CRITICAL MATERIALSGerman Auto Industry Alarmed Over Lack of Raw Materials

By Klaus Ulrich

Published 2 April 2022

Critical raw materials from Russia and Ukraine could become increasingly scarce as a result of the conflict. Car industry experts called on the EU to seek new markets and boost the domestic extraction of key metals.

Germany’s automotive sector already had a lot to cope with before Russia’s invasion of Ukraine.

First, there was the COVID-19 pandemic and a global semiconductor shortage. Later came rising oil, gas and coal prices, which have continued to skyrocket since the war began on February 24. Now a fresh threat looms of supply bottlenecks and price hikes for other key raw materials from Russia and Ukraine.

Volkswagen, Europe’s largest carmaker, told DW the issues have been “virulent” and “volatile” for some time and may take some time to play out.

One should not underestimate the threat of supply shortfalls for important raw materials for car manufacturers and their suppliers,” auto industry expert Stefan Bratzel from the Center of Automotive Management (CAM) told DW. “This ultimately leads to rising prices, even longer waiting times for new cars for customers and slows down the ramp-up of electromobility.”

Neon Gas from Ukraine for Semiconductor Production
Ukraine is one of the most important suppliers of neon, a noble gas needed for semiconductor production, the German Association of the Automotive Industry (VDA) told DW.

To make matters worse, chips have been in short supply worldwide for almost all industries for some time now.

These raw materials will become even more important in the future,” says a VDA spokeswoman. 

Palladium and Nickel from Russia for Emission Control and Batteries
Palladium, which is required for catalytic converters in gasoline engines, has been imported from Russia, along with nickel.

With a global market share of 38%, Russia is the second-most-important supplier after South Africa with 39%,” Michael Schmidt from the German Raw Materials Agency (DERA) told DW.

He noted that the price of palladium has risen sharply since 2015. In June 2021 it reached a temporary high of $2,900 (€2,622) per troy ounce (31.1 grams), then fell to around $1,800, but rose again after the outbreak of the Ukraine war. Earlier this week, it was around $2,270.

It was difficult to imagine how possible supply issues of palladium from Russia could be bridged by other producing countries, warned Schmidt. He said the palladium market “has been in deficit for years,” a situation that is unlikely to change.

Palladium’s use for emission control systems in cars with petrol engines is unlikely to abate, unlike platinum, which is required for diesel vehicles — whose popularity is waning.

Although shortages caused by sanctions against Russia can be compensated for by existing stocks, Schmidt said, “this cannot be done in the long term as production in South Africa cannot be increased at will.”