The Resource Disruption for Mill Products & Mining
The global demand for critical resources is bigger than supply. Better start planning for the disruption.
Tesla has build the world’s biggest lithium ion battery in Australia. While lithium mines are ramping up slowly, the demand will drive up prices. CNN Money puts this more drastically: “China is winning electric cars ‘arms race’” by outmaneuvering the U.S. and other countries in the global scramble for a vital element for electric cars. “Whoever controls the lithium supply chain will control the future of the electric vehicle space,” said Simon Moores, managing director at research and data provider Benchmark Mineral Intelligence. And lithium is just one element.
Tick Tock. Start Preparing for the Resource Disruption.
I reread the Digitalist blog “Tick Tock: Start Preparing For Resource Disruption” 3 times this week. This article provides excellent insights into the dynamics & drivers for disruption in the energy & utilitiy industry.
The transformation of the energy & transportation sector is well underway – with autonomous electrical vehicles renewable energy, and a smart IoT-enabled network of vehicles, batteries, solar panels, and smart meters. Car manufacturers and utilities who will not adapt to the new reality will be disrupted.
But in my opinion, the article misses the mark on disruption in other resource industries, especially mill products and mining – and its downstream value chain partners. A smart, green, third industrial revolution will need to look beyond energy, and need to incorporate renewable resources.
An Accenture strategy report on the circular advantage highlights several serious risks for companies relying on scarce natural resources like
- revenue reduction due to shut down production and inability to deliver demanded volumes
- cost increase compared to less resource-intensive competitors.
Design waste out of supply chains & dramatically increase aggregate energy efficiency
The US Energy Information Administration use of scrap steel saves up to 74% of the energy needed to make steel from virgin materials.
Furthermore, recycling one tonne of steel saves:
- 1.5 tonnes of iron ore
- 0.5 tonnes of coke
- 1.28 tonnes of solid waste
- Reduces air emissions by 86%
- Reduces water pollution by 76%
- circular supplies including reneable energy and recyclable or bio-based input materials, like e.g. the forest-based bio-materials
- resource recovery like e.g. the extraction of precious metals from e-waste. Concentration of precious metals in e-waste can exceed 40-50 times naturally occuring deposits.
- product life extension through repairing, remanufacturing or reselling like e.g. with furniture, spare parts or apparel
- product as a service business models which include leasing or renting of platinum catalysts, or batteries for electrical vehicles, rather than selling the product itself. This is especially common with precious metals.
Canary in the coal mine – Steel as a proxy to understand the impact on metal & mining value chains
The Boston Consulting Group working with the World Economic Forum analyzed the changes and impacts of sustainability on the industry with an outlook to 2050.
It compared two scenarios:
The first scenario assumes that the current steel market will in many parts remain constant, and the second assumes a more sustainable world in which significantly more recycling occurs and use of resources is more circular.
In the first scenario, demand for recycled scrap will grow, generating raw material for at least half of the 2.8 billion tons of steel production projected for 2050. In the second scenario, even two-thirds of steel production in 2050 are expected to be based on scrap.
Based on our own interviews with companies in the metals industry, the process maturity and the level of digitalization and automation ranges from simple spreadsheet based manual tracking, to highly automized, sensor-based fully integrated systems.
Best practices include identifying an inbound truck via camera, capturing weight, sensor readings and images of the truck load, linking quality informaiton from the lab back to chemical composition and specification agreed in the purchasing contract.
More advanced circular models, especially in non-ferrous metals involve collaboration and flexible value sharing between multiple partners.
Your Evolution to Circular Disruption
Step 1: Do your “ERP Homework” also for Secondary Materials
Define your master data for the necessary ambiguity and flexibility of waste-like materials.
Adopt your procurement processes and include contract definition, pricing rules & quality specifications – into your ERP (to build the foundation for automation, KPI-based controls, adaptive business processes).
Step 2: Automate and sensorize your secondary materials flow
Incorporate sensors to “know better”. Detect quality of inbound transports. Identify trucks, drivers and automate inbound processes. Create a finer granularity in your inventory processes at zero marginal cost, and utilize your different qualitities smarter in your smelting, refining and processing.
Step 3: Look beyond your factory walls
Go beyond buying scrap or waste qualitities, and add own waste & scrap collection capabilities.
This is specifically relevant if the availabile quantity/price of high grade secondary materials is an isssue.
Step 4: Rethink your business partners & your business model
Toll manufacturing is a pretty common model here in Europe. In this set-up, a customer of a mill company acts also as its supplier. For example, scrap metal is provided to the mill, processed, and the resulting processed product delivered back to the supplier/customer.
Ownership of the valuable scrap may remain at all times with the supplier, and the manufacturer does not sell the processed product, but only charges a tolling fee for its services.
We observe many different models in the mill products and its value chain partners. The more valuable the resource material/element, the more sophisticated and fine-granular are business processes up to the level of metal accounting, complex price risk management and hedging, etc.
First movers in precious metals have also introduced product as a service, and leasing models – mainly to keep control over the ownership and the availability of scarce raw materials. We see this expanding from platinum into titanium, and even high grade aluminum in some cases.
Technology and a trusted network of partners can create the knowledge advantage for higher efficiencies and lower cost. The ICMM and Ellen MacArthur Foundation call this nicely “the power of pure inputs”. For example, if you circulate not just “standard scrap grade” aluminum, but a few clearly defined special grades you have delivered to your customer, you can save a lot on sorting and refining. Other companies highlighted the advantage to match demand with known supply in the full external network, and even pull in supply as demand picks up.
Closed multi-company circular networks can capture additional efficiencies. Automotive OEMs join with recyclers and metal refiners to create closed-loops at the end-of-live of vehicles. Carpet companies and yarn manufacturers collaborate to source high quality raw materials, and sell a circular end-product at a premium. Titanium is circled between component manufacturers, aircraft
Step 5: Take a circular leap
Umicore as a former mining company is a lighthouse example of such transformation. Umicore focused their new business on strategic priorities like clean technologies, including emission-control catalysts, materials for rechargeable batteries and photo-voltaics, and advanced recycling.
Finch and Beak have analyzed the Umicore case nicely, and conclude:
“The Umicore case shows how this company was decades ahead of its industry and managed to address both the operational and strategic issues of metals and mining by transforming towards a strong new player in the circular economy”.
Tick Tock Again
The clock is ticking. How fast your company will be impacted depends to a large degree on the type of material you process. Will your materials be affected by Chinas transformation to an e-car and clean energy? Do you rely on imports of scrap or waste from other economies? Is your growth ambition constrained by availability of a few critical resources? Do you rely on resources that are sourced only from a few politically unstable regions?
Do you want to learn more on value creation in a circular economy & the role of digital technology? Check out Raik Kulinna’s “white paper on value creation in a digital circular economy”.
Business and Purpose?
To meet our growth ambitions for our companies, our economy, under the constraints of one planet, we will need to be smarter about resource consumption and production. Good for the planet, and for your and our business. Let’s talk about where we can combine digital technology and intelligent business processes to enable your transformation and solve some of the most burning problems of the planet – profitably.