The COVID-19 pandemic has once again turned the spotlight on the vulnerability of the UK's supply chains, the complex international nature of which leave many British businesses highly exposed to unforeseen disruption.
While these are difficult times for many, the lockdown offers a rare opportunity for UK manufacturers, who rely on international shipments of key metals and minerals to produce everything from cars to medical devices, to re-evaluate their sourcing strategies.
The temporary closure of many British industries has slashed the UK's need for industrial metals. However, depending on how the world's eventual return to work and economic recovery is synchronised, future shortages and bottlenecks in raw materials supply and accompanying price spikes caused by a resurgence in demand are highly possible.
For a country that has been resource-poor for many decades, the crisis poses fresh questions about the UK's long-term access to raw materials, which is already under threat from a 'hard' Brexit at the end of this year.
Supply chain options
While a complete overhaul of metal supply chains to fully localise supply is neither possible nor desirable for the UK, there are ways British businesses could improve resource security by addressing individual supply chain issues.
Options include expanding the number of suppliers, holding more stock and reviewing contract terms.
Increasing the number of suppliers
Widening the pool of suppliers is a prudent move for businesses to ensure deliveries of essential raw materials are not cut off.
While taking smaller volumes from a range of sources is typically more costly than relying on one or two suppliers for large volumes, supply diversity hedges against delivery paralysis and insolvency of individual suppliers.
Holding more stock
Stockpiling is difficult for many UK businesses with limited storage space and goes against the trend towards just-in-time delivery models for manufacturing.
Large inventories can be expensive to maintain and leave buyers more exposed to fluctuations in commodity prices.
However, since the UK's Brexit referendum, stockpiling by British manufacturers has increased significantly as businesses fear imports will be curtailed or become more expensive if the UK proceeds with a no-deal or 'hard' Brexit.
Holding more stock in inventory acts as a cushion in the event of supply chain disruption and the coronavirus pandemic suggests this may be a necessary insurance policy for British companies in future.
Reviewing contract terms
Having good relationships with suppliers, both contractual and personal, are essential to ensuring supply chain security, especially where a constant supply of materials is required but cash flow problems make it difficult to provide upfront payments.
Reviewing contracts to determine which actors in the supply chain have force majeure or other contract variation rights and how these might affect deliveries will also be a priority for many businesses once the coronavirus crisis is over.
With the benefit of hindsight, drafting more comprehensive contract variation clauses is one of the main lessons for all businesses from the coronavirus crisis.
Businesses will also need to revisit the terms of any financing facilities they have, to understand if any covenants are at risk of being breached by uncertain economic conditions resulting from the pandemic lockdown.
While none of these measures would fully alleviate the potential impacts of a global pandemic of the scale of coronavirus on metal supply chains, they could reduce some of the UK and the EU's reliance on what, in the case of many raw materials, is often a concentrated pool of Asian suppliers.
Domestic metals supply and demand is insufficient to justify building major new UK processing capacity, which is a key component of metals supply chains.
This is a wider challenge for Europe as a whole, however, which may finally be addressed if supply security concerns continue to mount as a consequence of the coronavirus crisis.
According to 2011 OECD data, only seven of the world's 180 smelters of '3T' metals (tin, tantalum and tungsten) are located within the EU. The rest are mostly in Asia, which poses potential problems for UK and EU companies' compliance with the EU's forthcoming Conflict Minerals Regulation.
Once the UK fully parts company with the EU, its ability to access nearby metals processing capacity for 3T and other minerals and metals could be further restricted.
In the past decade, the EU has started to think relatively seriously about the bloc's dependence on Asia for certain critical minerals.
This sparked a raft of consultations and research projects into the EU's options for 'on-shoring' supply of certain 'critical' minerals and metals, including lithium, graphite, tantalum and tungsten.
The EIT Raw Materials and Horizon 2020 initiatives were set up by the EU to promote greater resource efficiency and security within the bloc, and EIT has already commented on how the coronavirus pandemic has highlighted the importance of reinforcing localised value chains.
Political support has helped underpin investor confidence in some new mines in jurisdictions such as Spain (where EU venture funds have shown interest in supporting projects), Portugal and, to a lesser extent, the UK.
Generally, however, weak or volatile metals prices have quelled investor enthusiasm for mining exploration globally, so progress towards localising supply chains has been limited.
In the UK, the difficulties encountered by developers of the handful of new projects – for tin, tungsten, gold, potash and lithium – have been well-publicised and reinforced old arguments about cost, planning and environmental barriers to a domestic mining revival.
A recent copper discovery in Cornwall, a historic mining region that has also lately recorded new discoveries of tin and lithium, has reignited hopes that this key battery metal can be economically recovered in the UK.
The success of this, and other proposed mining projects, depends principally on metal prices and investor confidence reaching and remaining at relatively high levels.
It also relies on the ability of developers to deploy state-of-the-art, low-impact and automated mining techniques and conform to world-leading environmental and social governance standards, but also on easy access to processing capacity and end markets.
The last two of these is likely to be particularly problematic for the UK and reviving the UK mining industry is clearly not the solution to securing the UK metals supply chain, however maintaining links with EU resource development initiatives may continue to be important.
While the economic outlook post the coronavirus crisis is bleak, the practical problems faced by many UK businesses will encourage them to think about further integrating their supply chains to enhance future access to raw materials and finished products.
Jonathan Brooks is Head of Mining and Metals at European law firm, Fieldfisher. For more information on our mining and metals expertise and our experience in advising on alternative finance for the mining sector, please visit the relevant pages of the Fieldfisher website.
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