EU’s risky reliance on critical Chinese metals | Business | Economic and financial news from a German perspective | DW

As the EU works to cut off its energy supplies from Russia, the bloc is also heavily dependent on China for industrial metals and rare earths the bloc needs for wind turbines, electric vehicles , solar cells and semiconductors.

Given the increased speed of digitalization and the energy transition, the demand for these raw materials is set to increase further, but mining is only concentrated in a handful of regions in the world.

This means that in the future, China could cause a big headache for the European Union. The Asian country exports many raw materials essential to the industries of the future. On top of that, China plays a pivotal role not only in mining, but also in material processing, says Siyamend Al Barazi of the German Mineral Resources Agency (DERA).

The production of batteries for electric vehicles requires a lot of cobalt and other raw materials that the EU must import

China’s de facto monopoly

The European Union’s dependence on metal imports is between 75% and 100% depending on the metal. Of the 30 raw materials that the EU classifies as critical, 19 are mainly imported from China. The list includes magnesium, rare earths and bismuth for which China holds a de facto monopoly, providing up to 98% of the supplies needed in the EU.

This dependence may even increase in the future. The EU estimates that cobalt demand alone will increase fivefold by 2030. Lithium demand is expected to grow 18 times by 2030 and 60 times by 2050 thanks to the bloc’s electric mobility campaign.

Political power

In 2010, some analysts said China was using its commodity monopoly to exert political pressure when Beijing restricted the export of rare earths, seeing prices jump. This decision was then reviewed by the World Trade Organization and China had to reverse its export cuts.

“Europeans, including Germans, have gained greater trust in China, which is ready to play by the rules,” said Raimund Bleischwitz of the Leibniz Center for Tropical Marine Research.

However, there is no guarantee that European demand will be fully covered in the future. A March report from the German business daily Handelsblatt said experts from China’s Ministry of Industry and Information Technology discussed in January 2021 whether to stop the export of rare earths to the United States.

Europe should not be surprised if China reduces its commodity exports. In its latest five-year plan, Beijing made it clear that exports would be reduced to meet growing domestic demand.

China hopes to become climate neutral by 2060 and needs more critical raw materials for itself. In a strategic move, China has already secured vital imports from Africa and elsewhere through large-scale investments and long-term contracts.

Instead of exporting raw materials, China aims to become a global technology leader in key industries.

Excavator loads rare earth truck at Lianyungang Port

There is always a danger that China will suddenly reduce its rare earth exports

Germany at an impasse

Germany has been trying for years to diversify its imports of raw materials. Rare earths are now imported not only from China, but also from Brazil. In 2010, she established the German Mineral Resources Agency, which continuously monitors the availability of resources around the world.

“It’s been 10 years since we’ve been reporting greater market concentration,” said DERA’s Al Barazi.

“There’s kind of a cycle of attention among industry executives and politicians,” Bleischwitz added. “The topic always comes up when prices rise like they have for the last 18 months – action plans are made, but when prices start falling again, the topic disappears and nothing more is done.”

DERA research shows that Germany continues to rely heavily on Chinese imports, including raw materials and processed goods. But China seems willing to embrace more sustainable production methods and do more for environmental protection. Nationwide inspections in the magnesium production industry late last year led to the closure of a number of factories across China. As a result, the price per ton of magnesium went from $2,000 to $10,000 (€1,850 to €9,250).

According to Al Barazi, the same thing happened in the silicon production industry in China, leading to a reduction in overall production.

Increased mining in Europe?

Autumn 2020 saw the creation of the European Raw Materials Alliance, which aims to strengthen security of supply and diversify imports for European industries. In addition, the EU aims to increase its own mining and processing activities.

“There have been efforts for years in the EU to support national mining activities,” Al Barazi said. Some of the critical materials are indeed in Europe, but many countries do not want polluting mining activities in their vicinity.

Spain has just experienced public demonstrations against the project to open a lithium mine in Extremadura. Such protests also took place in Serbia and Portugal.

There are also lithium deposits in Germany. After a long search for investors, lithium mining should start in the German state of Saxony in 2025.

Financing new mining projects remains a huge problem, says Al Barazi, pointing to a lack of venture capital. Looking only at the price of the raw materials in question, European mining is not competitive, given that China, for example, heavily subsidized mining in the 1990s and has demanding more lax environmental regulations, leading to lower prices.

Activists protest against a proposed lithium mine in Belgrade, Serbia

In September 2021, thousands of activists in Serbia demonstrated against a lithium mine project

Recycle part of the solution?

One thing is certain: Europe cannot fully satisfy its demand with its own mines. Part of the solution could be to reuse more materials through more efficient recycling procedures and focus more on a circular economy. But there are limits to this.

As long as overall demand continues to rise steadily, recycling can only alleviate the problem in Germany, according to Peter Buchholz, who heads DERA. “Industry can only recycle what is actually available,” he noted. “About 40 years ago, the demand for copper was 10 million tons per year, today it exceeds 20 million tons.”

In order to absorb the shock of possible reductions in exports, many countries in the EU, the United States and Japan have tried to accumulate considerable reserves of natural resources.

When discussing the risks of Germany’s dependence on China, “one should not forget that China is also dependent on imports from Germany,” Bleischwitz said. “Before the COVID-19 pandemic, China actually imported more raw materials from Europe than it exported, for example forest products and processed metals.”

This at least shows that there is mutual dependence.

This article was first published in German.