• Germany 100% dependent on imports for 14 of 27 critical minerals, 95% import dependent on 3 others
• German strategy to secure critical minerals involves new mines, billion-dollar investment, international partnerships
• but, strategy potentially undermined by pull of cheap minerals from China and push from expensive US import tariffs
• German net-zero demand looks set to exacerbate existing tight critical mineral supply

Russia’s invasion of Ukraine is estimated to have cost Germany’s economy — particularly due to it’s dependence on Russian energy exports — more than US$100billion, or 2.5% of its GDP. And during the Covid pandemic, supply chain disruption cost Eurozone economies an estimated US$115 billion. 

Now Germany is rushing to overhaul its critical mineral strategy to secure another vulnerable sector from potential geopolitical fallout, this time with China.

But, is it too late?

“The goal… is to secure access to critical raw materials so that we do not find ourselves at the mercy of those who might weaponize them – as the Kremlin has done with hydrocarbons”

— Werner Hoyer, President of the European Investment Bank

As the third largest economy in the world, the success or failure of Germany’s attempt to secure critical minerals supply chains will have an impact across the mining industry, the energy transition and geopolitics.

Energiewende and kritische mineralische

Germany’s Energiewende, the country’s energy transition from fossil fuels to renewable energy, is one of the most ambitious in the world but will depend on a secure supply of kritische mineralische, or critical minerals, to make it work. 

The challenge is secure supply.

But, first, to put the scale of the potential demand from Germany in context: 

Germany’s Climate Change Act enshrined in law a 65% cut in greenhouse gas emissions (from levels in 1990) by 2030, as well as achieving greenhouse gas neutrality by 2045. This includes:

• 80% of electricity should come from renewable sources by 2030
• 15 million electric vehicles registered by 2030
• installed capacity of 130 GW from wind power plants (100 GW on land, 30 GW at sea) by 2030
• and 215 GW from solar plants by 2030
• a draft strategy of the transmission grid operators from the end of March 2023 shows an investment requirement for the transmission grid of EUR 198 bn by 2037. and that means a lot of copper

And it’s not just environmental pledges, but domestic jobs and GDP:

• Germany is world’s second-largest passenger electric vehicle (EV) producer after China
• 3 of 5 of the top global wind turbine manufacturers are German, and some of Europe’s highest-value solar companies are German as the country tries to revive it’s solar industry

One recent estimate suggests the total cost for Germany to reach its net-zero goals by 2030 will cost more than US$2 trillion, nearly US$260 billion a year. And this does not count old renewable energy infrastructure, such as wind turbines or solar panels, that will need to be replaced in the coming years.

The strategy itself is politically divisive, with many arguments pro and against, and is even struggling to meet it’s own deadlines. However, the targets are now law and our focus in this report is to examine the impact of potential German demand — now the world’s third largest economy — on global critical mineral investments.

The cumulative and yearly forecast mineral requirements to meet this massive renewable energy expansion, compared with total German consumption of the respective raw materials in 2020 is outlined below:

For example, the German Raw Materials Agency (DERA) forecasts German critical mineral demand will roughly track the x7 increase in Rare Earths and x42 increase in lithium demand between 2020-2040 expected globally to meet net-zero targets.

The challenge is that Germany is 100% dependent on imports for 14 of 27 critical minerals on the list of European Union’s (EU) critical minerals, 95% import dependent on 3 others and, in some cases Germany is more dependent on imports than the EU as a whole.

Germany’s critical mineral strategy

Germany’s plan to diversity and secure its critical mineral supply involves four main strategies:

• mining development domestically and across the European Union (EU)
• trade partnerships and development with international critical mineral exporters and miners
• invest in critical mineral reserves
• recycling

And, underpinning this plan, Germany wants to ensure “socially and environmentally fair supply chains.”

So, can it work?

Germany Mining 2.0

Germany has almost no domestic critical mineral extractive industry, except for copper, but that is the exception that proves the rule: with 60MT of copper production in 2021, Germany was the lowest ranked producer in the world.

We are not about to suggest Germany is set to become a significant, global mining player — environmental regulation and social pressures against mining in the country mean it is simply too difficult (mining of gravel and sand in Saxony has fallen a reported 40% in the last 10 years) — however, there are some domestic moves in the mining industry worth noting to highlight how seriously the situation is being taken, that these projects are even being considered:

• the Käfersteige mine — considered Europe’s largest deposit of fluorspar — near Pforzheim is set to reopen, shut since 1996
• a reported 28 exploration mining projects are underway in Saxony state, with 5 projects well advanced, involving lithium, tin, coper as well as manganese and other critical minerals
• a new lithium mine is being developed near Dresden
• the Tellerhäuser mining project wants to mine 3,000 tons of tin per year in the Ore Mountains
• a new plant in Frankfurt-Höchst plans to have a capacity of 24,000 tonnes of lithium hydroxide per year, with first ton produced in Q1 2024
• a proposed project wants to start supplying 40,000 tons of battery-grade lithium hydroxide every year from 2025, from existing geothermal power plants in the Upper Rhine Graben and the North German Basin

“Domestic mining is preferable to raw material imports if it leads to better environmental and social standards and strengthens the resilience of supply chains”

— Germany’s climate and economy ministry, helmed by the vice-chancellor Robert Habeck, said in a position paper on the country’s raw materials strategy

“Nowhere will it be as environmentally friendly and as humane as here in Germany. Therefore a clear yes to mining”

—  Michael Kretschmer, Saxony’s Prime Minister

However, the exodus of heavy industry from Germany, driven particularly by high energy prices and incentives by the US and China, offers a warning of the challenges that lie ahead for any domestic mining prospect. For example:

• high energy prices in early 2022 resulted in 10% and 40% of Europe’s primary aluminium and zinc capacity being taken temporarily offline
• Germany’s last solar manufacturing producer has announced it plans to move to the US

Is the mining industry any different?

We believe Germany’s domestic mining industry may see a small increase in investment and supply, but is unlikely to see any significant revival.

Instead, as the map below, showing critical mineral and base metal mining operations on the continent, quite vividly describes, Germany will most likely rely on it’s neighbours to ramp up regional critical mineral production.

European Critical Raw Materials Act

Europe’s Critical Raw Materials Act was agreed in 2023 and set to enter into force this year, and it sets up Europe’s — and Germany’s — most significant critical mineral priorities to date, with domestic capacity to include:

• at least 10% of the EU’s annual consumption for extraction by 2030
• at least 40% of the EU’s annual consumption for processing by 2030
• at least 15% of the EU’s annual consumption for recycling by 2030
• no more than 65% of the EU’s annual consumption from a single third country by 2030

Mining permits for selected “strategic projects” are to be streamlined to a maximum of 24 months, and 12 months for processing and recycling permits.

The plan is tied to Europe’s US$1.1 trillion Green Deal Investment Plan to cut carbon emissions by 55% by 2030. And the European Investment Bank Group has provided US$3.2 billion for strengthening raw-materials supply chains over the last seven years.

However, crucially, these are aspirational “benchmarks” and 10% of annual consumption extracted domestically by 2030 is significantly lower than America’s requirement that electric vehicles must contain at least 40% of it’s critical minerals from domestic sources by 2024, increasing to 80% by 2027. And, we expect changes, with most likely a watering-down of proposals before it becomes law in 2024. 

The problems the mining industry faces in Germany is similar across Europe:

• opposition from local communities and environmental conservationists
• environmental regulation and permitting issues
• high energy costs and competition from the US and China
• and polls suggest the European Parliament elections this year might see a “anti-climate policy action” coalition that could slow the net-zero agenda, and so too demand

For example, despite consuming up to 30% of the world’s metals, Europe’s spending on mineral exploration in the continent are estimated at 3%. Analysis of the world’s 200 largest mining companies shows only 15 are European and only 6 are based in the EU. The majority of the critical mineral mines in the EU are focused on copper.

Instead, a recent report by Eurometaux identifies mining projects that could meet up to 55% of Europe’s lithium demand, 80% of rare earths, and an extra 9% of copper, zinc and nickel demand by 2030 — but these all have an “uncertain future.”

“Most planned new mines in Europe have an uncertain future (and several categorised as unlikely). Projects face a mixture of challenges, including local opposition, permitting delays, less favourable economics, and/or reliance on untested technologies”

— Metals for Clean Energy: Pathways to solving Europe’s raw materials challenge

If no new mines are opened, Europe’s copper and zinc production would decline by 50% in the next 20 years.

And, of course, Germany will not be the only one making demands on any critical mineral production in the economic bloc of 27 countries.

Government investment

The German government plans to set up a US$1.1billion fund to support critical mineral investments over four years. Extraction, processing and recycling processes will all be eligible with financing through Germany’s state-owned KfW development bank.

The fund is to be coordinated with similar initiatives in France and Italy:

• in 2023, France announced a US$547 million fund to for the creation of a national investment fund for critical minerals and metals
• Italy plans a US$2.2 billion fund to secure supply chains, with particular focus on critical minerals

Germany’s plan is — as yet — unannounced, but highlights the government’s willingness to back up it’s pledges with financial support.

However, we warn that Germany is already struggling to meet it’s major climate and energy spending pledges after a court ruled unused Covid pandemic funds of US$65 billion could not be repurposed.

Judging by KfW development bank’s critical mineral investment history, much of the investment will be directed to international projects. But, it is not yet clear when this money will be available to spend. And every year that passes means further delays to available supply — especially as it can take up to 15 years to develop a new mine.

International partnerships

Recognizing Germany’s heavy reliance on international critical mineral imports, the government aims to enhance supply chain diversity by moving away from single-supplier countries and partnering with countries with established or developing mining industries.

Recent official trips abroad and agreements include:

• Chancellor Olaf Scholz toured South America, including Argentina and Chile, in early 2023, to lobby for the prioritizing cooperation with Germany in its commodities exports
• Germany announced, in 2023, support to help countries that are rich in critical minerals, such as Chile, Indonesia and Namibia ,to build their own processing infrastructure to cut dependency on China
• Parliamentary State Secretary at the Federal Ministry for Economic Affairs and Climate Action visited Mongolia in 2023 to hold talks on economic and raw materials policies.
• Germany and Nigeria signed an MoU on solid minerals development in 2023
• Japan hosted Chancellor Scholz for first joint cabinet meeting in Tokyo and agreed to deepen cooperation in raw material trade
• Australia and Germany signed a joint Declaration of Intent to work together to develop critical minerals value chains in 2023
• German Chancellor Olaf Scholz visited Senegal, Niger and South Africa in 2022 to expand trading partnerships

US and the Inflation Reduction Act

Germany/EU and the US are also working towards a trade deal over critical minerals, to allow Germany/EU to qualify for tax credits under the Inflation Reduction Act (similar to Mexico and Canada).

“I can imagine that there will be agreements in certain sectors that have the same effect as equal treatment… If it is not a free trade agreement, but a regulatory framework where the same goods are valued equally in the same market, then what we actually need has been achieved”

— German Economy Minister Robert Habeck

The talks are part of a broader plan to create a “buyer’s club” for critical minerals by merging the EU’s Critical Raw Materials Act with America’s Minerals Security Partnership to coordinate, not duplicate, outreach efforts to buyers in developed countries and resource-rich nations to cooperate on projects and policies.

To ensure such a trade deal to work, Germany and the EU would need to provide some transparency that their critical minerals, electric batteries, wind turbines, etc are not being sourced from what the Inflation Reduction Act terms a “foreign entity of concern.”

Such an agreement will be critical to stop German (and European) plans being undermined by cheap Chinese critical minerals and expensive US import tariffs.

However, with America’s upcoming election, we do not expect a swift resolution to these talks anytime this year, again acting as a delay on German plans.

Recycling

Germany already has an impressive recycling rate across numerous key base metals, including:

• steel: an estimated 90% of Germany’s annual 20 million tons of steel scrap used in steel production is recycled, corresponding to a deployment rate of 43%
• aluminium: recycling rates of aluminum are up to 95%, depending on the area of application

Germany recycles approximately 13.4% of it’s materials, and hopes to build on its proven success into critical minerals with the European Commission proposing to double these numbers.

However, similar to our warning in our analysis “Recycling critical minerals: more mining needed”, a report by Germany’s government warns:

“However, larger quantities of raw materials from the recycling of used vehicle components will only be available in a few years. As long as recycling cannot make a decisive contribution to securing raw materials, the requirements must mainly be provided by mining”

— Germany’s federal government’s raw materials strategy

Coal

There is one exception to Germany’s mining aversion: coal.

Germany was the world’s eight largest producer of coal in 2022, with output up by 4% from 126.3 million tonnes in 2021 to 132 million in 2022 — crucially, this rise follows a fall in production of 11.1% from 2016-2021.

The reason was the urgent need for energy after Russia shutdown much of it’s exports to Europe in 2022. And, to get at the coal Germany was prepared to destroy villages and dismantle wind farms.

In other words, when the situation demanded, Germany acted.

Conclusion

Germany’s first official strategy on China describes the relationship as:

“China is simultaneously a partner, competitor and systemic rival”

— Strategy on China of the Government of the Federal Republic of Germany

And, despite German investment in China reaching record highs in 2023, the major policy moves by Germany suggests the alarm bells are ringing over the vulnerability of critical mineral supply, including:

• new critical mineral partnerships between Germany, Europe and US
• series of international agreements and official trips to critical mineral suppliers abroad
• investment support for mine and supply chain development

However, policy and investment announcements are the easy part. 

Our experience suggests the German government and electric car companies are at least a decade behind in securing critical minerals.

Domestic mining will struggle to take off in Germany and across much of Europe. Instead, we expect supply to be outsourced to a more diverse range of international opportunities, through trade partnerships and investments in new mines, from South America to Australia.

Simultaneously, the need to comply with the US Inflation Reduction Act (to not include critical minerals from foreign entities of concern) will put significant pressure on Germany to act quickly if it wants access to US markets, tightening permitted supply faster.

However, any new investment will take years to develop new mines.

So, if Germany keeps to it’s ambitious net-zero targets, German demand looks set to exacerbate existing tensions in tight global supply as competition for critical minerals intensifies.