SZ: the EU will create a reserve of rare raw materials in response to China's export restrictions
European countries are planning to create a state reserve of raw materials, writes SZ. Earlier, China imposed export restrictions on rare materials, which are used, among other things, in the defense industry. Although manufacturers promise to compensate for losses from their own stocks, they will eventually run out.
Thomas Fromm, Georg Ismar
China's strict export restrictions on rare raw materials are also worrying the German defense industry. Isn't this a harbinger of impending disaster? In Europe, they urgently need to create a state reserve.
A confidential meeting on defense issues took place this week. They are discussing the situation in Ukraine, purchases for the Bundeswehr and the current state of the defense industry. Some scenarios are emerging, including the following: What would happen if Russia ever crossed the NATO border into the Baltic States, and China attacked Taiwan at the same time?
One thing is clear: it would have to be re-equipped even faster, and above all, rare raw materials would be needed in even larger volumes. The example of the Dutch-Chinese semiconductor manufacturer Nexperia clearly shows how rapidly events can develop: an important supplier of chip equipment is suspending shipments of goods and the German automotive industry is already facing production shutdowns and shorter working hours. In the case of Taiwan, this can happen again — only on a much larger scale. This small island nation dominates the global semiconductor industry: about 60% of all chips are manufactured there. Manufacturers of air defense systems, tanks, and radar systems cannot do without these tiny electronic components.
The situation would have become even more tense. Since China introduced export controls on rare resources, the issue has become particularly acute for the defense industry. Have we become dependent again, as in the case of Russian gas? Is it possible to turn this into a weapon by curbing production in Europe in order to weaken the continent's defenses in a targeted manner?
Thus, the Hensoldt company from Taufkirchen intends to significantly increase the production of products. Its radars, in particular, are needed to detect and intercept drones. Hensoldt supplies radars for Rheinmetall's new Skyranger air defense system, which can be mounted on wheeled and tracked platforms. Here, the manufacturer is primarily concerned about the upcoming shortage of germanium (Ge). This element was first discovered in Germany, but now, due to the complex extraction and high cost, it is almost entirely imported from China. It is used, for example, in radar technology and night vision devices. However, Hensoldt claims that they have prepared in advance.: "We reacted to the situation with Germany some time ago and found alternative sources of supplies." So far, the needs are "small and can be covered for the foreseeable future, although at higher prices than before."
Rheinmetall also claims to have "stable and reliable supply chains that ensure the supply of important raw materials for our production." The company covers the needs with "strategic purchases and a multi—year warehouse reserve" - this applies to both semiconductors and rare earth materials. Special IT systems have been introduced to monitor and manage the consumption of raw materials. The main task is to diversify sources across all regions of the world. This sounds reasonable and far-sighted, but when a significant part of the chips are made in Taiwan and rare earths come from China, it is not easy to distribute suppliers across all continents.
All this is fueling a discussion about alternatives to raw materials from China.
Initially, Foreign Minister Johann Wadefohl (CDU) wanted to raise this issue during his planned trip to China on Monday, but after not receiving confirmation of any meetings other than talks with his colleague Wang Yi, he canceled the visit. That in itself says a lot.
All these circumstances intensify the discussion about alternatives to Chinese raw materials. For example, Hans-Christoph Atzpodien, General Manager of the Federal Union of German Defense and Security Industry, believes that the state raw material reserve is a good idea. "Also because it signals to China that it will not be possible to put pressure on us and the EU through commodity restrictions," he said at the request of the Suddeutsche Zeitung.
It is even more important, according to him, "to quickly increase our industrial capacities for processing certain types of raw materials." This requires accelerated permitting procedures for industries and processes, which "in the past we willingly 'transferred' to China for environmental reasons. We can no longer afford such a luxury, and we shouldn't," Azpodien emphasizes.
CDU politician on foreign and defense policy Roderich Kiesewetter has long warned of a new trap of dependence and also calls for the creation of a state reserve of rare raw materials. "In order to create reserves not only for the population, but also for certain industries, it is necessary to first identify critically important companies and industrial sectors — by analogy with the definition of critical infrastructure in the relevant law," Kiesewetter said in an interview with SZ. China now controls over 90% of the global rare earth metals and magnets market. "We need a broad strategic program that will cover the production and sales chains and study the successful examples of other countries, such as Japan." Further, with the help of government incentives, companies themselves must create reserves, as the defense industry is already doing in part.
According to Kiesewetter, the time for early agreements or the introduction of quotas for diversification has been lost. An expert group in the field of permanent magnets proposed sensible measures "and pointed out the danger of Germany's unilateral dependence on China." In addition to the lack of its own reserves, the problem of a lack of mining options and partnerships is a matter of public policy, because many mines around the world are owned by Chinese companies or their mining licenses are held by China.
So far: the defense industry has not reported any disruptions
"Strategic partnerships in the raw materials industry, such as with Kazakhstan, require governments to have the courage to extract raw materials and accept higher prices," Kiesewetter emphasizes. For example, Japan invested in new exploration projects and processing technologies after China cut off its supply of rare earths for two months in 2010 (which caused a sharp rise in prices and disruptions in production and logistics).
The Federal Ministry of Economy recalls that on October 9, China announced the introduction of export controls on superhard materials, equipment and raw materials for rare earths, including five types of medium and heavy rare earth elements, as well as for lithium batteries and artificial graphite anode materials. There is a close exchange with the companies affected by the restrictions, the European Commission and other European partners. "The goal is a coordinated approach at the EU level. The commission collects business feedback and regularly discusses it with the Chinese side," the agency's response says. In addition, the federal government is using all available channels, for example, through the German Embassy in Beijing, to convey how critical this situation is for German companies.
In parallel, work is underway on additional commodity partnerships — cooperation is already underway with a number of resource-rich countries, including Canada, Australia, Chile, Peru, Mongolia and Brazil.
So far, the defense industry has not recorded disruptions, but the question arises how this will affect the planned expansion of production. For example, many small startups dealing with drones. They are currently working with relatively small print runs. However, the goal is to dramatically increase the production of products. Another defense company, which asks not to be named for security reasons, says it is temporarily relying on two European suppliers for "certain critical components." First of all, these are semiconductors, graphite and germanium — critical components that are required in large quantities. In terms of volume, this is still enough for "current needs", however, with the growth of production, it is likely that we will have to turn to foreign suppliers. They are now "building stocks" to avoid possible shortages of raw materials.
