Fittingly, circular-economy advocates refer to industries as having ‘value cycles,' not ‘value chains.'
As mining companies' customers alter their practices to participate in the circular economy, miners will have to adapt.
Findings from The New Big Circle, a study by BCG and the World Business Council for Sustainable Development, reveal companies in diverse industries have made the circular economy a strategic priority. For instance, 96% of our study respondents view the circular economy as vital for their company's future success, and 84% expect to step up investment in circular-economy initiatives.
What miners' customers are doing differently
Our study participants also acknowledged modifying business practices throughout their industries' value cycles (figure 1, below). We touch on these findings below.
• Buying raw materials. When procuring materials from their suppliers, 44% of our survey respondents said they're already buying regenerative or recycled raw materials. This number is set to increase significantly. Another 31% have recently started or will shortly begin shifting their sourcing focus to such materials. Consider Apple's ambitious targets for boosting the share of recycled materials in its production processes. By now, 100% of tin used in iPhones and 60% of plastics in iMac Pros come from recycled materials.
• Designing products. As much as 32% of our survey respondents have designed recyclable and reusable products; another 30% have recently intensified activity in this area or plan to do so.
• Producing products. An impressive 41% of our survey respondents have already produced products that are as waste-free and resource-efficient as possible. Another 34% have recently devoted more effort in this area or intend to do so.
• Distributing products. Only 12% said they've changed how they distribute their products. But another 27% have recently explored such a change or aim to do so. In particular, many have decided to sell access to—rather than ownership of—their products, by leasing or sharing their offerings. Take tyre manufacturer Michelin. Its customers can choose to be charged based on the number of kilometres travelled or the weight transported using the tyres, versus purchasing the tyres. Michelin also handles end-of-life recycling of its tyres.
• Using products. Among our survey respondents, 42% have extended the lifetime of products and materials they buy and have used them responsibly to reduce pollution. Another 32% recently explored such changes or decided to make them. For example, technology giant Philips established a business unit that offers refurbished products such as MRI systems that reuse components such as magnets. These products cost 15%-40% less than a new version.
• Collecting and recycling products. A whopping 47% of our respondents regularly collect and recycle their own products and materials in them that have reached the end of their current life. Building-materials company LafargeHolcim, for instance, has established a new global brand that provides high-quality aggregates processed from recycled concrete.
Implications for mining companies
The changes that industrial companies are making present opportunities and risks for mining businesses (figure 2, below). To manage these, miners may have to rethink their business and operating models to adapt to the following developments in particular.
As recycling activities intensify, miners will face tougher competition from companies in the secondary-materials markets, especially in metals. For example, the global e-waste recycling market is expected to balloon sixfold by 2050, amplifying supply of recycled metals such as aluminium, copper and gold.
The innovative business models that have arisen merit particularly close attention. Especially in Asia, an ecosystem of green start-ups focussed on e-waste recycling is emerging. These market entrants disrupt established processes along the value chain. A number of start-ups are launching new solutions to collect end-of-life devices from consumers. For instance, by deploying smart unmanned collection machines or by digitally connecting individuals to licensed pick-up services. Other start-ups are piloting green-leaching technologies to improve the recovery of metal from e-waste while reducing hazardous waste.
To compete against players in secondary-metals markets, miners may have to consider ways to become part of the circle themselves.
Greater demand for ‘green' products
Owing to buyers' sharper focus on sustainability, miners will see demand increase for products that have been sustainably mined and that help customers reduce their emissions footprint. In a few cases, this might lead to a shift away from fossil resources and toward renewable materials, powerfully influencing how mining companies manage their mining and processing operations. This change also presents new opportunities—such as enabling miners to command increasingly large premiums.
Take iron ore. Chinese steel mills—in a bid to boost profitability and reduce their environmental burden—are increasingly seeking to buy high-quality iron ore. Use of such ore enables them to produce more steel for each tonne of raw material processed, enhancing output and reducing emissions. In recent years, the premium for high-grade iron ore more than doubled for an extended period.
And consider aluminium. Leading players in the industry are differentiating themselves and commanding price premiums for their ‘low-carbon' aluminium products. One such enterprise reputedly added as much as $6 million to its EBITDA the year it launched this new offering. Another said customers were willing to pay a 2%-3% premium over products with standard LME specifications.
To better understand customers' sustainability needs, miners will need to engage with them in new ways, including in their marketing and sales approaches.
For instance, miners can help customers assess and reduce their carbon footprint of respective products. Moreover, mining companies can work with customers to establish their own ‘closed-loop' systems in which they sell access to and not ownership of their products. This can create new revenue streams and save miners from being locked out of end-user markets. Of course, to deploy this business model, miners will need different capabilities.
Miners can also forge new kinds of partnerships with customers that go well beyond a classical purchasing relationship. A case in point is the research-centred joint venture that Apple orchestrated with Rio Tinto Alcan and Alcoa, supported by the governments of Canada and Quebec. The goal of this partnership is to further develop and commercialise a new way of smelting aluminium that replaces use of carbon with an advanced conductive material.
Dampening impact on commodity demand
As buyers shift from ‘take-make-dispose' to ‘reuse-refurbish-repair,' miners will see demand for commodities decelerate overall.
The shift will also affect attractiveness of certain commodity markets and assets within them. Mining companies will need to determine how pronounced this effect will be in markets where they're active. Besides the expected dampening of demand, the impact on commodity prices will depend on how supply-side players (mining companies and recyclers) react.
Results from a simulation conducted by BCG's Commodity Market Insights model for the copper market suggest that the price outlook between the base-case scenario and a circular-economy scenario can differ by more than 20%. The circular-economy scenario assumes that global copper demand will continue to grow, but more slowly, owing to greater reusing, refurbishing and repairing of copper-bearing products. Such a change puts further pressure on mining companies to operate low-cost, tier-one assets that are better protected against potential price effects.
To summarise, the circular economy is set to affect mining companies across their value chain. They can expect to face increased volumes of secondary supply and will need to rethink the types of products they offer. They will have to engage in new ways with their customers as well as prepare for potential demand-induced price effects. Becoming part of the solution is imperative.
Next steps for miners
To manage the opportunities and risks posed by their customers' circular-economy practices, mining companies must rethink their operating and business models and build capabilities required for success. These steps can help:
• Study circular-economy trends unfolding across a variety of industries. Draw lessons from how industry players' suppliers are responding.
• Research innovations in key business processes, product and service design, and business models. Assess which of these offers the most promise.
• Craft a circular-economy strategy. Build compelling business cases for the initiatives proposed in the strategy. And devise a plan for implementing these projects, including acquiring or strengthening needed new capabilities.
None of this is easy. But miners that prepare now to operate competitively in the circular economy will stand the best chance of capitalising on the opportunities it brings, while also parrying the threats.
*Marc Schmidt is a managing director and partner with BCG in Singapore. Holger Rubel is a managing director and senior partner with BCG in Frankfurt. Martin Feth is a partner and associate director, Future of Natural Resources, with BCG in Munich. Alexander Meyer zum Felde is an associate director, Total Societal Impact & Sustainability & Circular Economy, with BCG in Hamburg.