  also  supporting  a 
sound investment climate through initiatives such as country-specific technical assistance for 
greater  revenue  transparency  through  the  Extractive  Industries  Transparency  Initiative,  and 
work to promote good governance in tax matters33. 

4.4. 

New research, innovation and skills opportunities 

The EU has taken steps to improve its knowledge base on actual and future deposits of many 
important raw materials and to stimulate the extractive industry to deliver new products to the 
manufacturing  industry  through  the  Seventh  Framework  Programme  for  Research  and 
Development.  The  project  ProMine,  launched  in  2009  with  a  € 17  million  budget,  will 
develop the first pan-European satellite-based mineral resources database and a 4D computer 
modelling system to help to assess the value of European mineral resources. Funding has been 
provided  to  projects  on  advanced  underground  technologies  for  intelligent  mining,  on 
substitution  of  critical  raw  materials  such  as  rare  earths  and  platinum  group  metals,  and  on 
coordination of activities in Member States in the area of industrial handling of raw materials 
through  ERA-NET.  Support  has  been  provided  for  the  development  of  the  bio-refinery 
concept,  that  will  contribute  to  provide  new  high  value  added  products,  and  the  European 
Technology  Platforms  on  Sustainable  Mineral  Resources  and  Forest-Based  Sector 
Technology are important drivers of new research efforts in relation to raw materials.  

The  European  Regional  Development  Fund  also  provides  funding  for  research,  innovation 
and business support measures for raw material exploration and extraction, while the Erasmus 
Mundus Minerals and Environmental Programme (2009-2013) supports the generation of new 
skills in the area of raw materials. 

4.5. 

Guidelines on the implementation of Natura 2000 legislation 

In  response  to  concerns  about  how  to  manage  the  sometimes  competing  objectives  of 
ensuring a high level of environmental protection in Natura 2000 areas and the development 
of  competitive  extractive  activities,  the  Commission  has  developed  guidelines  on  how  to 
apply the Natura 2000 decision-making framework. This underlines, for example, that there is 
no automatic exclusion of non-energy extraction activities in or near Natura 2000 areas34. The 
Commission  has  also  provided  guidance  that  presents  examples  of  good  practice  for 
exploiting wood resources while ensuring sustainable forest management35.  

4.6. 

Increased resource efficiency and improved conditions for recycling 

The concept of sustainable use of natural resources is increasingly being mainstreamed into 
EU  policy  initiatives  to  promote  growth  and  competitiveness36.  Member  States  have 

33 

34 
35 

36 

COM(2010)  163,  "Co-operating  with  Developing  Countries  on  Promoting  Good  Governance  in  Tax 
Matters". 
http://ec.europa.eu/environment/nature/natura2000/management/guidance_en.htm 
Good  practice  guidance  on  the  sustainable  mobilisation  of  wood  in  Europe.  European  Commission, 
Forest Europe, FAO 2010. 
See COM(2011) 21 "A resource-efficient Europe: flagship initiative under the Europe 2020 strategy" 

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13 

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implemented  various  policies  and  practical  instruments  to  improve  resource  efficiency.  A 
major  policy  issue  is  the  need  for  legal  clarity  for  defining  when  reprocessed  waste  can  be 
reclassified  as  a  product.  The  Commission  under  the  Waste  Framework  Directive  is 
developing 'End-of-Waste' criteria for specific waste streams, and work is advancing on rules 
for ferrous metals and aluminium, copper, recovered paper and glass.  

Since 2008,  the Commission has worked  to  prevent illegal export, or dumping,  of waste by 
supporting Member States in implementing the Waste Shipment Regulation. It is considering 
guidelines for the shipment of used and waste vehicles. Concerning the stream of waste from 
electrical and electronic equipment (WEEE), the Commission has proposed an ambitious new 
collection target which would ensure that 85% of the WEEE stream would be available for the 
recovery  of  valuable  raw  materials  contained,  instead  of  being  lost  through  improper 
treatment. In addition it has proposed stricter rules for the categorisation for shipment of 'used' 
electronics  and  electrical  goods  which  will  require  exporters  of  such  equipment  to  provide 
proof of functionality for every item exported for re-use.  

5. 

FUTURE ORIENTATIONS OF THE RAW MATERIALS INITIATIVE  

While significant progress has been made in implementing the RMI, further improvements are 
necessary. An integrated approach based on the three pillars is essential, as each contributes to 
the objective of ensuring a fair and sustainable supply of raw materials to the EU.  

5.1.  Monitoring critical raw materials 

Securing supplies of raw materials is essentially the task of companies and the role of public 
authorities  is  to  ensure  the  right  framework  conditions  to  allow  companies  to  carry  out  this 
task. The Commission intends to explore with the extractive, recycling and user industries the 
potential  for  targeted  actions,  notably  with  regard  to  recycling.  It  is  also  ready  to  examine 
with  Member  States  and  industry,  the  added  value  and  feasibility  of  a  possible  stockpiling 
programme of raw materials. At EU level, the stockpiling programme for oil aims to protect 
public security for Member States and EU37. The Commission will: 

–  Monitor the issues of critical raw materials to indentify priority actions, and will examine 

this with Members States and stakeholders. 

–  Regularly update the list of critical raw materials at least every 3 years. 

5.2. 

Fair and sustainable supply of raw materials from global markets (pillar 1) 

The EU will actively pursue a "raw materials diplomacy" with a view to securing access to 
raw  materials,  in  particular  the  critical  ones,  through  strategic  partnerships  and  policy 
dialogues. 

5.2.1.  Development policy and sustainable supply of raw materials 

Sustainable  mining  can  and  should  contribute  to  sustainable  development.  However,  many 
developing  countries  –  especially  in  Africa  –  have  not  been  able  to  translate  their  resource 
wealth  into  sustainable  and  inclusive  growth,  often  because  of  governance  issues  related  to 

37 

Council Directive 2009/119/EC of 14 September 2009. 

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14 

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regulatory  frameworks  or  taxation.  Enhancing  governance  and  transparency,  as  well  as  the 
trade and investment climate, in the raw materials sector, is essential for achieving inclusive 
growth  and  sustainable  development  in  resource  rich  countries.  The  EU,  through  its 
development policies and in partnership with developing countries, can play a crucial role in 
creating win-win situations where both developed and developing countries benefit from the 
sustainable  supply  of  raw  materials,  and  in  using  domestic  financial  resources  from  the 
mining sector for sustainable development to support the objectives of inclusive growth and 
poverty reduction strategies.  

The  Commission  will  consider  further  these  issues  in  the  context  of  the  Green  Paper 
consultation process on the future of EU development policy and budget support as well as in 
its  public  consultation  on  country-by-country  reporting38.  The  EU  will  encourage  partner 
governments  to  develop  comprehensive  reform  programmes  that  clearly  identify  objectives 
such as improving mining taxation regimes or enhancing revenue and contract transparency, 
or  enhancing  the  capacity  for  using  revenues  to  support  development  objectives.  Greater 
transparency will help society at large and national supervisory bodies to hold governments 
and  companies  to  account  for  revenue  payments  and  receipts,  and  thus  decrease  fraud  and 
corruption and ensure a more predictable trade and investment climate.  

In  Addis  Ababa  in  June  2010  the  Commission  agreed  with  the  African  Union  Commission 
(AUC) to establish bilateral co-operation on raw materials and development issues based on 
the RMI and the AUC's policy on mining and minerals, i.e. the 2009 'African Mining Vision'. 
This  co-operation  will  focus  on  three  areas:  governance,  investment  and  geological 
knowledge/skills.  Under  the  Africa-EU  Joint  Strategy  2011-2013,  agreed  at  the  Africa-EU 
Summit  held  in  November  2010,  actions  on  raw  materials  are  foreseen  under  the  Trade, 
Regional Economic Integration and Infrastructure Partnership. The EU and its Member States 
will work jointly on these issues. The Commission proposes to: 

–  enhance  European  financial  and  political  support  for 

the  Extractive  Industries 

Transparency Initiative (EITI), and help developing countries to implement it; 

–  share best practice with international organisations such as the World Bank, IMF, and the 

African Development Bank; 

–  examine  ways  to  improve  transparency  throughout  the  supply  chain  and  tackle  in  co-
ordination with key trade partners situations where revenues from extractive industries are 
used to fund wars or internal conflicts;  

–  promote more disclosure of financial information for the extractive industry, including the 
possible  adoption  of  a  country-by-country  reporting  requirement.  The  Commission  will 
take into account progress made by the International Accounting Standards Boards on an 
International Financing Reporting Standard for extractive industries, as well as the current 
status of legislation of third countries active in the region39; 

–  promote  the  application  of  EU  standards  by  EU  companies  operating  in  the  developing 
countries and the application of the Best Available Technique Reference document and by 
developing a code of conduct of EU companies operating in third countries; and 

38 
39 

http://ec.europa.eu/internal_market/consultations/2010/financial-reporting_en.htm  
For  example  on  due  diligence  and reporting  requirements  by  companies  which  are part  of  the  supply 
chain of raw materials e.g. US Dodd Frank Wall Street Reform and Consumer Protection Act. 

EN 

15 

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–  support the work by the OECD on due diligence in the mining sector; 

–  continue to assess - with African countries – the feasibility of assisting further co-operation 
between  both  continents'  geological  surveys  and  to  promote  co-operation  in  this  area  in 
multilateral fora such as UNESCO’s Geosciences Programme. 

Resource-rich  developing  countries  often  suffer  from  a  lack  of  transport,  energy  and 
environmental infrastructure which limits their ability to harness their mineral wealth for the 
benefit of their populations.  

The  European  Commission,  the  European  Investment  Bank  (EIB),  and  other  European 
development  financing  institutions,  in  co-operation  with  African  national  and  regional 
authorities,  will  continue  to  assess  how  to  promote  the  most  appropriate  infrastructure,  and 
related governance issues, that can contribute to the sustainable use of the resources of these 
countries  and  facilitate  raw  materials  supply,  using  respective  sector  dialogues  to  steer  this 
process.  In  particular,  the  European  Commission  will  assess  (a)  the  feasibility  of  increasing 
lending (which may include grant-loan elements) to industry, including mining and refining 
projects  and  in  particular  post-extractive  industries  and  (b)  investigate  the  possibility  of 
promoting  financial  instruments  that  reduce  risk  for  operators  on  the  basis  of  guarantees 
supported  by  EU,  including  by  the  European  Development  Fund.  The  existing  EU-Africa 
Infrastructure Trust Fund40 could also assist African countries in this task. . 

Development  policy  should  also  target  the  creation  of  linkages  from  the  extractive  industry 
towards  local  industry,  by  improving  the  value  chain  and  maximising  diversification. 
Therefore,  an  enabling  business  capacity  building  should  be  fostered  and  trade  agreements 
provide  the  necessary  flexibility  to  achieve  this  aim.  The  EU  can  also  help  developing 
countries  increase  their  geological  knowledge41  to  allow  them  to  better  estimate  national 
mineral reserves, better plan budgets based on expected revenues from these reserves and give 
increased bargaining power vis-à-vis mining firms. 

5.2.2.  Reinforcing the raw materials trade strategy 

The Commission intends to reinforce the Raw Materials Trade Strategy42 as set out in section 
4.2 in line with development and good governance objectives. The Commission considers that 
the EU should: 

–  continue  to  develop  bilateral  thematic  raw  materials  dialogues  with  all  relevant  partners, 
and  strengthen  ongoing  debates  in  pluri  –  and  multilateral  fora  (including  e.g.  G20, 
UNCTAD,  WTO,  OECD);  carry  out  further  studies  to  provide  a  better  understanding  of 
the impact of export restrictions on raw materials markets, and foster a dialogue about their 
use as a policy tool.  

–  further embed raw materials issues, such as export restrictions and investment aspects, in 
ongoing  and  future  EU  trade  negotiations  in  bilateral,  plurilateral  and  multilateral 
frameworks. 

40 

41 

42 

The purpose of the Trust is to benefit cross-border and regional infrastructure projects in sub-Saharan 
Africa. 
For example, the AEGOS project brings the EU's and Africa's geo-surveys together to improve the level 
and quality of resource data available for Africa. 
DG Trade - Raw materials policy - 2009 annual report. 

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–  pursue the establishment of a monitoring mechanism for export restrictions that hamper the 
sustainable supply of raw materials, and will continue to tackle barriers distorting the raw 
materials  or  downstream  markets  with  dialogue  as  the  preferred  approach,  but  using 
dispute settlement where justified.  

–  encourage in OECD activities the inclusion of  relevant non-OECD  members in the work 
on  raw  materials,  and  explore  further  multilateral  and  plurilateral  disciplines  including 
consideration of best practices. 

–  use competition policy instruments to ensure that supply of raw materials is not distorted 
by anti-competitive agreements, mergers or unilateral actions by the companies involved.  

–  take forward the above mentioned actions, and further analyse priorities for raw materials 
in  relation  to  third  countries  through  autonomous  measures,  bilateral  and  multilateral 
frameworks  and  dialogue;  and  continue  to  pursue  a  consistent  EU  trade  policy  on  these 
priorities.  

5.3. 

Fostering sustainable supply within the EU (pillar 2) 

The  Europe  2020  Strategy  underlines  the  need  to  promote  technologies  that  increase 
investment  in  the  EU’s  natural  assets.  Extractive  industries  fall  under  this  category  but  its 
development  is  hindered  by  a  heavy  regulatory  framework  and  competition  with  other  land 
uses.  Many  regulatory  issues  in  this  area  are  the  competence  of  Member  States.  The 
Commission therefore acts mainly as a facilitator for the exchange of best practices. 

At the same time, extraction in the EU must occur in safe conditions. This is important both 
for the image of the sector and as a precondition for the public acceptance. The Commission 
considers that the following practices43 are particularly important in promoting investment in 
extractive industries: 

–  defining  a  National  Minerals  Policy,  to  ensure  that  mineral  resources  are  exploited  in  an 
economically  viable  way,  harmonised  with  other  national  policies,  based  on  sustainable 
development  principles  and  including  a  commitment  to  provide  an  appropriate  legal  and 
information framework; 

–  setting  up  a  land  use  planning  policy  for  minerals  that  comprises  a  digital  geological 
knowledge  base,  a  transparent  methodology  for  identifying  mineral  resources,  long  term 
estimates  for  regional  and  local  demand  and  identifying  and  safeguarding  mineral 
resources (taking into account other land uses) including their protection from the effects 
of natural disasters; 

–  putting in place a process to authorise minerals exploration and extraction which is clear, 
understandable, provides certainty and helps to streamline the administrative process (e.g. 
the introduction of lead times, permit applications in parallel, and one-stop-shop). 

43 

“Improving  framework  conditions  for  extracting  minerals  for  the  EU”.  Report  of  the  RMSG  Ad-hoc 
working group on exchanging best practices on land use planning, permitting and geological knowledge 
sharing. June 2010. 

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The Commission proposes to assess with the Member States, in full respect of the subsidiarity 
principle, the feasibility of establishing a mechanism to monitor actions by Member States in 
the above area, including the development of indicators. 

It  is  also  important  to  further  enhance  the  knowledge  base  necessary  for  an  efficient  raw 
materials  strategy.  In  the  short  term  the  Commission  proposes  to  assess  with  the  Member 
States  the  scope  for  increased  synergies  between  national  geological  surveys,  that  would 
allow for economies of scale, reduced costs and increased potential to engage in joint projects 
(e.g. harmonised minerals database, European Raw Materials Yearbook). In the medium term, 
any synergies should contribute to an improved European raw materials knowledge base in a 
co-ordinated  way,  in  particular  taking  into  account  future  opportunities  within  the  GMES 
programme.  For  some  raw  materials,  such  as  wood,  the  growing  demand  for  renewable 
energy continues to increase competition for them. Increased demand is not always matched 
by a corresponding supply increase, thereby leading to higher prices. 

The Commission intends to: 

–  promote  the  work  of  UNECE  in  the  area  of  standardisation  concerning  reporting  of 

reserves and resources at EU-level; 

–  carry  out  an  appropriate  analysis  on  the  availability  of  wood  and  recovered  paper  taking 
into account the potential demand from both the forest based industries and the renewable 
energy sector (biomass); 

–  continue  to  support  the  creation  of  sectoral  skills'  councils  at  European  level  when  an 
initiative comes from stakeholders such as social partners or the relevant observatories; 

–  Promote research and development in the raw materials value-chain including extraction, 

processing and substitution.  

5.4. 

Boosting resource efficiency and promoting recycling (pillar 3) 

As  worldwide  demand  for  raw  materials  increases,  greater  efforts  will  have  to  be  made  on 
recycling.  Higher  recycling  rates  will  reduce  the  pressure  on  demand  for  primary  raw 
materials,  help  to  reuse  valuable  materials  which  would  otherwise  be  wasted,  and  reduce 
energy  consumption  and  greenhouse  gas  emissions  from  extraction  and  processing.  In  the 
framework of the Europe 2020 flagship initiative on resource efficiency, the Commission will 
present in 2011 a roadmap for a resource efficient Europe. It will set out a vision of structural 
and  technological  changes  required  to  move  to  a  low  carbon,  resource  efficient  and  climate 
resilient  economy  by  2050  and  how  we  can  make  this  transition  happen  through  policies 
delivering most benefits for the EU’s growth, jobs and energy security.  

'Urban mining', which is the process of extracting useful materials from urban waste, is one of 
the  main  sources  of  metals  and  minerals  for  European  industry.  The  use  of  secondary  raw 
materials contributes to resource efficiency, to the reduction of greenhouse gas emissions and 
to the preservation of the environment. However, the full potential of many of these resources 
is not being exploited and although recycling of municipal waste in the EU has doubled in 10 
years,  there  are  large  differences  in  the  situation  in  the  Member  States.  Given  pressures  to 
reduce carbon emissions, protect human health and reduce external dependence, the barriers 
which prevent recycling need to be further addressed. The Commission considers that these 
barriers fall into three broad categories: 'leakage' of waste to sub-standard treatment inside or 

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outside  the  EU;  obstacles  to  the  development  of  the  recycling  industry;  and  inadequate 
innovation in recycling.  

Better  implementation  and  enforcement  of  existing  EU  waste  legislation  is  essential  for 
promoting a more resource-efficient Europe. The Commission proposes therefore to: 

–  review the Thematic Strategy on waste prevention and recycling in 2012 to develop best 
practices  in  collection  and  treatment  of  key  waste  streams,  in  particular  those  which 
contain  raw  materials  with  a  negative  impact  on  the  environment.  When  necessary,  the 
availability of recycling statistics will be improved; 

–  support  research  and  pilot  actions  on  resource  efficiency  and  economic  incentives  for 

recycling or refund systems; 

–  carry out an an ex-post evaluation of the EU waste acquis, including an assessment of areas 
where legislation in the various waste streams could be aligned to improve coherence. This 
would include the effectiveness of deterrents and penalties for breaches of EU waste rules; 

–  review the action plan on sustainable consumption and production in 2012 to identify what 

additional initiatives are necessary in this area; 

–  analyse the feasibility of developing ecodesign instruments (i) to foster more efficient use 
of raw materials, (ii) ensure the recyclability and durability of products and (iii) promote 
the  use  of  secondary  raw  materials  in  products,  notably  in  the  context  of  the  Ecodesign 
Directive; and 

–  develop new initiatives to improve the competitiveness of EU recycling industries notably 

by introducing new market based instruments favouring secondary raw materials. 

The  problem  of  environmental  dumping  of  waste  products  also  occurs  in  cases  of  illegal 
shipment  of  waste  to  third  countries.  To  further  strengthen  the  enforcement  of  the  Waste 
Shipment Regulation, the Commission proposes to: 

–  ensure  precise  and  workable  inspection  standards  for  waste  across  the  EU  in  2011.  This 
will  allow  for  further  efforts  in  2012  to  facilitate  the  control  of  shipments  by  customs 
authorities;  

–  consider  using  FP7  research  funding  to  help  improve  technologies  for  detection, 

identification, tracking and location of illegal shipments;  

–  examine the feasibility of applying a global certification scheme for recycling facilities to 

the export of waste streams, building on environmentally-sound management criteria; 

–  build on IMPEL44, work with Member States to assess the feasibility of a formal EU-level 

mechanism for the enforcement of the EU acquis. 

5.5 

Innovation: a cross-cutting issue 

Raw materials are essential inputs for the competiveness of industry and for the development 
of  many  environmentally-friendly,  clean-technology  applications.  Innovation  is  key  to  the 

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EU’s potential in this area and can play a role in addressing the challenges of the three pillars 
of the RMI. There is a need for innovation along the entire value chain, including extraction, 
sustainable processing, eco-design, recycling, new materials, substitution, resource efficiency 
and  land  use  planning.  The  Commission  will  assess  whether  to  launch  an  Innovation 
Partnership on raw materials within the Europe 2020 Flagship on Innovation Union45.  

6. 

WAY FORWARD 

Access to commodities and raw materials is essential to maintaining the productive capacity 
of the economy and securing the well being of citizens. These commodities and raw materials 
are sourced from across the globe as well as from within Europe. The challenge is to ensure 
that  commodity  and  raw  materials  needs  are  met  in  a  way  which  supports  wider  goals  for 
development  in  source  countries,  environmental  protection,  open  trade  and  stable  markets 
which do not pose risks to the wider economy.  

Across all classes of commodities and raw materials, there has been an increase in financial 
activity.  Ensuring  that  this  development  supports  and  does  not  undermine  access  to 
commodities  and  raw  materials  or  destabilise  the  European  economy  or  the  economies  of 
developing  countries  is  therefore  a  key  policy  concern  at  European  level  and  international 
level. These markets must continue to serve the real economy by helping price formation and 
allowing the hedging of market risk.  

The  prices  of  commodity  derivatives  and  underlying  physical  commodities  are  interlinked. 
Their dynamics are challenging established paradigms and understanding commodity prices is 
becoming  increasingly  difficult.  The  integrity  and  transparency  of  commodity  derivative 
markets  needs  to  be  enhanced  and  the  Commission  considers  there  is  a  need  to  promote 
greater understanding of these developments. For this reason, the Commission has launched 
several  initiatives  in  the  field  of  financial  services,  as  referred  to  in  section  3.2,  and  will 
examine  the  extent  to  which  further  improvements  are  necessary  on  the  transparency  and 
accessibility of information on physical commodity markets. This  increased transparency of 
financial as well as physical trading activities should allow regulators and market participants 
to better understand the interaction between financial and physical commodity markets, and 
help to prevent abusive practices.  

The  Commission  will  also  consider  further  policy  options  to  strengthen  security  of  food 
supply. It will feed its work on each of these issues into G20 activities this year, in particular 
in the light of the priority given by the French presidency to addressing commodity prices and 
food security. 

Given that a sustainable demand and supply of raw materials is a major on-going challenge, 
the Commission also intends to reinforce implementation of its raw materials initiative in an 
integrated strategy based on its three pillars. Furthermore, the Commission will hold regular 
public discussion through an annual thematic event that would promote the awareness of the 
challenges ahead and take stoke of the progress made. 

45 

COM(2010)546 

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Annex 

Concentration  of  production  of  critical  raw  materials,  and  recycling  and  substitution 
rates 

The 14 raw materials listed below are critical because the risks of supply shortage and their 
impacts on the economy are higher compared with most of the other raw materials. Their high 
supply  risk  is  mainly  due  to  the  fact  that  a  high  share  of  the  worldwide  production  mainly 
comes from a handful of countries: China (antimony, fluorspar, gallium, germanium, graphite, 
indium,  magnesium,  rare  earths,  tungsten),  Russia  (platinum  group  metals),  the  Democratic 
Republic of Congo (cobalt, tantalum) and Brazil (niobium and tantalum). This concentration 
of production is in many cases compounded by low substitutability and low recycling rates. 

Raw 
materials 

Main producers 
(2008, 2009) 

Main sources of 
imports into EU (2007, 
or 2006) 

Import 
dependency 
rate 

Substitutability 

Recycling 
rate 

Antimony 

Beryllium 

Cobalt 

Fluorspar 

Gallium 
Germanium 

Graphite 

Indium 

Magnesium 

Niobium 

Platinum 
group 
metals 

China 91% 
Bolivia 2%  
Russia 2%  
South Africa 2% 

USA 85% 
China 14%  
Mozambique 1% 
DRC 41%  
Canada 11% 
Zambia 9%  
China 59% 
Mexico 18% 
Mongolia 6% 
NA 
China 72%  
Russia 4%  
USA 3% 
China 72%  
India 13% 
Brazil 7% 

China 58%  
Japan 11% 
Korea 9% 
Canada 9% 
China 56%  
Turkey 12% 
Russia 7%  

Brazil 92% 
Canada 7% 
South Africa 
79% 
Russia 11%  
Zimbabwe 3% 

Bolivia 77% 
China 15% 
Peru 6% 

USA, Canada, China, 
Brazil (*) 

DRC 71% 
Russia 19% 
Tanzania 5% 
China 27% 
South Africa 25% 
Mexico 24% 
USA, Russia (*)  
China 72% 
USA 19% 
Hong Kong 7% 
China 75% 
Brazil 8% 
Madagascar 3% 
Canada 3% 
China 81% 
Hong Kong 4% 
USA 4% 
Singapore 4% 
China 82% 
Israel 9% 
Norway 3% 
Russia 3% 
Brazil 84% 
Canada 16% 

South Africa 60% 
Russia 32% 
Norway 4% 

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100% 

0,64 

11% 

100% 

100% 

69% 

(*) 
100% 

0,9 

0,9 

0,74 
0,8 

95% 

0,5 

16% 

0% 

0% 
0% 

0%  
NA 

100% 

0,9 

0,30% 

100% 

0,82 

14% 

100% 

0,7 

11% 

100% 

0,75 

35% 

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Rare earths 

Tantalum 

Tungsten 

China 90% 
Russia 9%  
Kazakhstan 1% 
China 46% 
Japan 40% 
Kazakhstan 14% 

China 97%  
India 2% 
Brazil 1% 
Australia 48% 
Brazil 16% 
Rwanda 9%  
DRC 9%  
China 78% (6,1)  Russia 76% 
Russia 5% (6,5)  Bolivia 7% 
Canada 4% 

Ruanda 13% 

100% 

0,87 

100% 

0,4 

1% 

4% 

73% 

0,77 

37% 

(*) subject to strong fluctuations 

Note: import dependence is calculated as “net imports / (net imports + production in EU)”  

Source:  compiled  on  the  basis  of  Report  “Critical  raw  materials  for  the  EU”  by  the  Ad-hoc  working 
group on defining critical raw materials of the Raw Materials Supply Group. June 2010 

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