Chinese curbs dent metal needs
India can counter China's export restrictions on strategic metals by strengthening ties with resource-rich nations. The global metals market is characterised by various dynamics that may affect security of supply of these materials to India. One of the factors with serious security implications for India is the proliferation of trade-distorting measures by emerging economies such as China.
Rising demand for metals
China, in recent years, has become a major consumer of metals owing to the robust growth in its economy. According to a World Bank report, between 2002 and 2008, Chinese consumption of key metals grew at an average 16.1 per cent per annum compared with less than 1 per cent demand outside China.
China's growing appetite for metals has resulted in the formulation of various policies and strategies, which include application of trade-distorting measures such as quantitative export restrictions (quotas), export taxes, reduction/cancellation of value-added tax rebates, mandatory minimum export prices, stringent export licensing requirements, and so on, by the government.
These measures have been applied on a number of metals such as copper, aluminum, nickel, molybdenum, manganese, magnesium, rare earths, tungsten, indium, and so on.
Environmental protection, promotion of downstream industries and preservation of resources for future use are among the most frequently cited policy objectives of these restrictions by China. The proliferation of export restrictions by China has resulted in growing concerns across the world, as China is the major supplier of many of these metals. In fact, many countries have even challenged Chinese protectionist measures using the available mechanism and instruments, including WTO.
Relying on cheap imports
India relies on the import of many of the metals, for which China is the major supplier. For instance, China's share in the total world production of tungsten, gallium, and antimony is 75 per cent, 83 per cent, and 79 per cent respectively. China is the main producer of rare earths. The dominance of China in the world production of most metals is owing to the policies adopted in past years. Realising its competitive advantage in the production of metals, China flooded the international market with low-priced products in the 1990s.
This resulted in the curtailment of production of these metals in other countries. In India, for instance, there is no/little indigenous production of metals such as tungsten, cobalt, molybdenum, and rare earths.
No attempts have been made to initiate the production of these metals as it was possible to import them from China at a low cost. However, in view of the restrictive measures adopted by China, it is clear that the international market cannot be relied on for the sustainable and affordable supply of these materials.
In fact, export restrictions by China is anticipated to increase, given the increase in domestic consumption of metals, thus aggravating the shortages in the international market and the resultant price increase.
It is, thus, imperative for India to initiate policy measures to secure the supply of these strategic materials, as any interruption in their supply will affect not only national security but also the economic stability and technological competitiveness.
The supply from domestic sources should be augmented through increased scientific and exploration activities and development of mining and processing technologies. Recycling and re-use of metals should be encouraged to supplement the limited virgin resources for metals.
The augmentation of domestic sources of supply should be accompanied by robust strategic investments in resource-rich countries. Indian companies have already initiated acquisition of resources abroad. However, their efforts are slow and facing intense competition from countries such as China.
The Indian Government should support such initiatives by increasing economic engagement and strengthening strategic relations with resource-rich nations. Bilateral and multilateral trade agreements could be used as an instrument to secure and improve our access to metals.
India needs to come up with a strategic planning framework that addresses the various issues that may undermine the supply of metals for India.
Given that the metals sector is intricately linked to international developments, devising policy strategies to mitigate or reduce the effect of the supply restrictions has to be resource-specific and highly responsive to the changing global dynamics.
Integrating the relevant perspectives on issues, challenges, factors and comprehending the international scenario and its domestic implications would help address metals security in India.