COMPANIES IN GERMANY
In November 2020, German magazine FAIReconomics, with the collaboration of Prof. Ingo Rollwagen from Hochschule Fresenius University, revealed their new study: “Between Covid-19 after-effects and the European Green Deal: Challenges for small and medium-sized aluminium processing companies in Germany”. The study, commissioned by FACE (the “Federation of Aluminium Consumers in Europe”), draws a clear portrait of the German SMEs’ struggles amidst political uncertainty and Covid-19 pandemic. In total, 580 companies from the downstream sector (including trade, building activity, lightweight construction, car manufacturing, and suppliers) were surveyed; the vast majority employing more than 200 employees. Interviews were carried out in May and June 2020, at a time when Germany pushed its entire economy in lockdown.
Despite the peculiarity of the context in which the study took place, the results of the policy paper are unequivocal: German companies are facing their strongest challenge since the financial crisis of 2008, and the entire aluminium industry altogether has significant competitiveness problems. Among their several findings and recommendations, the study stresses in particular the elimination of the EU import duty on raw material as an express and fair relief measure to support all the companies. And the idea has merits, as the study shows that German SMEs could save up to €100 million and act as an important, direly needed, economic stimulus.
ALUMINIUM MARKETS IN THE WORLD
The German Aluminium industry Overall, Germany is considered as one of the largest aluminium markets in the world. It is among the top five countries with the highest demand for aluminium, copper and zinc. In terms of primary aluminium consumption, Germany holds the third place worldwide behind China and the USA with a share of 3.6 percent. In the EU, Germany was the largest consumer of primary aluminium with 2.1 million tonnes. Regarding the geographical distribution of EU production, Germany (18%), France (17%), and Spain (17%) are the three countries with the largest share of production. In 2017, they produced about 60% of all primary aluminium in the EU (46% in 2008). However, these three countries combined only accounts for 2% of the global primary aluminium production. Germany is a net importer of raw aluminium, as it lacks natural resources and because the EU production alone is insufficient to fulfil the country’s appetite for raw materials. In Germany, the aluminium industry directly employed 65,000 people in 2019. The same year, the aluminium industry generated a turnover of €21 billion (€17 billion in 2005). More than two-thirds of this turnover was generated by raw aluminium and semi-finished aluminium product producers. Foreign exports contribute significantly to the German aluminium, accounting for more than 40% of sales. Rolling, extrusion and casting account for about 90% of the German production of semi-finished aluminium products. The three main areas of application for aluminium are: 1) the automotive construction sector (48%); 2) the construction industry (15 %); 3) the packaging industry (10%)1.
Recycling activities are widespread in Germany, even though Germany and the EU still export massively aluminium scrap. It is estimated that secondary aluminium (i.e. recycled metal) makes up about 59% of the total feedstock used in Germany (and 41% for copper and 44% of crude steel).Germany has among the highest aluminium recycling rates in the world: over 80%. And this figure spikes up even more if we consider the recycling rate of beverage cans alone: 96%. However, despite being one of the largest markets in the world for aluminium, Germany has seen some decline in its primary production over the last years. This trend is not confined to German alone, as the global EU primary production has shrunk by 30% since 2008. In addition, some primary aluminium producing countries such as Italy (Alcoa smelting plants in Fusina and Portovesme, 2013-2014), the UK (Rio Tinto Lynemouth smelting plant in Northumberland, 2012) and the Netherlands (Klesch smelting plant in Vlissingen, 2011) have largely restricted or stopped production in recent years due to rising energy costs and strict environmental regulations as well as falling aluminium prices and lower demand from major customers, especially from the automotive and construction sectors.
THE EUROPEAN GREEN DEAL: GREAT IDEA, BAD TIMING
When the European Green Deal was officially presented on December 11, 2019, no one could foresee the economic crisis that followed only weeks later, taking the shape of an international pandemic. In essence, the European Green Deal aims to eliminate net greenhouse gas emissions by 2050 and to decouple economic growth from natural resources. These ambitious goals are meant to be achieved by 2050, and all companies accross Europe must change profoundly their business model and environmental performances accordingly. However, aluminium producing and processing companies were already living with the disadvantages of high European environmental standards. And the fear that intra-European CO2 pricing could cause energy-intensive companies in the non-ferrous industry to relocate to Brazil or China (i.e. to countries where environmental regulations are more liberal and less stringent) has become more vivid than ever. In Germany and Europe, well-paid industrial jobs have been already lost to this phenomenon.
With the many shortcomings of the regulatory environment, high energy costs, the further shaping of the European Green Deal which inherently implies a twin transition (digital and green) and the switch to a circular business model, many SMEs made poor figures in May 2020 – which can also be explained greatly by the economic distortions induced by COVID-19. Due to the pandemic, many companies in the aluminium processing industry are working with heavy restrictions: lockdown, faltering supply chain, deep economic recession… Although the Green Deal has been praised positively across Europe and abroad, it remains a source of challenge to SMEs which were already struggling with fierce international competition, economic distortion due to import tariffs, delocalization, CO2 pricing and other EU environmental regulations. And Covid-19 has now added another layer to their problems.