Trouble Ahead: German Economy Faces Potential Shortage of Rare Earths due to China's Export Limitations
German businesses confront potential scarcity of scarce earth elements from China - German businesses encountering supply shortages of scarce earth elements from China
China's tough stance on exporting certain minerals is causing unease in the German economy, especially for the so-called heavy rare earths. Christian Grimmelt, advisor at Alixpartners, shared his concerns with the German Press Agency, stating, "We're staring down the barrel of a potential crisis, much like the chip shortage, with rare earths."
Heavy rare earths are crucial for permanent magnets, essential components in most electric motors. Car manufacturers, including big names like Mercedes, are feeling the heat due to the scarcity of these magnets, even though they may not heavily weigh in vehicles. Grimmelt warns, "Rare earths have the potential to become the next big crisis - it's already brewing."
China's move
In April, China clamped down on the export of seven rare earths and magnetic materials, as part of the ongoing trade spat with the USA. While this move affects businesses globally, German companies bear the brunt due to the slow processing of export applications by Chinese authorities.
Mercedes has taken a proactive approach, evaluating the current requirements and engaging with suppliers to stave off potential risks from global supply chain disruptions. However, the automaker's vehicle production remains unaffected at present. Similarly, Volkswagen and BMW report no shortages in their component supply, although parts of their supplier network have felt the pinch.
Impact on other industries
ZF, an automotive supplier, sources its components from various manufacturers that require rare earths. The company has already experienced early effects in the supply chains of some suppliers, potentially leading to short-term disruptions, depending on the granting of new export licenses.
Industries beyond automotive are also feeling the heat. According to Wolfgang Weber, Chairman of the Management Board of the ZVEI, the increases in rare earth shortages present companies with growing challenges. The EU Commission needs to take firmer action to address the issue, Weber contends.
German companies maintain a hands-on approach to mitigate the impact of the rare earth shortage. They closely monitor their supply chains, diversify and localize production, and expedite export license approvals. However, even with these strategies, the situation remains critical, making it imperative for the EU Commission to take decisive action.
German Companies' Coping Mechanisms:
- Supply Chain Management: Companies like Volkswagen and BMW are vigilant, monitoring their supply chains for potential risks and engaging with suppliers to manage any disruptions. They are focused on maintaining stable operations.
- Diversification and Localization: German automakers are taking proactive steps to reduce dependence on Chinese exports by localizing production and exploring alternative suppliers.
- Expediting Export License Approvals: Companies such as ZF are urging authorities to expedite export license approvals to prevent temporary production stoppages.
EU Commission's Role:
The EU Commission has been urged to take firmer action to address the challenges posed by rare earth shortages. The ZVEI has emphasized the need for the EU Commission to take a more assertive role in resolving the crisis. However, specific policy actions or responses from the EU Commission have not been detailed in recent reports. The EU has been working on strategies to reduce dependence on critical raw materials, including rare earths, through initiatives like the European Raw Materials Alliance, which aims to diversify supply chains and promote sustainable sourcing.
With the German economy relying heavily on vocational training for the production of electric vehicles, it is essential for local vocational training programs to prioritize the education of technologists who specialize in the mining, processing, and application of rare earths. This could help Germany become less dependent on Chinese exports of these critical materials.
The EU Commission, recognizing the potential crisis that rare earth shortages pose to various industries within the EU, could implement a community policy focused on vocational training, encouraging the education and skill development of technologists in this field. This policy might be instrumental in fostering a self-sufficient, competitive, and resilient European economy.
