How economic indicators impact the EU internal demand for critical raw materials

Abstract

To be able to better predict future demand for critical raw materials, to better negotiate trade agreements or to better stimulate the extraction of such raw materials, we investigate how economic indicators (raw material average annual price, EU GDP at purchasing power parity, cumulative EU inflation, and EU population) impact the EU internal demand for 11 raw materials in the period from 1994 to 2012.The results show that none of the critical raw materials has an identical trend in the development of internal EU demand with any economic indicator. There is a strong correlation between some of the factors studied and the internal EU demand for magnesite, tungsten, silicon (metal), chromium, and cobalt. The results also show that for most critical raw materials the correlation between the price of a critical raw material and its internal EU demand is lower than between other economic indicators and internal EU demand for certain critical raw material. This finding is consistent with economic theory indicating that the price is not a determinant of demand, but influences the quantity demanded. The demand curve shifts due to other factors and it can be observed in our findings on silicon (metal) element. The correlation between silicon (metal) demand and economic indicators such as cumulative EU inflation, the EU population and EU GDP are very high suggesting that this element is the most appropriate critical raw material to predict its internal EU demand. Using Spearman's rank correlation coefficient, the research results show that correlation between EU internal demand for critical raw materials and its economic indicators is positively affected by the volatility of this demand but negatively affected by its average value during reference period. The results may also be important with regard to recycling activities and identifying investment needs to alleviate Europe's reliance on imports of raw materials.