PINCHING A CRAMP IN THE GERMAN ECONOMY: SHORTAGES OF RARE EARTHS FROM CHINA
German businesses grappling with shortages of scarce earth elements predominantly sourced from China - German industries confronting obstacles in acquiring scarce earth elements from China
China, the self-proclaimed dragon of mineral production, is dropping jaws in Germany with its strict export restrictions on certain minerals, raising a stink about potential shortages in the German economy. According to Christian Grimmelt, an advisor at Alixpartners, the situation is particularly dire for heavy rare earths, as China owns a whopping 70% of the global mining capacity for these precious elements. These earths play a crucial role in manufacturing permanent magnets, which are pretty much indispensable for most electric motors.
Germany's concern is as loud as a Mercedes horn. "Heavy rare earths have the potential to become the next chip crisis—it's already underway," Grimmelt warned. Other media outlets had already sounded alarms about production shortages in Germany. But hey, we're not here to panic. We're here for the lowdown.
Beijing's Rollicking Response
Back in April, China stirred the pot in the trade dispute with the USA, imposing export controls on seven rare earths and magnetic materials. Naturally, this measure applies to everyone, including German companies. The EU Chamber of Commerce in Beijing has fingered hundreds of European companies feeling the brunt of China's heavy hand, with export applications heaping up like a traffic jam at rush hour, taking authorities ages to process.
Mercedes isn't sweating it just yet, but confessed to reviewing the current requirements and gabbing with suppliers. They're seeing a silver lining in the surge of approved export licenses, yet no direct restrictions have been reported, much to their relief. In any case, Mercedes has wised up post-corona crisis, securing more flexibility in procurement to avert risks from global supply chain shenanigans.
At the moment, production remains as smooth as a BMW's engine at Volkswagen and BMW, although their supplier networks aren't entirely unaffected. According to a VW spokesperson, supply components remain stable, and production is steaming ahead on schedule. BMW echoes this, though they're chatting with suppliers to nab possible supply risks early on.
Other Industries in the Rare Earth Loop
ZF, an automotive supplier, doesn't mine for the raw materials themselves but does buy various parts in need of rare earths—like electric motors and components. "We're observing initial effects in our suppliers’ supply chains," a spokesperson said. Additionally, short-term supply disruptions can't be ruled out due to the lengthy issuance of new export licenses.
Beyond the automotive industry, the scarcity of rare earths is starting to cause hiccups in the electrical and digital sectors. The Association of German Machinery and Plant Engineering (VDMA) is reportedly in touch with affected companies, though the impact varies considerably.
Wolfgang Weber, chairman of the management board of the ZVEI (Central Association of Electrical and Electronic Industry), urges the EU Commission to take a more forceful stance against the shortages by potentially intervening diplomatically or investing in alternative supply sources.
In a nutshell, Germany is facing some unwelcome challenges courtesy of China's export restrictions on rare earths. As the situation unfolds, various sectors are grappling with potential supply chain disruptions, and companies are strategizing countermeasures to keep the wheels turning on German industry.
In light of China's export restrictions on rare earths, Germany is exploring measures to mitigate potential supply chain disruptions across various industries. This includes vocational training programs to enhance local production capabilities in technology-dependent sectors, such as the electrical and digital industry, thereby fostering self-sufficiency and reducing reliance on Chinese imports. Simultaneously, Germany's lifestyle industry, including automotive manufacturers like Mercedes, BMW, and ZF, are collaborating with suppliers to identify and address potential risks, ensuring production continuity and adapting to the changing global landscape.
