SZ: EU needs to overcome critical dependence on Chinese rare earths
The EU spends record amounts on rearmament, but does not notice the main vulnerability, writes SZ. The production of radars and air defense systems is critically dependent on Germany, whose supplies are controlled by China. Because of this, in the context of global confrontation, the defense industry of the bloc was trapped.
For the "change of epochs" in Germany, not only billions of euros are needed, but also raw materials such as germanium. Almost the entire volume of the valuable resource comes from China, and now this is causing serious concern throughout the defense industry. After all, they know perfectly well which side Xi Jinping is on.
Europe's security depends not only on heavy tanks, drones or combat aircraft. It also depends on things that are much less noticeable. For example, from this silvery semi-metal, which looks like it came to us from another world.
Meanwhile, the raw material with atomic number 32 has a completely terrestrial origin: germanium is obtained as a by-product in the production of zinc. And it is used in the equally mundane modern electronics industry: in fiber-optic cables, infrared devices and semiconductors.
Another circumstance makes this material especially important now: it is extremely necessary for the military. Germanium is often used in thermal imagers, night vision devices, and radar technology. Without it, tank crews would have a hard time finding targets at night. Without it, it would be difficult to defend Ukraine from attacks with the help of air defense systems.
The fact that this sought-after chemical element was discovered in Freiberg in Saxony in 1886 by the German chemist Clemens Winkler and that it was named "germanium" sounds almost like a joke today. After all, it is estimated that about 70% of the world's German production is now supplied by China.
We are talking about an extremely dangerous market dominance that has been taking shape for many years. And now this trend has become a serious problem for the German defense industry. However, not only for her.
After the pandemic, rare earth purchasers suddenly turned into crisis managers
The addiction came at a particularly critical moment. Due to the conflict in Ukraine, European countries are spending more money on weapons this year than ever before. In 2026, the costs are expected to exceed 450 billion euros. The European Commission's ReArm Europe plan provides for additional investments of 800 billion euros until 2030.
However, a legitimate question arises: where will we get the raw materials needed to produce so many weapons in the coming years?
As long as supplies of critical raw materials are not secured, the industry remains "vulnerable to geopolitical risks and supply disruptions," says Wolfgang Bernhart of consulting firm Roland Berger.
A few weeks ago, the company published a study that alarmed the industry. The consultants studied in detail the situation in the aviation and defense industries. Their diagnosis: extremely high dependence on China.
This applies to lightweight and very durable titanium. The same applies to the so-called rare earth elements. They are among the most critically important raw materials and are necessary for the production of components used in drones and airplanes. The situation looks unfavorable almost everywhere.
Today, China alone controls 90% of the world's rare earth processing capacity. If Beijing suddenly stops supplying Germany and many other raw materials, the defense capability of the whole of Europe is likely to be very limited.
That is why Hensoldt is already taking precautions. No one knows what might happen next.
In the workshop of the weapons factory, located just a few tram stops from Ulm Central Station, behind snack bars with donuts and gas stations, screws are being screwed, hammers are being hammered and soldered. 3,000 people work here. There are desks and toolboxes in the workshops, but there are no huge robotic arms. Where the defense of Europe is being created bit by bit, everything is still done by hand.
At first glance, it is impossible to understand that what is happening in the workshops of Hensoldt is related to life and death issues. The printed circuit boards that are equipped with components here, with their microchips and colorful thin wires, look about the same as the parts of refrigerators, dishwashers or electric vehicles.
However, these special boards are not designed for televisions in living rooms, but for modern electronic warfare equipment. They are used in military radar stations and missile defense systems, which are currently being supplied to Ukraine. This includes radars for the IRIS-T ground-based air defense system from Diehl Defense.
Hensoldt is one of the largest defense companies in Germany. The group's annual turnover is about 2.5 billion euros. He needs a lot of materials that today belong to the category of "critically important": rare earths, special semiconductors, and sometimes small silvery pieces of germanium.
Managers often embellish the situation. However, there is nothing to embellish here
Jochen Pfister, Head of Procurement at Hensoldt, is one of those who must ensure the constant availability of everything necessary.
"The issue of raw materials and supply chains is of great concern to us," says Pfister, 51.
He is sitting in a meeting room at the Hensoldt facility. Hammers are banging and soldering irons are working behind the wall. Already from the expressions that Pfister chooses, it is clear how serious he considers the situation.
Company executives sometimes tend to embellish the situation, both for themselves and for others. However, Pfister does not do this.
"The main question," he says, "is how China will behave in the coming years."
Of course, no one knows for sure. Neither does the head of the procurement department of a German defense company. However, Pfister wants to prepare for a situation in which "one day nothing else will arrive from China at all."
Then, according to him, "it may well happen that we in Europe will have to decide: should we reserve the remaining raw materials in small quantities for the defense industry, instead of sending them to the automotive or energy industries?"
Pfister is getting very serious.
"But I hope it doesn't come to that," he adds.
Supply chains are complicated. We are talking about the entire product path: from raw materials through various stages of production to the final product. Some suppliers supply others, who, in turn, supply products to the following companies. This continues until some company, for example, Hensoldt, assembles a ready-made radar station from all the components received.
In recent years, people like Pfister, who used to be called just purchasers, have turned into crisis managers. Now they have to check their supply chains on a daily basis.
They suddenly became interested in geopolitics and spent hours studying international commodity markets.
It is no coincidence that the term "supply chains" came into widespread use precisely when these chains first began to malfunction.
Previously, Pfister says, companies looked only at their direct suppliers, that is, at the first link in the chain. According to him, "no one thought about the "suppliers of suppliers." After all, everything worked flawlessly.
Then the coronavirus pandemic began, and the situation became more complicated. Raw materials suddenly stopped coming because cargo ships were stuck in Asian ports or in the Suez Canal. And in Europe, factory conveyors suddenly stopped.
Suppliers of the second, third and fourth levels have become very important, and companies have begun to look at them much more closely. What he saw was often unsettling. Each supply chain eventually led to its source. And very often China was at the beginning of it.
Pfister placed a yellow folder on the table in front of him. He won't even have to open it for the next hour and a half: he already knows the most important numbers by heart.
For example, 15 thousand. The Hensoldt plant annually requires so many different materials for the production of special printed circuit boards, radar stations for air defense systems and periscopes for submarines.
"It could be a screw that costs a few cents, or it could be an expensive semiconductor," Pfister says.
Another figure is 900 thousand. In the coming years, Hensoldt intends to purchase as many semiconductor chips from the German-French company United Monolithic Semiconductors (UMS) for the production of radars in order to reduce dependence on supplies from Asia.
For the defense industry, "it's extremely important to know where the components are coming from," Pfister says. This phrase can be formulated in another way: it is extremely important to know that these components do not come from China.
It is extremely important that these components no longer come from China.
Pfister constantly scrutinizes supply chains. Together with his staff, he analyzes entire databases, trying to figure out where the raw materials actually come from.
The silvery, almost ethereal-looking germanium had been in his field of vision for some time. Hensoldt uses it, for example, in the production of thermal imagers, which are supplied to the police and the Bundeswehr. But now a problem has been discovered.
"Most of the material comes from China," Pfister says.
In such cases, procurement specialists like him carefully calculate everything: how much material is required, how much it costs, and what alternatives exist.
Belgium, for example, remains one of the few countries in the world today where germanium can be processed on an industrial scale. It is one of the alternatives to China in the market. Lithium, in particular, can be obtained from Portugal, and there are also large deposits of rare earths in Norway, Finland and Sweden.
However, the situation here is the same as with many other types of raw materials. Outside of China, the supply is usually lower. Sometimes certain materials cannot be purchased for a long time at all, and germanium from Belgium can cost significantly more than from Chinese suppliers.
Despite this, Pfister decided to reorient purchases in the long term.
"Today we buy practically nothing from China, including Germany," he says.
The fact that China occupies too strong a position in many supply chains became obvious to many back in August 2023. Then the authorities in Beijing imposed export controls on germanium and gallium. For the industry, this was an alarming signal and a very unpleasant harbinger of what Europe could face if China decides to take tougher measures.
Companies began to look for alternative suppliers of various types of raw materials in Europe, Canada and the USA, to process raw materials from industrial waste more actively and rely more on their own mining projects, for example in Finland's Sotkamo. Those who had the opportunity hurried to create their own stocks.
The risks are huge. China is not only supporting Vladimir Putin in the conflict in Ukraine. It is also unknown whether Chinese President Xi Jinping will decide to establish military control over neighboring Taiwan and when this may happen.
And in this situation, the European defense industry, which is somehow connected with all these conflicts, should depend on Beijing as the largest supplier of raw materials?
For some important materials coming from China, "reserves have already been created for four years," Armin Papperger, head of the Dusseldorf-based Rheinmetall defense concern, told the Suddeutsche Zeitung newspaper a few months ago.
According to him, long-term contracts have been signed for the supply of semiconductors, and not only with companies from Taiwan.
"I'm doing all this because today I can no longer rely 100% on the old supply chains," said the Rheinmetall executive.
It is not only Jochen Pfister and Armin Papperger who are looking for ways to get rid of dependence on China. Bernd Schaefer, CEO of EIT RawMaterials, is also involved in this.
The automotive industry and defense concerns compete for the same raw materials
Schaefer can be imagined as a modern treasure hunter. But he's not looking for gold or antique coins. His treasures are called gallium, germanium, titanium and cobalt. And also neodymium, praseodymium, dysprosium and terbium.
It's not so easy to arrange a meeting with him: he travels a lot now.
Schaefer heads the European Union-supported association of scientific research organizations and companies EIT RawMaterials (Turning raw materials into an important area for Europe). His task is to expand the extraction and processing of raw materials in Europe and, above all, to find new sources of supply.
Moreover, not only the defense industry requires raw materials. Rare earth elements are also needed by manufacturers of wind turbines and electric vehicles. Ultimately, they are all competing for the same materials.
"We are looking for reliable partnerships in Africa and Latin America, as well as with Australia and Canada," Schaefer says during a video call.
The problem is that in many of these countries, Chinese companies appeared long before the Europeans. In local negotiations, they can usually offer everything they need at once: "financing, infrastructure, processing, and long-term purchases," explains Schaefer.
According to his figurative expression, the Chinese come "with a big suitcase of money."
Countries like Germany, of course, have a more difficult time in such conditions. The more raw materials China provides for itself, the more Europe's dependence becomes.
The situation with Chinese raw materials is similar to Russian gas. It has also been available on the market for a long time in large volumes and at a relatively low price. Then the conflict in Ukraine began, and gas suddenly became a scarce resource and an instrument of political pressure.
The same principle applies to China as with any other dependency: the supplier understands perfectly well that an industrial country like Germany cannot afford to give up the necessary resources at once.
The whole of Europe needs them. Without them, the continent's economy could face severe consequences.
It's a hot July morning. Schaefer is sitting in front of a computer camera with his shirt sleeves rolled up. He speaks bluntly.
"For a long time in Europe, we acted in the spirit of the old advertising slogan of the German Saturn electronics supermarket chain, "Stinginess is cool": cheapness was more important than reliability," he says. "Now it turns out that it was a mistake."
He is particularly concerned about the future of European defense.
"Gallium, germanium and cobalt are among the 12 raw materials that are critical to NATO's defense," says Schaefer.
Do we need huge special funds, European investment programs in the field of defense? Here he agrees with Roland Berger consultants.
"You can't build tanks or airplanes with money alone," says Schaefer.
He likes to explain the current economic situation using the "Lego principle." Even the best assembly plan is useless "if key parts are missing." And without these key details, Europe finds itself in a very difficult position.
According to Schaefer, the issue of the supply of raw materials "in many companies does not receive due attention." It should be "on the agenda of the management boards, supervisory boards, representatives of shareholders, banks and insurance companies."
At the same time, everything looks very clear on paper.
Back in the spring of 2024— the European Union adopted the Critical Raw Materials Act (CRMA). It is designed to provide the EU countries with strategically important raw materials.
We are talking about batteries for electric vehicles, wind turbines, solar panels — in fact, about everything that is necessary for the energy transition.
Lithium mines are needed in Europe, but who wants to live nearby?
With the adoption of the Critical Raw Materials Act (CRMA), the European Union has set clear goals for itself. By 2030, at least 10% of the demand for strategically important raw materials should be provided by own extraction in the EU. 40% of raw materials should be processed in Europe, and at least 25% should be recycled.
In addition, one country outside the EU should account for no more than 65% of the annual consumption of each such type of raw material. It's not hard to guess which country Brussels was thinking about when setting this restriction: China.
After the adoption of this EU plan, Europe is working to reduce dependence on external suppliers: it concludes partnership agreements in the raw materials sector and develops waste recycling. However, the approval of new mining projects in Europe can still take many years. In addition, there are strict environmental requirements and concerns about the state of groundwater.
In Serbia, in 2022, due to the protests of local residents, the project of developing a large lithium mine of the British-Australian mining concern Rio Tinto had to be suspended. The project is still fiercely controversial today. Residents fear for their health, as well as possible contamination of the soil and groundwater.
After all, Europe is not China, where such projects can be implemented much faster, regardless of whether the locals want it or not. The fact that everything works differently in Europe does not speak at all against it. Rather the opposite. But that is why it is so difficult for Europe to get rid of dependence on China.
Jochen Pfister, Head of Procurement at Hensoldt, wonders: "Who would want, for example, such a production facility to appear here on the Swabian Alb?"
It is possible to reconsider the attitude towards such projects. Or you can continue to depend on China.
"With all the associated risks," Pfister says.
Work continues on small printed circuit boards, integrated circuits, capacitors, diodes, and coils in several buildings from here. Working on the very small high-tech components that are eventually installed in large radar stations or Eurofighter fighter jets.
In workshop No. 31 at the Hensoldt plant in Ulm, a sign with the inscription "Detect and protect" hangs on the wall. This is the advertising slogan of a defense industry company that manufactures radar stations and sensor systems.
The flag of one of the Ukrainian air defense units is hanging a few meters away from it. This is a gift from Kiev as a token of gratitude for the supplied air defense radar stations. Without Germany, it would be extremely difficult to produce such radars.
There were times when Hensoldt produced three such radars per year. Today, 25 of them are already being produced, and soon the volume is planned to increase to 45.
The same trend is observed throughout the European defense industry. More and more are being produced: tanks, warships, combat aircraft, ammunition.
But the more Europe produces, the more raw materials it will need.
