German economy’s reliance on copper, lithium and rare earths calls for resilient value chains

Study by IW Consult and Fraunhofer ISI on behalf of KfW Research shows:

• Around 30% of value added in the manufacturing sector in Germany rests on the manufacture of copper-containing goods.

• Nearly one third of Germany’s imports of lithium-containing goods is classified as at-risk.

• Technological progress and a good environment for private investment are cross-cutting measures that contribute to future-proofing the country’s raw materials supply.

Germany’s supply of mineral raw materials needs to be put on a future-proof basis with a view to both technologies of the future and traditional economic sectors. Some of the important sectors in particular rely very heavily on individual minerals classified as critical. This is the finding of a study commissioned by KfW Research from IW Consult & Fraunhofer ISI. The study explored Germany’s reliance on raw materials for value creation and employment and focused on three minerals that each have crucial relevance for digital and climate technologies: copper, lithium and the group of rare earths. It also analysed the risks to imports of raw materials and raw material-containing goods. The study made the following key findings:

• For Germany as a whole, 30% of gross value added in manufacturing involves the production of goods containing copper, 10% goods containing lithium and 22% goods containing rare earths. The sectors of motor vehicles and vehicle parts as well as electrical equipment, electronic and optical products are heavily reliant on minerals.
• Almost one third of Germany’s lithium-containing imports as well as 19% of those containing copper and rare earths are classified as at-risk. There are different levels of vulnerability for minerals, inputs and final products along the value chain.
• The risks from globally concentrated production and refinery in the early processing stages deserve particular mention. For copper, China’s share in further processing is nearly 40%. For lithium and rare earths, the three largest suppliers hold a combined market share of more than 80%. Despite sufficiently diversified copper production, individual suppliers play a greater role for Germany’s imports of minerals, for example Russia for copper metals. Germany imports 72% of its lithium carbonate directly from Chile. It is and will probably remain heavily dependent on China for rare earths imports for the foreseeable future, including for 84% of rare earth metals.

Particularly in light of political and climate risks, it is important to focus on the resilience of raw material supply chains beyond the first processing stages.

“Securing our supply of raw materials requires us to take into account the entire value chain from extraction to the imported input. Making the supply of raw materials resilient incurs an initial cost, but ultimately it is a prerequisite for shaping the green and digital transformation”,

said Dr Fritzi Köhler-Geib, Chief Economist of KfW.

“Supporting technical progress, for example to enable raw materials to be used more efficiently or substituted by also developing alternative processes, is a key cross-cutting measure that has relevance for all raw materials.”

The study gives an overview of the whole value chain relying on raw materials in Germany, thus providing an opportunity to enhance the country’s responsiveness to potential short-term supply shocks in the provision of copper, lithium and rare earths and prevent long-term supply shortages in view of the expected additional requirements in the context of the dual transformation.

The accompanying Focus on Economics by KfW Research can be found here