Biting into the Bite of Rare Earth Scarcity
Germany-based businesses confronting scarcities in critical minerals, predominantly sourced from China - German companies encountering supply constraints in obtaining scarce earth elements from China
German companies are grappling with a nippy issue - a scarcity of rare earths, primarily from China. An advisor at Alixpartners, Christian Grimmelt, confided to the German Press Agency that it's a ticklish situation, particularly for the heavy rare earths, as China controls around 70% of the mining capacity. These elements are vital for permanent magnets, which are indispensable for electric motor production.
In a nutshell, Grimmelt warned, rare earths could be the next chip crisis, and it's already cooking up! Previously, media has reported on the sizzling issue of production shortages in Germany.
Reacting to the Trade Rumble
China kicked off a storm in April by imposing export controls on seven rare earths and magnetic materials in the ongoing trade squabble with the USA. The not-so-sweet measure affects German firms too, according to the EU Chamber of Commerce in Beijing. Reportedly, over 300 European businesses are tangled up in this mess, with a backlog of export applications piling up at Chinese authorities, leaving them high and dry.
Mercedes, a tasty target for China's clampdown, admitted that it's sharpening its evaluation skills and chatting up suppliers. The car giant signs its relief at the recent surge in the handing out of export licenses, noting it as a sweet relief from the bitter trade dispute. Mercedes has smartened up its act worldwide, stockpiling flexibility in procurement to avoid supply chain headaches from global disruptions, a lesson learned from the Coronavirus pandemic.
Wheels to Cranks, Shortages Roll On
Volkswagen and BMW have(n't) felt the crunch yet, according to their spokespersons. No shortages have been reported, and production is(n't) facing any hindrances, they asserted. However, parts of BMW's supplier network are in the crosshairs of the new export rules in China. BMW is tackling the situation with a cool head, keeping in close contact with its suppliers to spot supply risks early.
ZF, a major auto supplier, is not alone in the frying pan. The company is receiving some pommel from Chinese export restrictions, with first effects being experienced in some of its supplier chains, although short-term production stoppages cannot be ruled out.
The Wider Alarm
The auto industry isn't the only sector under the heat. "The rare earth crunch is becoming a thorny issue for companies, challenging them at every turn," said Wolfgang Weber, head of the ZVEI (Central Association of Electrical and Electronics Industries). The EU Commission is being urged to pitch in more decisively.
The VDMA (German Machinery and Plant Engineering Association) is on high alert, in communication with affected firms. Their numbers may be small but the impact varies across industries.
A Multitude of Misfortunes
The looming shortages could trigger several unfavorable situations:
- Seismic Supply Chain Shocks: The auto, wind, and medical device industries, among others, are likely to crumble under the weight of disrupted supply chains.
- Economic Tsunamis: Supply shortages could swell costs and result in losses if production is jeopardized or slashed.
Plucking the Golden Goose
To lessen dependence on Chinese rare earths, German companies can try these tricks:
Sourcing Salvation
- Domestic Recycling: Boosting homegrown recycling programs to reclaim rare earths from discarded goods could slash China's grip on the market.
- Metal Magic: Swapping samarium, terbium, and dysprosium with neodymium magnets could alleviate some pressure, temporarily.
- Global Galavanting: Venturing out to diversify suppliers, such as Australia and the USA, which are beefing up rare earth production capacities.
Escaping the Squeeze
- Stockpile Savvy: Collecting critical rare earths when possible and maintaining buffer inventories can shield companies from future shortages.
- Supply Chain Variety: Diversifying beyond Chinese suppliers to dodge the chokehold of export restrictions.
- Policy Parley: Lobbying EU policymakers to facilitate international agreements or alternative sourcing strategies.
- Smart Solutions: Investing in research and development that de-emphasizes rare earth dependency.
- The scarcity of rare earths, crucial for vocational training such as electric motor production, could lead to a similar global crisis similar to the chip crisis, warns Christian Grimmelt.
- In the face of China's export controls on rare earths, some firms are turning to vocational training initiatives, such as stockpiling flexibility in procurement and diversifying their supplier networks, as seen in Mercedes' response to the trade dispute.
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