China throttles magnesium production: danger for supply chains all over the world - especially car manufacturers affected

In its electricity crisis, China cut back the energy-intensive production of magnesium.

Now there is a global shortage of this important raw material for the aluminum industry - especially in Europe.

Beijing / Munich - China's electricity crisis is drawing ever wider circles. Now, in the wake of this crisis, the world is suddenly losing the non-ferrous metal magnesium. The reason: two Chinese provinces stopped or reduced production until the end of the year. You have to meet Beijing's energy saving targets for this year, and you have been far from it. The production of magnesium is very energy-intensive; With one stop, you can therefore save a lot of electricity. The problem is that the two provinces of Shaanxi and Shanxi produce the vast majority of Chinese magnesium. And China * has an almost complete monopoly with a share of 87 percent of global magnesium production. 

Magnesium is an essential raw material in the aluminum industry.

As a so-called alloying agent, it increases the strength of aluminum.

Around 45 percent of all Chinese exports are destined for Europe.

China meets 95 percent of Europe's magnesium needs.

So the EU * has been hit particularly hard.

The USA still has its own producer, US Magnesium.

The scarcity of the substance is now putting a strain on the supply chains of many industries, including the auto industry, which is already suffering from the global chip shortage.

China's magnesium stop is preoccupying the EU

But the situation is beginning to move.

The EU Commission has been negotiating solutions with China since Friday.

According to the US news portal

, EU officials said that they had contacted their Chinese counterparts and that they had only received a few guarantees from Beijing.

According to this, Chancellor Angela Merkel * and Czech Prime Minister Andrej Babiš - as heads of government of auto states - also addressed the topic at the EU summit last week.

Babiš said that the auto industry was facing a “catastrophe”.

According to a report by the local business

,

magnesium production in China is currently increasing

again slightly.

Nevertheless, it will take time for the supply chains for the substance to relax again.

But how did it come to that?

Magnesium production in China is so concentrated that a single region could trigger the crisis.

Much of the metal comes from a single town called Fugu in Yulin County, Shaanxi Province.

In late September, Yulin's local government ordered the closure of 35 of its 50 magnesium smelters by the end of the year.

She asked the rest to cut production by 50 percent.

There are also similar requirements in smaller production sites in neighboring Shanxi Province.

China: Magnesium production needs too much electricity during the electricity crisis

You have to know that the production of many non-ferrous metals primarily requires electricity - and less fuel. The production of one ton of magnesium consumes 35-40 megawatt hours (MWh) of electricity. For one ton of primary aluminum, it is between 15 and 20 MWh per ton. Other metals such as copper, zinc or lead need far less electricity. 

In addition to magnesium production, aluminum smelters were therefore also requested to reduce their production, for example in the provinces of Yunnan, Guangxi and Xinjiang *. More than two million tons of active aluminum capacity have been affected since September, writes analyst Yao Wenyu from the ING bank. Yao sees this in direct connection with the climate goals of the government - especially since, according to her study, the emission of greenhouse gases per ton of aluminum is significantly higher than that of all other metals.

In the case of magnesium, the problem is that it cannot be stored for long: it begins to oxidize after three months.

The current magnesium reserves in Germany and Europe will be exhausted by the end of November 2021 at the latest, expects the Metalworkers Association (WV).

"The situation is difficult to assess," says VW Metalle managing director Franziska Erdle to Merkur.de *.

"Because the companies don't know whether the deliveries that are still guaranteed and that are supposed to be on the ship route to Europe will actually arrive."

Auto industry hit particularly hard

The supply bottlenecks endanger the entire global aluminum value chain - industries such as automotive, construction, packaging and mechanical engineering.

Apart from aluminum, magnesium is also used in iron and steel production and in die casting. 

The auto industry is particularly hard hit. The British

quoted

an analyst at Barclays Bank, Amos Fletcher

, as saying that 35 percent of the demand for magnesium is for sheet metal

. In the case of aluminum sheets, there is no substitute for the material: "If the magnesium supply dries up, the entire automotive industry may be forced to stop." In addition to sheet metal, aluminum alloys with magnesium are also used in gears, steering columns, seat frames and fuel caps.

The many raw material shortages and the chip crisis are already making themselves felt.

"The car market was more than gloomy in October with 178,700 new car registrations, 34.9 percent less than in the same month last year," said the Central Association of the German Motor Vehicle Industry (ZDK) this week.

New car buyers in Germany have to wait longer and longer for their cars because of the many raw material shortages.

For a large part of the vehicles, the waiting time is now three to six months, the news agency dpa quoted Marcus Weller from the ZDK.

As a result, prices are rising, including for used cars.

Magnesium crisis: Associations call for negotiations with China

The WV Metals and other associations - including the European car manufacturer association ACEA - therefore called on the German government in an open letter to "urgently initiate diplomatic talks with China." Magnesium has been on the EU's list of critical raw materials since 2017. According to WV Metalle, however, there have been no political-strategic considerations and measures to ensure the flow of deliveries so far. 

The associations should at least cautiously welcome the fact that Brussels is now talking to Beijing. The European Aluminum Association, to which many large corporations such as Norsk Hydro or Alcoa belong, had demanded that magnesium should be discussed by the EU Commission in the same forums as the semiconductor crisis. The current crisis is "a clear example of the risk the EU is taking by making its domestic economy dependent on Chinese imports," the association said in a position paper. 

In 2001, Europe had given up the last domestic magnesium production for cost reasons, as they could not keep up with cheap imports from China. Today WV Metals and European Aluminum refer to these imports as "dumping". “Magnesium is not a rare raw material. It occurs all over the world, ”says Erdle. "However, manufacturing in Europe is dependent on competitive framework conditions." These are not the case in Europe. According to the association, the "currently drastic rise in industrial electricity prices and the unpredictable development of energy costs" stand in the way of resettling energy-intensive production in the EU.

Now the prices for magnesium from China have risen dramatically, at least temporarily: According to some reports, the factory prices there had more than doubled over the course of the year and, according to

at the equivalent of a good 9,400 euros per ton at the end of September.

Since then, prices have fallen significantly again.

But the situation remains uncertain.

Ways out of the magnesium crisis

According to its own information, WV Metals does not have reliable information about other sources of supply for magnesium outside of China. So everyone has to come to terms with the situation in the short term. In the long term, however, the association calls for "Germany's industrial policy strategy for secure access to industrial metals." Together with the EU, "medium and long-term effective measures to maintain functioning and sustainable value chains must be taken." European Aluminum called for more direct measures to defend against unfairly subsidized imports from China.

Meanwhile, the metal association Eurometaux is demanding that it be checked whether domestic magnesium production could not be revived in the long term.

A stronger focus on recycled aluminum also appears to be a way out.

According to the

,

manufacturers in the USA are

increasingly scouring aluminum scrap for magnesium that can be extracted.

In Germany, more recycled aluminum is already being produced than primary aluminum.

But for now, everyone can only hope that Shaanxi and Shanxi will restart magnesium production.