German industry hoards rare earths as Brussels squares up to China
Por Frida Preuss, Carlo Martuscelli — Sustainability – POLITICO
BERLIN — German companies are rushing to stockpile critical raw materials, alarmed by the risk that Beijing could restrict rare earth exports if next month’s trade talks between the EU and China break down.
EU trade chief Maroš Šefčovič will travel to Beijing from Oct. 8-9 seeking a breakthrough in talks to narrow the bloc’s record trade deficit with China. He has warned that Brussels would restrict access to Chinese goods if no deal is reached.
The risk of retaliation by Beijing, in the form of new restrictions on exports of rare earth elements and other critical raw materials, has spooked business. China on Wednesday agreed to extend its suspension of a package of additional rare-earth export controls by two months to January, according to Washington.
“We are trying to flex muscles that we simply don’t have,” said Matthias Rüth, CEO of Frankfurt-based trading house Tradium, who has been working with rare earths and other technology metals for more than 25 years. “When dealing with certain partners, you need to have a realistic assessment of your own position.”
One German industry official, who preferred not to disclose their identity due to the sensitivity of the topic, said they were “very concerned” and that production could come to a standstill.
“Companies are panicking and stockpiling at the moment. Some started quite early and now have several months’ worth of materials in stock. For the majority, however, that’s not the case,” the official said.
Another industry official, who also requested anonymity, echoed the comments: “A tightening of export controls would hit industry hard. The situation is extremely tense.”
Industrial kryptonite
China has already demonstrated the disruption it can cause. Export controls imposed on seven rare earth elements in April last year led to severe shortages, with European automakers forced to halt some production lines and factories in other industries cutting utilization rates.
Beijing announced a further expansion of its rare earth controls last October, including restrictions on additional elements and the technology used to process them. Those measures were suspended for a year as part of a trade truce with Washington. The moratorium has been extended to Jan. 10, Treasury Secretary Scott Bessent said on Wednesday, ahead of summit talks between presidents Donald Trump and Xi Jinping.
The EU would like to trim the €1 billion-a-day trade deficit it’s running with Asia’s largest economy, but to do that must convince Beijing to either import more EU goods — or accept restrictions on its own exports.
In theory, this would be good news for Germany, the bloc’s manufacturing powerhouse, which competes with China in automotive, machinery and chemicals. Companies in Germany’s industrial heartlands continue to announce plant closures, citing both international competition and high energy costs.
But executives warn their companies remain inextricably linked to Chinese supply chains, including for rare earth elements used in electric vehicles, wind turbines, data centers and weapons systems. China accounts for around 60% of rare earth mining, and 90% of refining.
A report by the International Energy Agency found that Europe and the U.S. are the regions most exposed to Chinese export restrictions, and would face more than $1.5 trillion in direct economic losses if Beijing’s rare earth export controls were implemented in full.
Critical dependency
China’s biggest source of leverage is its dominance of the processing of “heavy” rare earths such as dysprosium and terbium, as well as of the production of high-performance permanent magnets crucial to the automotive industry, where EU dependence on China nears 100%, said Tobias Gehrke, a senior fellow at the European Council on Foreign Relations.
“Last year’s restrictions showed how quickly this can become an industrial crisis, when production slowdowns and shortages emerged within weeks,” Gehrke told POLITICO.
Chinese exports of rare earth magnets to the U.S. dropped some 20% month-on-month in August ahead of President Xi Jinping’s Thursday meeting with Trump at the White House, Bloomberg reported.
Siobhan McGarry, the European Commission’s spokesperson for industry policy, said the EU had reduced its vulnerability to supply disruptions since last year’s rare earth scare.
“If tomorrow things were to happen — [such as] export restrictions — what we have is a lot more awareness of where we have alternative supplies. We have a lot more partnerships with other countries that also need the same materials,” McGarry said. “That doesn’t mean that an export restriction wouldn’t have some effect, but I think we’re much better prepared.”
Commission President Ursula von der Leyen announced a new initiative to buy and stockpile critical minerals in her annual State of the EU address last week. Canadian Prime Minister Mark Carney, who was in Strasbourg for the occasion, said his resource-rich country was looking to collaborate on critical minerals while deepening its alliance with the EU.
Despite tensions with its traditional allies, the U.S. is also seeking to cooperate. In February the Trump administration pitched a three-way partnership among the U.S., the EU and Japan in an international trade club to loosen China’s chokehold over key raw materials. Washington is drafting a text it expects to present to its partners in the coming months.
Brussels has set 2030 targets of extracting, within the EU, 10% of its annual consumption of strategic raw materials, and of processing 40% domestically. It has also designated 60 strategic projects, clearing them for faster permitting and financing.
Signs of progress are appearing. Last year, a plant owned by chemicals firm Solvay launched the production of neodymium and praseodymium, which are used in permanent magnets; it should start separating out dysprosium and terbium later this fall. An Estonian company, Performance Materials, started shipping permanent magnets this month.
In Germany, an industry initiative around carmaker BMW aims to launch a critical minerals trading house to pool demand and make joint purchases, hoping to gain more market power.
The Commission is also working on new rules to encourage (or even require) industry to diversify their supplies of materials away from China, creating a market for European production of critical minerals. Šefčovič plans to present the proposal in early December.
Despite the tense times, German policymakers urge Europe to keep its nerve.
“It’s important to negotiate professionally as equal partners and to put the available tools on the table,” said Tobias Winkler, a Bavarian lawmaker from Chancellor Friedrich Merz’s center-right parliamentary group who focuses on the geopolitics of critical raw materials.
“China is unlikely to have an interest in a trade conflict either, especially if it would further weigh on its already struggling domestic economy,” he added.
Meaningfully reducing Europe’s dependencies will take years, Winkler said: “Until then, we will need other measures to maintain market balance and safeguard security of supply.”
Frida Preuß reported from Berlin and Carlo Martuscelli from Brussels. This article has been updated.
Fonte: Sustainability – POLITICO
