The future of critical raw materials: How Ukraine plays a strategic role in global supply chains

Geopolitical challenges, including the Russian invasion of Ukraine, China-US competition, elections and the war in Israel, significantly impact the global supply chain, especially critical raw materials vital for traditional industries, defence, high-tech sectors, aerospace and green energy.

Democracies rely on essential critical raw materials such as nickel, lithium and aluminium. The market for critical minerals has doubled to over $320 billion in the last five years and is expected to double again in the next five.

Despite the ongoing challenges, Ukraine holds immense potential as a major global supplier of critical raw materials essential for these high-profile industries. With vast reserves of minerals, Ukraine can significantly contribute to the global supply chain for many or all of them.

The disruption caused by the Russian invasion and competing suppliers such as China has highlighted the need for resilient and diversified supply chains. This has prompted the European Union (EU) and the United States to adopt strategies to reduce dependency on non-democratic regimes. Leveraging Ukraine’s resources can bolster these efforts, driving Europe’s green transition and supporting Ukraine’s post-war recovery.

Ukraine’s diverse geological zones make it a top 10 global supplier of mineral resources, holding around 5% of the world’s total. The east European nation has approximately 20,000 mineral deposits covering 116 types. Before Russia’s full-scale invasion, 3,055 of these deposits (15%) were active, including 147 metallic and 4,676 of non-metallic mineral deposits.

Ukraine is a key potential supplier of rare earth metals, including titanium, lithium, beryllium, manganese, gallium, uranium, zirconium, graphite, apatite, fluorite, and nickel. Despite the war, Ukraine holds the largest titanium reserves in Europe (7% of the world’s reserves). It is one of the few countries that mine titanium ores, crucial for the aerospace, medical, automotive and marine industries.

Before February 2022, Ukraine was a key titanium supplier for the military sector. It also has one of Europe’s largest confirmed lithium reserves (estimated at 500,000 tons), vital for batteries, ceramics, and glass. Ukraine is the world’s 5th largest gallium producer, essential for semiconductors and LEDs, and has been a major producer of neon gas, supplying 90% of the highly purified, semiconductor-grade neon for the US chip industry.

Ukraine boasts confirmed deposits of beryllium, which is crucial for nuclear power, aerospace, military, acoustic and electronic industries, as well as uranium, which is essential for nuclear and military sectors. Zirconium and apatite are vital for nuclear and medical production. The country is also known for its substantial, high-quality iron ore and manganese reserves, which are crucial for green steel production. Ukraine supplied 43% of the EU’s steel plate imports in 2021.

Additionally, Ukraine holds significant reserves of nonferrous metals such as copper (4th in Europe), lead (5th), zinc (6th), and silver (9th). Nickel deposits (215 thousand tons) and cobalt (8.8 thousand tons) are found in the secure Kirovohrad and Dnipropetrovsk regions. Ukraine’s graphite reserves represent 20% of global resources. The country also ranks among the top 10 globally for minerals, including bromine, magnesium metal, manganese, peat, pig iron and kaolin, among others.

China has attained global dominance in critical minerals through strategic long-term investments, industrial policies and advantages such as lower labour costs and more lenient regulations. This control extends to 85-90% of global rare earth elements from mining to refining and 92% of global manufacturing of rare earth element magnets.

China supplies over half of the 30 critical raw materials identified by the European Commission and nearly 40% of the EU’s needs. Australia and South Africa also play major roles, particularly in lithium, cobalt, and manganese. Canada and Brazil are crucial suppliers of nickel, cobalt and rare earth elements.

Before 2022, Ukraine was a significant supplier of steel plates, titanium, lithium, gallium, iron ore and manganese to Europe. However, the Russian invasion disrupted these supply routes, necessitating more expensive and slower rail alternatives.

Russia, itself a major supplier of titanium, nickel and platinum group metals, has also been affected by sanctions, exacerbating global shortages of essential materials, such as titanium, crucial for aerospace and electronics industries.

China’s dominance in critical raw materials enables it to wield geopolitical influence in economic decisions. Over the past 15 years, it has halted exports to Japan, Sweden, and the United States. Rising protectionism further impacts global supply chains for critical raw materials, with some countries, including Zimbabwe and Chile, restricting lithium exports and Indonesia and the Philippines tightening control over nickel exports.

Due to the Russian invasion of Ukraine, nickel and lithium, crucial for electric vehicles and renewable energy, have seen significant price hikes of 36% and 14.97%. Platinum group metals, essential for catalytic converters and pivotal in the hydrogen economy, are anticipated to play a substantial role in hydrogen production and fuel cells.

The world is on the brink of a sustainability-driven era. Goldman Sachs forecasts that by 2030, 72% of new vehicle sales in the EU and 50% in the US will be electric vehicles. This transition will markedly boost demand for critical raw materials such as lithium and cobalt, vital for battery and electric engine production. By 2030, EU demand for lithium could surge up to 21 times its 2020 levels, while the region’s import reliance on critical raw materials remains high due to limited domestic mining capacity.

The EU and the United States are adopting strategies such as on-shoring and friend-shoring to reduce dependence on non-democratic regimes and enhance supply chain resilience to mitigate raw material supply disruptions. Promoting recycling, material efficiency, innovation and international partnerships through initiatives such as the European Battery Alliance and the Clean Hydrogen Alliance is crucial. The Critical Raw Materials Act, introduced by the European Commission in 2023, marks a significant move toward addressing Europe’s structural dependencies.

Ukraine can become a vital part of the global supply chain for critical materials, acting as a strategic partner to create more resilient supply chains. Its potential spans sectors, such as agriculture, energy, raw materials and military-industrial capabilities. Europe should continue facilitating Ukrainian exports; Ukraine’s accession could bolster the EU’s industrial resilience and green transition by increasing domestic critical raw materials sourcing.

The European Commission highlighted Ukraine as a significant global supplier of titanium and a potential source of over 20 critical raw materials for the EU. Last year, a strategic partnership was launched to integrate Ukraine’s raw material supply into the emerging battery value chain.

Before the full-scale invasion, Ukraine’s mining and metal complex contributed approximately 10% of its gross domestic product and 33% of its exports. Despite ongoing hostilities, the mining sector remains attractive to investors, offering auctions for mineral extraction rights. The country’s vast, untapped resources, including lithium and copper, are crucial for recovery and future growth.

In response to geopolitical resource dependency, the United States and the EU promote on-shoring and friend-shoring strategies to source resources domestically or from allies. Access to Ukrainian resources could help democratic countries achieve greater autonomy from non-democratic regimes, particularly in energy and technology.

Recently, Ukraine began auctioning exploration permits for lithium, copper, cobalt and nickel, offering lucrative investment opportunities in refining critical raw materials. These investments can drive Europe’s green transition and support Ukraine’s post-war reconstruction and reintegration.