Stockpiling of Critical Metals as a Risk Management Strategy for Importing Countries

Abstract

Following the triumph of post-fossil technologies, the global demand for critical raw materials in the form of rare metals will increase dramatically in the coming years. From the perspective of importing countries, dependence on these raw materials poses a host of new risks. In this respect, building up reserves of raw materials can be a sensible policy option for the short term. It can help reduce both supply-side and price-related risks. This is particularly true in cases where markets are characterised by high price volatility and/or the risk of supply disruptions is significant. Moreover, if there is a high degree of market concentration, stockpiling can also serve as a strategic tool for long-term price dampening. At the same time, the institutional design of stockpile management is crucial. In view of the economic risks associated with publicly managed stockpiles, we argue for a policy aimed primarily at promoting stockpiling incentives within the private sector. Central reserves managed by the public sector are only advisable as a basic hedge against the extreme scenario of massive supply interruptions. In any case, a stockpiling strategy should be accompanied by efforts to diversify supply sources in the long run.