For a long time, German companies have relied on the credo “The market regulates everything”. But trust in autocratic countries as suppliers of raw materials is crumbling. Companies are therefore rushing to find alternatives and reduce their dependency.
Since the Russian attack on Ukraine on February 24, Germany has been in a frenetic race for greater resource independence. German companies and politicians are horrified to discover how dependent the industry is on a few, often autocratic countries, not only for energy sources such as oil or gas – especially for high-tech products for the energy transition such as e-cars, solar and wind power plants . “Around 80 percent of mining production takes place in just 16 countries,” warns Sven-Uwe Schulz, deputy head of the German Mineral Resources Agency (DERA). “And when it comes to further processing, it’s even more serious: almost 50 percent of the world’s refined sugar production comes from China.”
That’s why companies and politicians are now radically changing – even car manufacturers are suddenly discovering the charm of dealing with mines. The main driving force is above all the fear of dependence on authoritarian states such as Russia and China. “We are seeing a clear expansion of Chinese mine operators worldwide. China is strategically and extensively promoting the securing of raw materials for its own interests,” says the responsible State Secretary, Franziska Brantner. “In Argentina in particular, Chinese companies have secured the majority of the concessions for lithium mines in the country,” says Roland Harings, head of the German copper producer Aurubis, as an example. BDI President Siegfried Russwurm speaks of a “real effort” to reduce dependence on China for raw materials.
German politicians and companies are trying to find reliable suppliers in a hurry. In August, Chancellor Olaf Scholz traveled to Canada and praised: “Canada has everything Russia has.” On the fringes of the visit, car companies such as VW and Mercedes-Benz, which had long been active on the free market, concluded declarations of intent to secure the purchase of the light metal lithium, which is required for battery production. On October 20, Mercedes-Benz then sealed the purchase of lithium from the German-Canadian start-up Rock Tech Lithium.
“The philosophy prevailed for a long time: the market regulates everything,” says Schulz from the raw material agency. “The companies concentrated on their core business. Trust in global supply chains and just-in-time production was very high.” Mining also has a bad image because of its environmental problems, which companies want to avoid. But this division of labor no longer works. Because, according to State Secretary Brantner, the free market for metals is shrinking more and more: “On the one hand, we are seeing an increasing concentration of companies in the raw materials sector and in the processing industry.” On the other hand, many raw materials are allocated via so-called offtake contracts, in which customers secure large parts of the production at mines at an early stage.
Analysts warn that, for example, cobalt, iridium and certain rare earths are no longer produced on the open market. China buys on a large scale in order to then process raw materials in the People’s Republic. So German companies and the government are now playing the game of securing resources in other ways – especially since, according to Green Party politician Brantner, Japan and South Korea have long been pursuing an active raw materials policy and the USA is doing more.
She advocates action within the EU framework and the formation of pan-European consortia. The EU Commission has already announced a raw material push. And the Ministry of Economics wants to reorganize the raw materials strategy, which was last changed in 2020. Securing the future is not easy, however. Because in Germany, with a few exceptions such as Aurubis, commodity groups have largely disappeared.
That’s why VW, for example, is hurrying to set up its own department for securing raw materials. Smaller companies will have to find other ways. “Companies don’t suddenly have to become commodity companies,” says Brantner. “You can secure offtake agreements or interests in mines, enter or invest in processing, or even diversify in purchasing.” “We advise companies that want to get involved in mining projects to get involved as early as possible in the project,” says DERA Vice Schulz. Then there would be a good chance of having a say in where the raw materials ultimately go.
Another option is so-called “junior mining”, where venture capital is injected into a very early stage of exploration for possible deposits – in the hope that at least some of the projects will prove to be “gold mines”. Another way is cooperation with processing companies: Mercedes-Benz, for example, is now ordering lithium hydroxide from Rock Tech, which is to be manufactured in Guben, Brandenburg.
Aurubis boss Harings complains that politicians are not innocent when German companies often lose out in the race for mines abroad. It just takes too long to decide about federal guarantees to protect against economic and political risks. Harings advocates reversing the decision-making process: in the future, approvals should be granted subject to conditions that companies then have to meet later. “Otherwise we lose the race for interesting mines,” he says. In addition, the Aurubis boss is in favor of not only issuing export or investment guarantees for projects under the umbrella of the state-owned KfW bank, but also granting loans for the projects at the same time.
To help here, Germany and France are planning a joint raw materials fund that is intended to facilitate participation in raw material extraction and processing. But there is also a problem with the corporations that, at least when purchasing raw materials, do not think long-term: in 2010 they were shocked when China suddenly temporarily throttled the export of rare earths. At that time, the industry turned to politicians for help, which then, under Chancellor Angela Merkel, stamped raw material partnerships with countries such as Mongolia and Chile out of the ground. But when world market prices dropped again, German companies again shied away from strategic agreements with the federal government. Now, in view of the tensions with China, the alarm mood is again in vogue.
“We are currently being overwhelmed with requests from companies as to what can be done,” says Schulz. Federal Chancellor Olaf Scholz now wants to revive the raw material partnerships and therefore received the Mongolian Prime Minister Luwsannamsrain Ojuun Erdene in the Chancellery. DERA Vice Schulz calls the effort to find democratic partners such as Canada, Australia, Chile or Mongolia “friend-shoring” – a new trend, above all to seek cooperation with countries with which one shares the same values. But other activities should also bring relief.
The Ministry of Economics wants to promote recycling because many discarded technical devices contain valuable metals. “There are also efforts in Germany to use domestic resources, for example in the Ore Mountains with deposits of tin and tungsten, in Lusatia with copper shale or lithium projects,” says Schulz. The problem: Strategic dependencies or not – environmental concerns continue to play a major role even after the Russian attack, as the rejection of the use of fracking gas in Lower Saxony shows again.
