Impacts of supply chain shocks on system resilience

Does a more decarbonised and circular system become more resilient?

The resilience analysis tests whether a more decarbonised and circular system is also a more resilient one. Low and high circularity ambition scenarios are compared within each decarbonisation pathway, and each configuration is subjected to four disruptions:

1. A primary supply cut: sudden reduction in refined output (due to a halt in mining, for example), typically triggered by trade restrictions, export bans, or mine shutdowns.
2. A demand surge: rapid, unexpected spike in demand for the material, for example due to an accelerated adoption of specific technologies.
3. A capacity loss: a drop in processing efficiency during refining, due to technical failure or lower purity in mined resources, causing a bottleneck where less high-purity metal is produced overall.
4. A collapse in collection: failure in waste management systems where discarded end-of-life materials escape recovery flows and are lost to landfills, informal dumping, or exported.

Each disruption is applied either as a short-term shock (three-year pulse) or as a long-term shock (decade-long sustained stress).

The impact of circularity on the system's ability to bounce back, adapt, and recover quickly from shocks depends strongly on the pace of decarbonisation, as highlighted in Chart 49. Averaged across the five materials and three of the four disruption types tested, raising circularity ambition reduces the cumulative supply gap caused by sustained shocks by around 45% under low decarbonisation, 37% under medium, and 21% under high. This differs from circularity's effect on the underlying supply deficit, where the absolute benefit grows as decarbonisation accelerates. By contrast, its ability to cushion supply shocks declines in both absolute and proportional terms—from 0.84 service-level year equivalents under low decarbonisation to 0.40 under high. Faster deployment leaves the system with less spare capacity to absorb disruptions when they occur.

Circularity’s adaptive effect is also substantial for some materials but negligible for others, with similar impacts per material as those observed on supply balance. Copper provides the strongest case for a clear resilience benefit: high circularity absorbs the entire impact, regardless of the disruption type, under low decarbonisation, and still removes between 74% and 100% of shock impacts under high decarbonisation. In other words, the same circularity measures that improve copper's supply balance under normal conditions also improve the system’s substantially ability to withstand both short-lived and sustained disruptions.

Nickel and cobalt show a similar pattern, but are a lot more conditioned by the decarbonisation scenarios. Under low decarbonisation, high circularity reduces shock-induced deficits by roughly 43% to 62% for nickel, and 57% to 65% for cobalt. This weakens considerably as decarbonisation accelerates, with a 20% to 33% reduction in shock-induced deficits for nickel, and a 3% to 29% reduction for cobalt; under certain shock and decarbonisation pathway combinations, high circularity even produces more shock-induced stressed years than low circularity. This is because high circularity lifts material trajectories just above the threshold required to meet demand. While this is an improvement in normal conditions, it leaves little room to absorb a disruption, in which case a supply shock can quickly push the system back into deficit. As more materials sit closer to a supply gap, a shock can push several near-threshold years into deficit. As a result, a metric that counts shock-driven deficit years can give the impression that performance has worsened, even when the underlying resilience has not.

Lithium shows limited capacity to recover under shocks in any decarbonisation pathway, with reductions of shock-induced deficits of only 4-20% under low decarbonisation turning into increased deficits of 4-14% under high decarbonisation. Silicon effectively shows no capacity to absorb and recover from shocks, never increasing above a 1% reduction of shock-induced deficits from low circularity ambition regardless of the decarbonisation pathway. The contrast highlights that circularity is most likely to provide a meaningful resilience benefit where availability of secondary supply and reduced material demand already limit the system's exposure to disruption.

The response to shocks also varies by disruption type. Under a low decarbonisation pathway, circularity provides its strongest adaptive capacity against demand surges, consistent with the way material efficiency and lifetime extension reduce structural demand and leave more headroom when demand rises unexpectedly. Overall, adaptive capacity declines as decarbonisation accelerates. However, secondary supply becomes relatively more effective at cushioning refining yield losses, as it partially offsets constrained primary output. This adaptive capacity narrows as decarbonisation accelerates, as the system is better able to bounce back from losses of refining yield, where secondary supply can more effectively bridge the gap from constrained primary processing. Primary supply cuts are more challenging across decarbonisation pathways, particularly under high decarbonisation, where material demand is highest, with supply already stretched. Even in these conditions, however, higher circularity is able to increase flexibility within the material systems, reducing the impact of primary supply cuts by drawing more effectively on secondary supply, longer-lived products, and reduced material demand. The limits of circularity in absorbing, recovering from, and adapting to shocks therefore reflect the finite capacity of material systems, rather than a failure of circular interventions to strengthen resilience.