Raw materials alliance

Several big-name German manufacturers – determined to keep their factories humming in the future – have agreed to bundle their market power in the "Alliance for Securing Raw Materials."

In the coming months, the alliance partners intend to launch an exploration company that will participate in drilling and mining ventures abroad.

The co-founders include German chemical companies BASF and Evonik as well as steel maker Thyssen-Krupp, in addition to some medium-size manufacturers - and, organizers say, they welcome more to join.

Ensuring a steady flow

"The alliance should grow and I'm convinced it will," said Ulrich Grillo, CEO of Grillo-Werke, a founding member, in an e-mail sent to Deutsche Welle.

Grillo is also chairman of the raw materials committee of the Federation German Industries (BDI), which is coordinating the alliance.

The companies are teaming to secure a steady flow of critical raw materials such as copper and iron ore and particularly so-called "rare earths" including gadolinium and lutetium.

Not only traditional smokestack industries, like steel makers, but also manufacturers dedicated to making future technologies will need certain materials to make technologies of the future. Metal, for instance, is needed to build wind turbines, just as lithium and copper are necessary for electric car batteries.

German industry's rising fear of a resource squeeze is being stoked by growing world demand for raw materials and the reluctance of a number of countries, particularly, to supply them. As their own industries produce - as is the case in China - they need more materials.

China means nearly 95 percent of the world's raw earths, which are essential to almost all modern industrial products, like iPods and plasma screens.

Through 2008, China supplied almost all of the global annual demand outside the country of 50,000 to 55,000 tons. But China cut export quotas to a little more than 30,000 tons last year and again this year and imposed steep export taxes, producing a shortage in the rest of the world.

Government interface

"We believe the alliance is very good idea," said Volker Steinbach, director of the German Mineral Resources Agency. "Exploration is an expensive undertaking and also involves high risk. The alliance members will share both."

The government-funded agency will work closely with the alliance and its planned company later, according to Steinbach. "Our mission is to provide information and advice to businesses," he told Deutsche Welle.

The agency interfaces with a number of other government agencies, including the Federal Institute for Geosciences and Natural Resources and the German Society for International Cooperation.

While the German government will steer no funds to the new raw materials exploration company, it will work closely with the venture in opening up doors.

In 2007, Berlin created a special task force to work with industry in an effort to help find ways for securing minerals critical to the country's powerful manufacturing sector. The economics, foreign policy and development ministries have been involved and will continue to play a role.

Modern industrial policy

Alliance chairman Grillo is keen to promote the venture as a private sector initiative with public sector backing.

"We have made it explicitly clear that we want no funding from the federal government but would certainly welcome its support of the alliance's work," he said in the e-mail.

Chancellor Angela Merkel appears more than willing to travel around the world to help secure a reliable supply of natural resources, as her recent trips to Mongolia, Angola and Nigeria suggest. She hopes to reach a raw materials agreement with Kazakhstan by the end of the year.

Indeed, such an alliance between politicians and corporations, once shunned, now appears to be modern industrial policy.

BDI commissioned the Boston Consulting Group to develop a concept for a raw materials exploration business. Each of the companies will participate as a shareholder and provide funding to the venture. In return, they will hold the first right of refusal.

"Numerous countries have approached us," Grillo said. "In many countries, German companies enjoy a high standing because of their technical know-how and long-term commitment."

Author: John Blau
Editor: Cyrus Farivar