Will Germany face a rare earths shortage?

There are minerals and metals like lithium and copper and then there are rare earths, including scandium, cerium, promethium, terbium and thulium. Rare earths are not that rare. The rarest — thulium — is more common than gold, but it is rarely found in quantities that make mining economically worthwhile.

A study published last week by IW Consult at the German Economic Institute and Fraunhofer Systems and Innovation Research (ISI) shed light on Germany's imports of these rare earths, along with copper and lithium, to assess their importance to the economy.

Exporters have great market power

The study found that almost a third of added value in Germany's manufacturing sector depends on the production of goods containing copper. A tenth, meanwhile, comes from the production of lithium-containing goods and more than a fifth from goods containing rare earths.

The report's authors noted how car manufacturers and their suppliers are particularly dependent on these raw materials as well as producers of electrical, electronic and optical goods.

At present, the market for rare-earth raw materials is dominated by just a few suppliers. The largest deposits of rare earths are in China; deposits in Greenland, Canada and Sweden have not yet been sufficiently investigated and therefore cannot be quantified.

Almost a third of Germany's lithium-containing imports and 19% of copper and rare earth imports are considered to come from at-risk sources, including China. For lithium and rare earths, the three largest suppliers have a market share of over 80%.

Particularly important for Germany are copper imports from Russia and lithium carbonate from Chile — 72% of Germany's lithium imports come from the South American country.

The report found that Europe's largest economy can expect to have a high degree of dependence on China for rare earths for a considerable time.

More dependent than on Russian gas

"The dependence on many non-energy raw materials from China is larger than our gas reliance from Russia," Matthias Wachter, department head at the Federation of German Industries (BDI), told DW. 

He noted how the import of mining, refinery and trading products is associated with "the highest level of risk."

The risk is "not so much the physical availability of the raw materials, but rather their concentration in terms of exploration and [the need for] further processing in China. This makes them vulnerable."

Wachter noted that China has already introduced export controls on some rare earth minerals.

Cornelius Bähr, senior consultant at the German Economic Institute (IW Köln) noted an expected increase in demand for these types of raw materials, including lithium for the production of batteries.

"Another risk factor is a high concentration on individual countries if they simultaneously threaten strategic trade restrictions — for example, gallium, germanium or graphite, which are mainly imported from China," Bähr told DW.

Bähr also points to political risks, noticeably the trade disputes between China and the US and EU, which he said has led to mutual curbs on imports or at least the threat of restrictions.

How to boost rare-earth security?

"Raw material security requires an audit of the entire supply chain — from mining to the imported intermediate products," warned Fritzi Köhler-Geib, chief economist at KfW, the federally owned bank that commissioned the study. "A resilient supply of raw materials initially incurs costs, but ultimately it is a prerequisite for shaping the green and digital transformation."

Wachter noted that reducing dependence on major markets and building more resilience in supply chains "doesn't happen overnight."

He said a diversification [of supply] was essential, alongside the strengthening of domestic production. Contrary to popular belief, Germany is very rich in some raw materials.

Bähr, meanwhile, called for Germany to "diversify supplier countries, substitute critical raw materials, expand its own resources and strengthen recycling."

Major threat to Germany's economic growth

Wachter calls for a broader positioning of the German economy, telling DW that the "lack of diversification of supply chains endangers German supply security."

He warned that Germany's industrial economy would be "massively endangered" if it lost access to these types of raw materials, and the country's climate ambitions would also be hurt. "Without access to raw materials, there is a risk that industrial production cannot take place here," Bähr said.

An example he gave was the possible lack of access to lithium, which he said would mean that battery production couldn't take place in Germany. 

"[Therefore]No electric cars could be built and because of that, industrial value creation and jobs would be lost," said Bähr.

This article was originally written in German.