Decline in Rare-Earth Exports Rattles Germany

BERLIN — China’s curtailing of rare earth exports is causing so much concern in Germany that industry and government are joining forces by appealing to the European Commission and the World Trade Organization to intervene, industry officials said Tuesday.

China’s exports of rare earths declining by as much as 40 percent worldwide over the past ten months, according to the Federation of German Industry. That decline has set off alarm bells in Germany, one of the world’s largest export-driven economies and whose industry relies heavily on rare earths.

So great is the anxiety by the business community here that a special conference dedicated to the issue will be held next week in Berlin.

The speakers will include Pascal Lamy, director general of the World Trade Organization; Gary Litman, vice president for Europe and Euro-Asia at the U.S. Chamber of Commerce; Andris Piebalgs, the E.U’s development commissioner, and Rainer Brüderle, the German economics minister.

The conference will be attended by leading German companies that import rare earths for their production.

Mr. Brüderle, on a trip last week to China, called the country’s export restrictions on rare-earth metals an “unfriendly act.” Any shortage of metals such as tungsten and germanium would cause difficulties for sectors including wind turbine makers and car companies specializing in producing electric cars.

Germany imports between 3,000 and 5,000 tons a year of rare earths, mostly from China.

“China runs a virtual monopoly. There is real need to develop new sources,” said a B.D.I. official, who requested anonymity because he was not authorized to speak about the issue.

Chancellor Angela Merkel has stepped into the fray, saying it was “urgently necessary” to step up European investment in Eastern Europe and central Asia in order to prevent China from expanding its dominance in raw materials and rare minerals.

Mrs. Merkel last week told leaders of Germany’s Committee on Eastern European Economic Relations, a lobby group, that it was essential to deal with China’s increased control of access to commodities essential for economic growth.

“Considering the raw-materials policy of a country such as China, it’s urgently necessary to make capital available among European partners in order to secure long-term supplies,” Mrs. Merkel said. “That’s not only a reference to natural gas and oil but goes far beyond that to include minerals.”

Werner Schnappauf, chairman of the B.D.I., said the availability of rare earths was “decisive for the innovation and future of German industry and for jobs.”

An unusually hard-hitting strategy paper published last week by Mr. Schnappauf and Ulrich Grillo, chairman of Grillo Werke, criticized China's policies and the impact they would have, not only on the German economy but worldwide. Grillo Werke specializes in finished and semi-finished products made of zinc and zinc alloys and so relies on rare earth imports.

They wrote that reducing rare-earth exports would result in higher prices and would raise the question of energy and raw-materials security. The price of rare earths has increased threefold overall, according to industry sources here.

“It is not yet a trade war as such,” said an official from the B.D.I. “China is sending the message that if you want access to our raw materials then you better invest in our country.”

That is something German industry has been doing over the past several years, despite the continuing problems over intellectual property rights and the red tape.

Overall, German exports to China amounted to €36.5 billion, or $46.2 billion, last year, and imports totaled €55.5 billion, according to the German Federal Statistics Office. That was relatively unchanged from 2008, despite the economic crisis.

During the first four months of this year, German exports to China jumped nearly 50 percent over the same period in 2009, to €16.1 billion. That was spurred by China's stimulus package and the shift in economic development. By contrast, German exports to Russia were up around 25 percent, at €7.1 billion.