Germany loses out on supply of critical raw materials
ACCESS to industrial raw materials, particularly rare earth elements (REEs) is proving increasingly difficult for German companies.
Some, like chemical giant BASF, have been able to meet the dramatic rise in price of 80 per cent between 2008 and 2011 and have maintained imports of critical raw materials (CRMs).
But many of Germany's small and mid-size companies have been unable to compete with state-owned companies from emerging powers like China.
Germany’s security of supply of non-energy resources was much more stable in the mid-1990s. Its mid-sized companies still had many direct shares of international raw material mines in Africa and other parts of the world.
But because prices for resources at the time were comparatively low, the companies sold their shares in raw material mines. They had failed to predict the future demand of global markets and resource-hungry countries like China.
No real price shocks or mid-and longer-term supply bottlenecks were expected as the demand and supply factor appeared to guarantee a sufficient supply of REEs and other CRMs to future markets.
The result has been that since the mid-1990s Germany has had to rely almost exclusively on liberalised raw material markets which have had to guarantee the future security of supply to Europe’s most powerful economy, whose industries account for almost 27 per cent of the gross added value of all industries on the continent.
Its steel and automobile sectors, and its energy-intensive industries, such as the chemical industry are heavily dependent on stable imports of CRMs from outside Europe.
The German analysis of the mid-1990s took no account of future resource markets, in which the world population is expected to rise from six billion people in 2000 to more than nine billion in 2050.
The analysis also failed to predict the impact of rapidly growing economic powerhouses such as China, India and Brazil, nor did it take account of changing consumption patterns or increased global urbanisation.
In 2005, the Federation of the German Industry (BDI) held its first conference on Germany's future supply of raw materials after fears that the heavily dependent German industry might be cut-off from supplies because they would have to compete with much larger state-owned Chinese and other mining companies in Africa and other parts of the world.
Germany’s mid-size companies say they would be at a disadvantage because they would have to compete with strong Chinese companies which have Chinese government backing in the form of credits and infrastructure projects as an integral part of their development and long-term raw material policies.
The first German non-energy resource conference in 2005 concluded that the political and industrial decision in 1996 to sell direct shares of international raw material mines was a strategic failure by government and industry.
Germany’s dependence on imports has not only grown because of new emerging production countries of CRMs, like China and the need for CRMs for new technologies, but also from the increasing concentration of market processes and new large international raw materials groups, such as Glencore, Xstrata, BHP Billiton, Rio Tinto and Anglo American.
In October 2010 Germany adopted its new Raw Material Strategy which aims to create a political, legal and institutional framework to foster a ‘sustainable and internationally competitive supply of raw materials to German industry’.
The government sees its role as supporting private-sector activities by offering Hermes credits and insurances which give German companies preferential investment guarantees for protection against political and commercial risks for their trade and investments projects abroad.
Germany signed a five-year raw material partnership agreement with Mongolia in 2011 and a strategic partnership agreement with Kazakhstan in 2012 worth US$4 billion (3 billion euros). Both sides will cooperate to develop REEs and other minerals .
But these new partnership agreements do not automatically supply CRMs or guarantee backwards integration into international mining companies.
Germany, like all other raw materials consuming countries, has to cope with new demand profiles for raw materials because of advances in high-technology and structural global shortages of particular heavy rare earth minerals from a small number of supplier countries.
Germany’s future economy will depend more than ever on the availability of CRMs.
Safeguarding stable supplies of raw materials needs to be backed up with a coherent cross-sector strategy.