Sunday, October 24, 2021

China: energy savings decree cause magnesium shortage in Germany

 As previously reported, China's Dual Control of Energy Consumption decree forces magnesium producing facilities to phase down their activity, leading to a shortage of magnesium in the world. A severe blow for germany automotive industrie who depend heavily on this chemical element, writes german newspaper WELT:

On a Monday in mid-September in Yulin County, Fugu County, People's Republic of China, the county's "Development and Reform Commission" sent out a decree. Subject: "Double control of energy consumption."

In Germany, this inconspicuous arrangement by a distant authority triggers a nervous, almost panic-like reaction. The reason: the decree temporarily prevents magnesium deliveries to the Federal Republic.

The Federal Ministry of Economics and the Foreign Office in Berlin are now dealing with the events in the Chinese province. Because the Yulin Decree threatens the supply of raw materials to the entire metal industry at a particularly sensitive weak point. There is a threat of a production stop in large German plants before Christmas.

Magnesium is known to most people mainly as an antispasmodic dietary supplement. In light metal construction, however, the silvery white element is also indispensable: Magnesium is as important for aluminum manufacturers as yeast is for the baker.

The proportion of magnesium in the aluminum alloy determines the strength of the material: the extremely light but stable alloys are used to build bodies for cars and airplanes.

Magnesium is one of the ten most common elements in the earth's crust. But the communist People's Republic of China has a monopoly on magnesium. And that is now becoming a problem.

Since the last magnesium production in Europe was closed in 2001 for cost reasons, China has dominated 87 percent of global capacities. The European metal industry is highly dependent: 95 percent of the magnesium consumed in Europe comes from the People's Republic. So far.

Because now the decree on the “double control of energy consumption” puts an end to raw material deliveries. Yulin and other industrialized districts must drastically reduce their energy consumption in the short term, ordered the state planning authority. This means the strictest restrictions for the magnesium companies, which burn the element from the local carbonate rock dolomite with a particularly cheap but energy-intensive process.

By decree, 23 production sites in Fugu, the center of the magnesium industry, were forced to immediately reduce their production volume by up to 60 percent. Nine other factories in Shenmu County had to cut their output at least in half. The production restrictions were initially ordered until the end of the year.

The consequences can now be felt worldwide: the price of a ton of magnesium has increased fivefold since the beginning of the year from 2000 to more than 10,000 US dollars. The specialist service "Argusmedia" reports that traders in the most important European import port, Rotterdam, can no longer get any goods even at prices of over 12,000 dollars per ton.

At a hastily convened crisis discussion held by the Metalworkers' Association (WVM) on October 1, there was a mood of alarm among the leading representatives of the German aluminum industry. The industry, with more than 250 companies, around 62,000 employees and almost 18 billion euros in sales, cannot produce without magnesium. Because the metal can only be stored for around three months due to the rapid oxidation, there are hardly any reserves.

Some companies were uncertain as to whether recently ordered shipments from China were still being loaded. "Some fear that they will not be able to hold out until Christmas if the deliveries do not come," reported one participant at the meeting.

The metal industry is now calling for political help with a fire letter to the Foreign Office in Berlin. "It is expected that the current magnesium reserves in Germany, or in the whole of Europe, will be exhausted by the end of November 2021," says the letter from the trade association to Miguel Berger, State Secretary in the Foreign Office, which WELT AM SONNTAG has received. "There is a threat of a Europe-wide production stop."

The most important alloy metal for aluminum is indispensable: "In the event of a supply bottleneck of this magnitude, there is a risk of massive production downtimes in the entire aluminum value chain with sectors such as the automobile, aircraft, electric bicycle, construction or packaging industry as well as mechanical engineering." Steel production could be affected.

"We therefore urgently ask you to initiate diplomatic talks with China in order to be able to guarantee the continuation of production in Germany."

The buyers in the automotive industry are watching the situation closely. The industry was hit hard by the lack of supplies of computer chips, so-called semiconductors. Market observers therefore expect that ten to eleven million vehicles will not be able to be built worldwide this year. Practically all major manufacturers are affected.

In Germany, Volkswagen, Daimler and BMW have sent tens of thousands of employees on short-time work. In the largest car factory in Europe, the Volkswagen plant in Wolfsburg, the production lines will stand still until mid-October, at Opel in Eisenach there will be no work until next year. According to the German Association of the Automotive Industry (VDA), domestic production figures fell by 44 percent in September compared to the previous year. Now, parallel to the semiconductor crisis, the next bottleneck is imminent.

A lot of aluminum is used, especially in premium cars, so that the body does not become too heavy. Companies like Audi, BMW and Mercedes-Benz therefore need enormous amounts of the metal. Your problem: You cannot store the aluminum indefinitely, because over time the material becomes less malleable. Magnesium makes the metal alloy flexible.

In the short term, however, the stocks are sufficient, according to Audi. There is still hope: "We do not expect China to cut off the electricity supply for magnesium production for a long time."

It is uncertain whether hope will hold up. Because energy remains extremely scarce in the People's Republic for the time being. This is due to the lack of coal deliveries from Australia, with whose government they are in a clinch on foreign policy. In addition, the persistent drought on the Tibetan plateau is causing the rivers to dry up, so that even hydropower supplies little electricity.

For months now, Beijing has been trying to prevent social unrest, which threatens to break out in the event of increasing “blackouts” in the electricity supply. That is why more and more industrial areas and regions are being forced to "brownouts" - planned, temporary power cuts.

In addition to the lack of energy, there are environmental and climate protection needs. President Xi Jinping wants to make the country with the highest CO2 emissions in the world climate neutral by 2060. “The central government takes the air pollution targets seriously,” says Markus Taube, who holds the chair for East Asian Economics with a focus on China at the University of Duisburg-Essen: “The Communist Party has understood that it will gamble away its legitimacy if it does not manage it gets. "

The result: "All production companies in the aluminum industry throughout Southwest China were instructed to reduce their production to 50 or even 30 percent."

The pressure on the energy-intensive magnesium and aluminum industry could therefore continue. During the corona pandemic, Europe realized how painful it can be in the field of medical protective masks to be completely dependent on China. Now the Metalworkers Association is calling on the federal government to draw appropriate lessons also for the dependence on raw materials.

"In the long term, Germany needs an industrial policy strategy for secure access to industrial metals," the metal association demands in its fire letter to the federal government.

The letter was also signed by the IG Metall trade union - out of concern for the employees: "If we do not counter this development, there is a risk of short-term production downtimes," said Jürgen Kerner, executive board member of IG Metall: "In the long term, jobs in Germany are in Danger."

See also:

"Europe’s magnesium shortage could shutter industrial operations within weeks, threatening thousands of businesses and millions of jobs in sectors from cars to packaging, associations warned."


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