International Raw Materials Markets: Rising Prices and ... all, the raw materials price index based on the US dollar (2000 = 100) rose from 90.1 (2001/2 average) to around 145 for

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The current record price levels for raw materi-als are not a temporary phenomenon. Overthe coming years, the situation on the rawmaterials markets is likely to remain tense aslarge countries such as China, India and Brazilpress ahead with infrastructural developmentand industrialization.

The closer economic ties now develop-ing between newly industrializing countries(emerging economies) are a novel feature ofthe global economic landscape. A number ofcountries in Latin America (notably Brazil,Peru and Chile) and Africa (South Africa,Zambia and the Democratic Republic ofCongo) possess some of the world’s largestreserves of mineral resources and are increas-ingly emerging as major suppliers. The highdemand for these products in Asia (especiallyin China, India, Indonesia and Malaysia) is adriver of growth in the supplier countries.

As a result of this dynamic, a new geography of the raw materials trade is being created, with major industrializingcountries emerging as growth motors. As part of this trend, the industrialized countriesare losing influence, and weaker developingcountries are becoming even more marginal-ized. Resource conflicts are erupting alongthese lines: highly developed countries aredetermined to safeguard their access to rawmaterials, while growth is slowing in the lessdeveloped countries and internal conflicts are increasing. To resolve these conflicts, new forms of governance are required, based on international cooperation, greaterresource productivity and sustainable re-source management in a process which must involve companies and NGOs alike.

IV. World Economy and Natural Resources

International Raw Materials Markets: Rising Prices and Growing Conflict Potential Raimund Bleischwitz

Figure 1: The increasing importance of developing countries in raw materials supply

Source: Personal Communication from Magnus Ericsson, Raw Materials Data 2005

23okt_umbruch 23.10.2006 15:23 Uhr Seite 65

International Raw Materials Markets: Rising Prices and Growing Conflict Potential

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The raw materials situationworldwide

Mineral resources are unprocessed raw ma-terials that are obtained by means of pri-mary production. For many years, the de-bate about these products was dominated by geostrategic concerns. This aspect is re-emerging in the current discourse as well,along with other key issues such as the envi-ronmental impacts of resource extraction/use and the socio-economic role of theseproducts in development processes.

The call for security of supply: availability and geostrategic risks

There are two key indicators of raw materi-als availability: “reserves” and “resources”.“Reserves” mean the stocks at known sitesthat are technically and economically ex-tractable, i . e . presently being mined orlikely to be. The term “resources” is used todenote stocks which may become technicallyand economically recoverable in the future.A further indicator is “availability”; “staticavailability” relates current reserves to totalannual consumption, while “dynamic avail-ability” presupposes specific growth and

adaptation processes. The lower the avail-ability, the more urgent the problem of rawmaterials availability appears to be.

Defining these indicators precisely still is a challenging task, as the terminologyvaries around the world. From a geologicalperspective, it is essential to bear in mindthat the concentration of raw material de-posits and thus their extractability can varyover time: the correlation between the con-centration and the amount of the raw mate-rial is often non-inverse. Key criteria, in thiscontext, are the thickness, porosity, satura-tion, filling level and yield of the deposit.When it comes to assessing “availability”, it is essential to consider the probable produc-tion trends and the anticipated level of de-mand for the commodity in question. Theuse of different criteria means that estimatesof raw materials availability vary accord-ingly.

A general and absolute scarcity due to exhaustion of deposits is unlikely to be aserious concern for the foreseeable future.However, estimates of availability indicaterelative scarcity for some raw materials suchas lead, copper, tin and zinc [see Table 1].Besides the familiar scarcity of productssuch as oil, there is a need for monitoringand action in relation to specific metals forwhich Germany and the European Union


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Table 1: Production, reserves, resources and availability of selected raw materials

Production Static avail-2004 2005 Reserves Resources ability (years)

Lead 3,150 3,880 67,000 140,000 19Copper 14,600 14,900 470,000 940,000 32Nickel 1,400,000 1,500,000 62,000,000 140,000,000 41Tantalum 1,540 1,910 43,000 150,000 25Tin 264,000 280,000 6,100,000 11,000,000 22Zinc 9,600 10,100 220,000 460,000 22Zircon 830,000 890,000 38,000,000 72,000,000 43

Data in 1 000 tonnes

Author’s own calculations based on USDI/USGS 2006



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are almost entirely reliant on imports.The situation is especially critical in relationto certain strategic metals which will con-tinue to be essential for key growth tech-nologies in the foreseeable future; here,steep price hikes are a sign of economicscarcity [see Table 2].

High prices: short-term rises and long-term fluctuations

Prices on the international raw materialsmarkets reached their highest levels formany years in 2005. Very high prices wererecorded for nickel in particular, which isused in the production of high-grade steel,and for steel scrap; above-average priceincreases also occurred in the markets fortin, copper and lead. For iron ore, producerssuccessfully enforced a 70% price increase in2005. By comparison, the highest price in-crease previously reported (in 2003) was 18%. These are record prices for industrialraw materials. In all, the raw materials priceindex based on the US dollar (2000 = 100)rose from 90.1 (2001/2 average) to around145 for mineral resources and 190 for energyresources in 2005.

When a longer period is observed, thereal price increase looks less dramatic. At the

beginning of the 1980s, similar high pricesfor industrial raw materials were recorded,but prices fell in the interim. Time seriesanalyses from 1900 to 2000 collected by theUS Geological Survey and measured in con-stant US dollars actually show falling realprices of many different raw materials in thelong run. By contrast, an analysis by Citi-group points to 30-year growth cycles withprices rising somewhat during the secondhalf of the nineteenth century and againafter the Second World War until around1980 (Heap 2005). This puts statements on falling price levels for the period1990–2000 into question. Rising prices can be observed for some strategic com-modities used in growth industries, forwhich there is no prospect of a short-termsubstitute [see Table 2].

Were a general threat of resourcescarcity to exist, prices would increase over a longer period of time. At present, such ascenario – at least as a longer-term globaltrend – is not borne out by empirical obser-vations. Nonetheless, it would be irrespon-sible to predict future developments on thebasis of past trends. A report to the US re-search community (Gordon et al. 2006)stresses that no substitute is likely to be identified for various metals used in the in-dustrialization process in industrializing

Table 2: Areas of application and price increases for selected metals

Raw material Field of use Price 2001 Price 2005 Price rise in %

Indium LCD screens, semiconductors 120.00 810.00 575Molybdenum Steel production 5.00 72.00 1,340Platinum Catalytic converters 533.00 890.00 66Selenium Glass, chemicals, electronics 3.80 52.00 1,268Tellurium Steel production 7.00 96.00 1,271Tungsten Electronics 64.00 140.00 118Vanadium Petrochemicals, metal industry 1.37 17.50 1,177Zircon Ceramics, chemicals 340.00 662.00 95

Price data in US$ related to specifically relevant amounts.

Author’s own calculations based on: USDI/USGS 2006



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countries or for the information society’shigh-tech needs for the foreseeable future.Bottlenecks are predicted for platinum ifthe mass production of fuel cells – seen as abuilding block in a renewable energy supply– commences. The high price of steel is likelyto remain an obstacle to the expansion ofwind power which is widely considered to be desirable. For any prospective analysis,then, it is essential to identify the drivingforces of price and other current trends.

“Hungry dragons”: China and other emerging economies as driving forces

There is general consensus among expertsthat the growing demand from emergingeconomies, particularly China, has been acrucial factor for the price increases since2000. The Economist titled one of its articleson this issue The Hungry Dragon. A fewfigures illustrate the Chinese hunger for rawmaterials: during the last 12 years China has attained an average growth rate of morethan 10% per annum. China accounts for

nearly 30% of the world’s GDP growth since1992. Despite some successful strategies to decouple the demand for raw materialsfrom GDP growth, and despite increasingdomestic mining activities, China is now theworld’s largest importer of raw materials,including steel, copper, coal and cement, andthe second largest importer of crude oil afterthe USA.

Even if growth rates were to tail off,Chinese demand is likely to remain high inthe coming years. Key factors here are thedemand for capital goods, the urbanizationtrend, industrialization and the develop-ment of consumer demand. Raw materialand energy shortages, the food supply, envi-ronmental and health problems and socialconflicts could all exert a dampening effect.Predictions about the extent of the Chinesegrowth dynamic therefore vary. Nonetheless,analysts forecast that demand for raw mate-rials will double by 2020 (Heap 2005).

The demand from other emergingeconomies with high growth rates, such asIndia and Brazil, is also important. Unlikethe situation in the 1980s when the East andSouth-East Asian “Tigers” were achieving

Figure 2: Price trend for raw materials since 1998

Source: Personal communication from Klaus Mathies, HWWA 2005



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high rates of growth, the current demand forraw materials comes from populous coun-tries with a high level of purchasing powerwhich are investing in industries and infra-structure. The demand from the Asianindustrializing countries is stimulating addi-tional growth in the extracting countries.Forecasts show that these countries havegood prospects of development with above-average rates of growth. Assuming thatinternational demand remains constant at ahigh level, with relatively low price elasticityover the medium term, high raw materialsprices are likely to persist for the comingyears. Comparisons with other countriesshow that although the reliance on naturalresources subsides to some extent as coun-tries become more developed, it does notdecrease in absolute terms, so the tensions inthe international raw materials markets arelikely to continue. Figure 3 depicts rawmaterials consumption in relation to grossdomestic product (GDP) for various coun-

tries in the 1990s; at present, there is noempirical evidence to support the hypothe-sis that improved economic performance isaccompanied by a reduction in raw materi-als consumption [see Figure 3].

Long-term contracts, short-term speculation and a new trade geography

The elasticity and flexibility on raw materi-als markets are crucially influenced by inter-company contracts and shareholding struc-tures. Despite the existence of stock ex-changes such as the London Metal Exchange(LME), the competition on markets for rawmaterials is imperfect; instead, the real pricesare determined by inter-company contracts.Stock markets and spot markets merelyfacilitate supply when short-term bottle-necks occur and are also a starting point forprice negotiations. In raw materials con-

Figure 3: Raw materials consumption in relation to gross domestic product (GDP)

GDP per capita

Source: Steger (2006, personal communication) based on Bringezu et al. 2004


tracts, delivery quantities are fixed in themedium and long term, whereas prices arefixed in the short and medium term (usuallyfor one year). The background to this prac-tice is the need for asset-specific investmentsfor capital goods in the extraction and pro-cessing of raw materials. Contracts providecertainty and are therefore in the interest ofboth the extracting and the processingindustry. A key feature of the current rawmaterials markets is the emergence ofbenchmarking systems where single con-tracts act as indicators for the subsequentnegotiations. In some cases, the runningtime for the delivery quantities is as much as 20 or 30 years! For SMEs in the processingindustry in particular, high prices concludedby other enterprises abroad entail consider-able price risks.

It is noticeable that during the courseof the long-lasting low price phase since thebeginning of the 1980s, many companieshave divested their shares in extractive proj-ects and mining enterprises (BMWA 2005).Raw materials projects were also regarded as less profitable by investors; the reason isthat due to comparatively protracted pay-back periods, the return on investment(RoI) comes late. As a result of the increasedand expected continuing high prices, thepayback periods of raw material projects will shorten. This is currently leading to arenaissance of an upstream integration from the raw material processing to the rawmaterial extracting industry.

It must be pointed out that raw ma-terial processing companies in emergingcountries are also pursuing this strategy and that the concentration in the miningsector, combined with higher profit margins,makes a downstream integration, i. e. share-holdings by mining companies in processingcompanies, a rational choice as well. In thiscontext, in contrast to the competition in amarket-based economy, a centrally-plannedeconomy like China provides security bene-fits for domestic companies. China is in-

creasing its engagement in direct invest-ments and shareholdings in raw materials-producing countries.

Overall, the market position of the rawmaterials companies and of the emergingeconomies is improving. This will create anew geography in the raw materials trade,with strong enterprises from emerging anddeveloping countries starting to cooperateand increasingly dominating this sector.

Outcomes and risks: environmental damage and resource wars

Overall, the environmental impacts ofresource use must be considered (MMSD2002). An expert report by the World Bankproposes that in view of the gravity of theseimpacts, no new funding for developingcountries should be approved for the timebeing. Resource extraction is not only linkedto major intervention in the ecosystem, pro-ducing toxic substances and using largequantities of water and energy. The trans-port of raw materials from remote areas alsorequires a transport infrastructure which islinked to further intervention. WuppertalInstitute for Climate, Environment and En-ergy has introduced the “ecological ruck-sack” concept to describe these environmen-tal stresses (Bringezu 2004). Later stages inthe raw materials lifecycle cause further en-vironmental damage. The “ecological foot-print” is a comparative indicator of a coun-try’s natural resource consumption. Currentmarket developments also harbour seriousrisks: raw materials exploration and extrac-tion are increasingly being carried out inareas which are highly sensitive in geo-eco-logical terms, such as nature protectionareas, deep sea or continental shelves.

Geostrategic risks are caused by a reliance on politically unstable regions. Al-most 70 percent of the world’s known oiland gas reserves fall inside a “strategic el-lipse” extending from the southern tip of


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the Arabian Peninsula across the Caspianregion into northern Russia and up to theJamal Peninsula. Similar dependencies existwith metals. Euromines – the European As-sociation of Mining Industries – forecasts an increase in metal import rates from sixdeveloping and newly industrializing coun-tries: Brazil, Chile, Peru, South Africa, Con-go (DRC) and Zambia [see Figure 1]; thelatter can hardly be regarded as secure sup-plier countries. Construction minerals, thedominant group in raw materials consump-tion [see Figure 4], are mainly extracted inthe country in which they are used. So over-all, the reliance on imports of metals, oil and gas from politically unstable regions islikely to increase, as their reserves of thesecommodities are far greater than othercountries’. The United States is more than80% import-reliant for more than 30 min-eral commodities (USDI/USGS 2006).

These dependencies give rise to distri-bution conflicts and are possible causes ofwar (Brock 2004; Klare 2002):3 within the mining countries, over the use

of revenue from the extraction of rawmaterials. Several civil wars are beingbankrolled from this source. High priceshave knock-on effects, creating incen-tives to undermine environmental andlabour standards, for example. Unstablecountries are especially susceptible to corruption. A correlation betweenhigh indebtedness and increased rawmaterials exports has not yet been de-monstrated empirically, however(Neumeyer 2005).

3 Import-dependent developing countrieshave to pay higher prices for imports ofraw materials. This reduces their scopeto undertake other investments andweakens their foreign trade and capitalbalance sheets.

3 Industrialized countries face growingcompetition from strong newly industri-alizing countries. Within the industrial-ized countries, industrial sectors which

process raw materials and can only passon high costs to purchasers to a limitedextent are in a difficult position. Themilitary option to safeguard access toraw materials cannot be ruled out.

Overall, the socio-economic impactsvary. Distribution conflicts and potentialcauses of war are a possible but by no meansprobable global trend. Indeed, high raw ma-terials prices offer development opportuni-ties for exporting countries and trigger sav-ings and substitution effects in technologi-cally developed countries. Despite these op-portunities, the current situation and theglobal trends in the international raw ma-terials markets cannot be described as sus-tainable. Relative scarcities, socio-economicimpacts and environmental damage appearto be manageable when viewed in isolation.The need for action becomes apparent, how-ever, when the interaction of these factors isconsidered.

The political economy of international raw materials markets

International raw materials markets displaya number of specific characteristics. De-posits are distributed unequally and consid-erable financial and technological invest-ment is required to extract them. This givesrise to various distortions of the market andis used to justify political intervention.

Subsidies

Subsidies are a dominant factor in marketdistortions. They are quite common in the raw materials sector because miningcompanies contribute to the security of sup-ply and catch-up development processes.Subsidies also facilitate lower prices for customers, i. e. for industry and final con-sumers. The OECD (2003) estimates that


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the annual subsidy for energy and raw mate-rial extraction across the world is approxi-mately $270 billion. Subsidies by OECDcountries to the mining sector alone amount to 83% of total global subsidies –well above the global average. Subsidies to agriculture are also high. In developingand industrializing countries, energy, waterand forestry receive proportionately highersubsidies.

In China, the government is refund-ing import tariffs to domestic firms. Thesefinancial resources are being reinvested in resource funds through which Chinesefirms acquire shareholdings in mining com-panies all over the world. Thus a threefoldbenefit is obtained: China’s domestic rawmaterials production is promoted throughimport tariffs. Thanks to the refunds, keydomestic industries receive a cost advant-age vis-à-vis their international competi-tors (“Hoover effect”). In addition, thefinancial capacity of the Chinese enterpri-ses – whose foreign direct investment, share-holdings and negotiations on supply con-tracts are aided by government guarantees –is being increased (BDI 2005, p. 30, 60).There is a lack of reliable data showing theextent to which this practice is being pur-sued by other newly industrializing coun-tries as well.

Geo-economic aspects of resource extraction

Resource extraction has improved techni-cally over time. A significant proportion ofthe earlier long-term price reductions in rawmaterials markets can be attributed to betterextraction technologies (Reynolds 1999;Tilton 2003). Improved extraction technolo-gies, work processes and logistics have cutsupplier costs in the past and resulted inprice cuts. This sends out a misleading mes-sage to users: falling prices appear to signal a better supply, so when real scarcity of sup-ply occurs at a later date, the ensuing pricerise comes as a shock. Steadily falling pricesover a longer period of time also have thedisadvantage of delaying new investment.In the case of raw materials, hardly any newinvestment was undertaken after the early1980s, i. e. since the last boom (BMWA 2005,p. 3). As a result, the high demand that hasbeen observed for some years is stretchingcurrent capacity to its limits.

Geo-economic analysis of raw mate-rial availabilities indicates that explorationactivities take place on a cyclical basis. Thesame applies to new capital investments inproduction capacities. Enterprises usuallywait for high price phases before they under-take new exploration and investments. In

Table 3: Subsidies in the natural resources sector

OECD as % OECD Non-OECD World of World

Agriculture 335 65 400 84Water 15 45 60 25Forestry 5 30 35 14Fishing 10 10 20 50Mining 25 5 30 83Energy 80 160 240 33

Total 470 315 785

Price data in US$ billion, reference period 1994–1998

Source: OECD 2003, p. 11



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terms of the above discussion, successfulexploration acts as a price corrective. Thediscovery of new deposits signals future ex-traction capabilities and therefore moder-ates the current price level.

Due to the high price level, large-scaleexploration projects are currently being initiated and conducted worldwide; spend-ing on new exploration projects around theworld is estimated to have almost doubledsince 2001 (USDI/USGS 2006, p. 14). Itwould be premature, however, to draw anoptimistic conclusion. For scientific andtechnical reasons, and in some cases for political or economic reasons, not all reservesdetected are successfully developed at a laterstage. Mining concessions, licensing pro-cedures and unforeseeable technical or poli-tical difficulties increase the extraction costs.The extraction of certain types of reserves,e. g. oil shale for energy use or deep-seamineral deposits, must wait until extractiontechnologies are market-ready and appropri-ate risk assessments have been carried out.

Institutional deficits

Raw material reserves in which several com-panies purchase property rights have thecharacteristics of common-pool resources:someone has to take on the risks associatedwith their initial development. Once the ini-tial risks are overcome, a rapid extractionpathway is embarked upon in order to pre-empt free-rider attitudes among othershareholders. This applies especially to liq-uid and gaseous raw materials. Overall, theextraction pathway is suboptimal.

Another price distortion results fromthe “moral hazard” phenomenon. A numberof cases in the oil industry have come to thepublic’s attention. Companies paid bonusesto managers who were able to show increas-ing reserves within their field of activity. As aresult, the companies overestimated the oil

reserves in their internal data; in some cases,the figures were deliberately manipulated.These incorrect statistics only became ap-parent when external analysts challenged thedata. This has resulted in an overestimate of extractable future resources and in somecases to lower current prices and increasedincentives for consumption. The phenome-non does not only affect companies. TheOECD’s extraction rates are also ascertainedon the basis of the reserves calculated by theMember States. Here too, there is an incen-tive to overestimate the reserves. There havebeen fewer cases of this kind in the mineralresource industry, however.

Oligopolistic structures

International raw material markets can becharacterized as oligopolistic structures. Inrecent years, the concentration on the supplyside has been increasing. The market shareof the ten largest producers of several rawmaterials is above 40%; this concentration isparticularly high for oil, iron ore, platinum,nickel and aluminium. For example, threesuppliers dominate up to 75% of the worldmarket for iron ore (CVRD, Rio Tinto, BHPBilliton).

There are various reasons for this con-centration. As these industries involve capi-tal-intensive production whose revenue isstrongly dependent on the size and qualityof the deposit, the entry barriers to the mar-ket are high. This trend is exacerbated bypurchasers’ stringent requirements as re-gards quality of the materials and deliveryreliability, which are regulated on a contrac-tual basis.

In the absence of competition policies,oligopolistic supply structures help to setprice levels, the consequence being exces-sively high prices. It could be argued, on thisbasis, that monopolistic structures for rawmaterials should be established in the inter-



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ests of sustainable resource management! In practice, this is offset by the purchasingpractices of major companies, with demandtraditionally being linked to market power(e .g. in the automobile industry). However,due to the growing competition on the de-mand side, the market power of raw materi-als suppliers has increased. The new geogra-phy of the raw materials trade could lead tocartel-like conditions, resulting in strategiccontrol of information and agreements onprices and delivery quantities. An interna-tionally coordinated competition policy em-bedded at institutional level could counter-act this market power.

Abundant raw materials – a curse or a blessing for developing countries?

The increasing cooperation between emerg-ing economies and developing countriesraises the question of their economic policyand resource interests. Contrasting with the conventional assumption that successfuldevelopment processes are based on the uti-lization of available natural resources, JeffreySachs (with Warner, 2001) has developed the“resource curse” hypothesis.

The assumption that the availability ofraw material sources has beneficial effects iseasy to justify. Countries rich in raw materi-als can use their natural resources to developtheir industry and infrastructure. They canuse their export revenues to build up a capi-tal stock, thus accelerating growth. Indebtedcountries may liquidate foreign debts. Forexample, Russia is currently liquidating partof its debts from its increased oil and gasrevenues.

However, the economic developmentof countries rich in raw materials is reflectedin highly divergent growth rates. WhereasNorway and some minor oil-extractingcountries are operating quite successfully,growth rates in resource-rich countries inAfrica and Central Asia are sluggish. From1980 to 2002, even the OPEC states showedlower growth rates than the average beingachieved in other developing, newly indus-trializing and transition countries.

Thus the availability and utilization of natural resource reserves do not seem to guarantee successful development pro-cesses. There are two main explanations forthis empirically observed phenomenon:3 Macroeconomic deficits (“Dutch Dis-

ease”): in the 1960s, the discovery of na-tural gas in the North Sea resulted in a

Table 4: Growth performance of resource-exporting countries

Share of resource GDP growth /Countries exports/GDP a (average) GDP per capita 2002

in %, 1980–2002 In US $

Bahrain 71.9 4.3 16,300Surinam 68.1 0.0 5,200

Saudi Arabia 36.9 1.6 11,500Nigeria 35.2 2.3 870Algeria 23.7 2.0 5,800

Venezuela 21.4 0.9 5,260Norway 17.2 3.1 37,850

Indonesia 11.9 4.8 3,224

Source: Bardt 2005, based on IMF, WTO



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decline of exports of industrial goodsand services for a time. In this scenario,negative economic impacts are caused by an upward revaluation of the currency,worsening the export prospects of othergoods. The situation is exacerbated by a shift of investments and a wage differ-ential because the booming sector is ableto pay higher wages than other sectors,leading to migration of productivelabour.

3 Political and institutional deficits: eco-nomic success or failure has political and institutional causes. Successfulcountries use their revenues from rawmaterial extraction for investments inphysical and human capital. They alsoinvest in improving their social welfareand legal systems. Some of their rev-enues from the extraction of non-renew-able resources is invested in renewablealternatives. By contrast, in less success-ful countries, corruption and lobbygroups exert considerable influence.

By way of illustration, two resource-rich countries – Nigeria and Norway – canbe compared. While concentrating on the oilsector, Nigeria has neglected to develop asso-ciated sectors; for example, Nigeria’s refiner-ies are inadequate, so petrol has to be impor-ted. Agriculture has also been neglected,causing hunger and poverty among large

sections of the population. Per capita GDPhas fallen, also as a result of high populationgrowth. A high level of corruption and legalinstability are obstructing development, andthere have been frequent military coups.

Norway, on the other hand, is un-doubtedly one of the most economicallysuccessful countries in the world. Norwayinvests its oil export revenue in a designatedfund which it uses to purchase foreign secu-rities and undertake investment. It is freefrom debt, has stable social and legal systemsand emerges as one of the world’s leadingcountries in all the international compar-isons of innovation and growth.

The challenge for governance strategies: elements of sustainable resource management

The above-mentioned deficits and their im-pacts have resulted in a greater need for in-ternational management and control. Theoptions can be summed up as a “3-M strat-egy”: material productivity, market trans-parency and multilateral cooperation.

In every country, material productiv-ity in companies and along the value chaincan be systematically improved. Accordingto figures from Germany’s Federal Statis-

Table 5: Material input and reduction potentials within the next 7 to 10 years in four selected sectors

Material Estimated reductionSector input (€ bn) potential (€ bn)

Manufacturing of metal products 18.6 0.8 – 1.5Manufacturing of plant for electricity generation, distribution, etc. 10.2 1.5 – 3.0Chemical industry (without primary industry) 11.1 1.8 – 3.4Manufacturing of synthetic products 10.8 1.0 – 2.0

Source: ADL et al. 2005, p. 7



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tical Office, average material costs in Ger-many’s processing industry amount toaround 42% of gross production value (this includes purchased services andmaterial inputs), so that the potential forcost-cutting is generally high. A studyundertaken on behalf of the Federal Min-istry of Economics evaluated the technologi-cal potential of small and medium-sizedenterprises (SMEs) (ADL et al. 2005) andidentified the following entry points for anincrease in material productivity: reducingwaste/improving quality, optimizing pro-duction processes, resource-conservingproduct design, recycling of materials,more efficient use of machinery and plant,and optimization across the value chains[see Table 5]. The study proposes that poli-ticians launch a funding programme toincrease the material efficiency of SMEs.This analysis applies equally to other coun-tries as well.

There is medium-term potential toimprove material productivity in resource-intensive consumer-oriented industries, alsoin relation to their inputs. These industries

include construction, food and automobileproduction. Greater product responsibility,e. g. recyclable materials, material balancesand integrated product policy are importantbuilding blocks in harnessing this potential.In view of industrialized countries’ well-de-veloped infrastructure and the decline oftowns and cities in some regions, there isalso scope to explore a new direction in rawmaterials development: are cities the minesof the future? The potential to increase theproductivity of raw materials inputs couldamount to as much as 20–30% by 2010, andin the long term, resource productivitycould increase by a factor of four or more –as occurred with labour productivity in thepast (Bleischwitz/Hennicke 2004). Newlyindustrializing and developing countries arealready able to exploit this potential in thedevelopment of their industrial base andinfrastructures.

The second element of governancestrategies is to increase market transparencyin the raw materials markets. Better deci-sion-making must be based on better infor-mation. Initiatives such as Publish what you

Figure 4: Information society or stone age?Construction minerals dominate resource consumption in the Eruopean Union

Source: Wuppertal Institut 2005


pay and the Extractive Industries Transpa-rency Initiative aim to uncover corruptionand promote sustainable management in theextractive industries (Culverwell et al. 2003;Global Witness 2005). But market transpa-rency must be based on other information as well, such as data on subsidies, sharehold-ings, delivery contracts, the properties ofmaterials, etc. Reliable information on theenvironmental impact of certain inputs andproduct lines is also required, as are industryforecasts. Drawing on the findings of re-search, a public-access database should gra-dually be established, offering economicallyrelevant geo-information and including cur-rent price information and market trends.The existing databases and information pro-viders do not supply this service to an ade-quate extent at present.

The European Commission (2005)proposes the establishment of an interna-tional panel on the sustainable use of natu-ral resources. As with the Intergovernmen-tal Panel on Climate Change (IPCC), thisbody would collate current knowledge and present it to decision-makers. It wouldprovide transparent and comparable data and develop scenarios on current and fu-ture resource consumption trends. It would also provide a forum for discussion of benchmarks and actions and promotebest practice in the field of sustainableresource management. As in other policyfields, the experts’ reports should flow intoan institutionalized learning process thatproduces reliable practice-relevant infor-mation.

A third element of governance strate-gies is to develop legally binding multilateralagreements combined with economic incen-tives. These agreements would, firstly, estab-lish legal safeguards for individual coopera-tion between companies and NGOs and setit on a broader footing. Secondly, they wouldpromote learning processes and interna-tional cooperation, e. g. between the EU andthe raw materials exporting countries. They

would link supply agreements with technol-ogy transfer and capacity-building. Experi-ence gained with the EU-Russia Energy Dia-logue and the launch of international emis-sions trading and other Kyoto mechanismsin the climate field could be useful in thiscontext. Assuming a high level of consensus,a multilateral agreement is also a way of pro-moting sustainability principles in resourceextraction and processing and providingsupport to developing countries.

It remains to be seen whether this typeof strategy can be implemented in practiceat international level. At present, raw materi-als policy is dominated by strategies whichinvolve far greater risks and conflict poten-tial. Overall, it seems likely that the interna-tional raw materials markets will continue tofeature on the political agenda in the comingyears, linking foreign, environmental eco-nomic and development policy.

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Bardt, H. 2005: Rohstoffreichtum – Fluch oder Segen? IW-Trends 32 (1).

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International Raw Materials Markets: Rising Prices and ... all, the raw materials price index based on the US dollar (2000 = 100) rose from 90.1 (2001/2 average) to around 145 for