Political interest in raw materials escalates | Business| Economy and finance news from a German perspective | DW | 30.04.2012
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Political interest in raw materials escalates

German politicians have discovered the question of natural resource security. Competition for raw materials is increasing along with the rise of emerging market nations. One solution: forging new partnerships.

Discussion of raw materials and how to secure them has come back into fashion among German politicians. The Christian Democrats (CDU) have held summits on the topic three times with external experts, and the party has warned that Germany may be getting the short end of the stick when it comes to staking out valuable raw materials.

One has to approach the issue soberly," said Chancellor Angela Merkel. "In practice, we have often seen that other countries are faster than we are."

No products without resources

Ex-foreign minister Rainer Brüderle told companies in recent years that it is not the government's job to secure natural resources, says Ulrich Grillo, Vice President of the Federal Association of German Industry (BDI). Brüderle's position was that German industry needed to secure such resources on the market themselves.

An excavation in China

China controls a substantial portion of the world's resources

But now the chancellor is travelling around the world, establishing raw materials partnerships with resource-rich countries. Germany has signed new contracts with Kazakhstan and Mongolia, for example. The EU has also established a raw materials strategy, aimed at reaching trade agreements with countries all the way from the Cape of Good Hope to Greenland.

"One thing is certain," Chancellor Angela Merkel said, "Those who do not have access to enough natural resources will be unable to develop new products."

The rise of China and other emerging markets has precipitated a race to secure resources that involves negotiation on price as well as on mining rights, contract stipulations and political demands. German industry is keen to get involved in the natural resource trade again. In recent days, ten large companies banded together to form a raw materials alliance that will address trade and mining of important resources. The association includes Germany's industrial giants like Thyssen, BASF and large auto manufacturers. They see themselves as attractive partners for raw materials contracts.

"We don't have the big cash on hand like the Chinese," said Grillo, "But we have technology to offer, we have know-how, and that's why a lot of countries want to start partnerships with us."

Complacency set in

A worker in a Bosch factory in Germany

Auto parts manufacturers have complained about price hikes

For a long time, securing natural resources presented no problem for Germany. Western industrial nations shared Africa and Asia's materials largely among themselves. Demand did not rise above supply, the resources were readily available on the market, and it seemed unthinkable that the situation would change.

"Back then, it was clear: We can buy raw materials, so we'll concentrate on our core competencies," said Grillo.

Trust in international markets was so high that German companies gradually stopped procuring their own resources and gave up their mining rights in other countries. Large natural resource companies like Preussag shifted their focus to new branches like consumer goods or services. The former steel and mining company became the tourism services provider TUI. There was also little interest in mining resources like coal and iron ore domestically because everything was much cheaper to purchase and import.

That picture has changed dramatically. For several years, industry has complained of sharp rises in prices.

"Costs for iron ore have risen by 200 percent in recent years," said Jürgen Geißinger, President and CEO of car parts supplier Schäffler AG, who added that the car parts supply industry, important to the German economy, has been hard hit by the changes.

"We are sandwiched in. On the one side, we have rising prices, and on the other side, we cannot correspondingly increase prices for the customers. That is jeopardizing our survival," Geißinger said.

Angela Merkel

Merkel has warned that Germany needs to be less passive on raw materials

When it comes to important materials for the electronics industry like rare earth elements, the situation is even tenser. Price increases are not the only problem; scarcity is on the horizon. China controls much of their production and has imposed strict controls on exports in order to supply its own industrial sector first.

"We are now in competition with states that have very strategic plans," said Chancellor Angela Merkel.

Cowardice?

Germany has thus far reacted to the situation too timidly, say many industry representatives, who look with a certain amount of envy at countries who did not make the transition in the last few decades from natural resource producers to buyers.

China is not the only country seeking to secure its position by way of big capital outlays and state-supported cooperations in Africa, South East Asia and South America. Japan and Korea began founding state-owned companies in the 1960s that specialized in raw material production to back up domestic industry - very much against the trend at the time.

A glimmer of hope has come by way of test drilling north of Leipzig in Saxony. Their goal: explore the only known deposit for rare earth elements in Central Europe.

Author: Matthias Bölinger / gsw
Editor: Neil King

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