Disrupted Rare Earth Exports: Germany's Worry Over Supply Shortages Amidst Chinese Limitations
Economic concerns loom over Germany as potential scarcity of rare earth elements threatens industries.
In the tech-driven realm, Germany and the European Union are suffering an impending crisis as China clamps down on export rights to specific minerals, specifically targeting rare earths - resources essential for the functioning of tech giants located in Europe.
China weilds an impressive 70% control over global rare earths production, causing issues for German businesses. Christian Grimmelt, an expert at Alixpartners, warns that this situation could soon escalate into a crisis, especially regarding permanent magnets that power most electric motors. These magnets, despite being relatively light, play a pivotal role in vehicles across the automotive industry.
Alarming predictions paint a grim picture, depicting a possible chain reaction of production cuts, stockpile depletion, and a harsher reality unfolding three to four weeks down the line. Preliminary reports hint at production halts by some European companies due to rare earth scarcities, and the situation promises no immediate relief.
China's export control policies, formulated in April amidst escalating trade conflicts with the US, now impact German companies. The prolonged waiting period for export license applications served by Chinese authorities is exacerbating the predicament. Quotas for applications approved so far fall drastically short of the number submitted, with some applications even being rejected.
Consequently, German manufacturers are overwhelmingly expressing concerns over dwindling resources and shrinking time frames. Mercedez-Benz is actively assessing its needs and engaging suppliers in anticipation of fresh license approval. Similarly, the company has strategized its global sourcing tactics to ensure flexibility during global supply chain disruptions - lessons learned from the COVID-19 pandemic.
Trade Association: EU Commission Should Act
Not just the automobile industry, however, stands to face challenges from the potential rare earth shortages. Wolfgang Weber, the CEO of the German Electrical and Electronic Manufacturers' Association (ZVEI), stresses on the urgency for the EU Commission to intervene effectively in the matter. The VDMA, an association representing German machinery manufacturers, supports such intervention.
Several industries within the European Union depend disproportionately on China for rare earth imports, making them vulnerable to supply chain disruptions. Although the impact differs across various enterprises, widespread distress looms as the situation remains unresolved.
A Deepening Dependency
A staggering 98% of European rare earth magnets are imported from China, with Germany's dependence on China for raw materials reaching as high as 90%[1][2]. The crisis unfolding challenges organizations across various sectors - from the automotive industry to electronics - for which rare earths are vital components.
Upon the current export limitations, the barrage of consequences exemplifies the urgent need to diversify rare earth sourcing from a single dominant market, thereby fostering a competitive landscape and safeguarding the economy's resilience.
[1] https://nationalpost.com/tech/electric-vehicle-push-sparks-rare-earth-shortage-and-big-problems-for-u-s-environment[2] https://www.iised.org/documents/Rare-Earths-The-New-Global-Race_131224.pdf[3] https://www.theguardian.com/environment/2020/sep/03/rare-earth-elements-ev-batteries-green-new-deal-supply-chains-china[4] https://www.rechargeonline.com/analysis/a-tale-of-two-supply-chains/6029776/
The consensus among European trade associations such as the ZVEI and VDMA is that the EU Commission should take immediate action towards addressing China's rare earth export restrictions, given the high dependence of small and medium-sized undertakings (SMes) in various sectors on these critical materials for their operations, technology advancements, and product manufacturing.
Moreover, the fragility of the current global rare earth supply chain, as demonstrated by the looming shortages, necessitates diversification to reduce dependence on a single dominant market. Striving for a more competitive and secure sourcing landscape is essential to safeguard the resilience and growth of European SMes.
