Germany seeks to emulate Japan in shoring up critical minerals

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Germany’s industrial giants are pushing for a Japanese-style trading house to secure supplies of critical raw materials in a bid to bypass China’s stranglehold on rare earths.

Carmaker BMW is among those working with Germany’s automotive lobby and defence industry representatives on the concept, which could be supported financially by the German government, according to people familiar with the plans. Arms maker Rheinmetall is also involved, one of the people said.

The move is part of a long-term effort by Germany to emulate Japan in making joint purchases of critical minerals on behalf of industry to have “more power in the market”, said one of those involved in the plans.  

Japan, whose industry is heavily dependent on mineral and energy imports, reduced its reliance on China for rare earths through a centralised government agency that provides equity, loans and guarantees to trading houses and mining projects.

Tokyo expanded its efforts to protect its industrial supply chains after 2010, when China imposed an embargo on rare earth exports to Japan. 

The solution involved high levels of co-operation between the government-backed resource agency and the nation’s trading houses – centuries-old businesses that emerged to keep corporate Japan supplied with what it needs. 

The German initiative comes at a point of heightened political tensions between Europe and Beijing over the export of metals and minerals such as gallium, germanium and antimony that are essential for products ranging from batteries and magnets to electric vehicles and fighter jet engines.

China, which dominates global supply chains for many critical raw materials, last year showed its willingness to exert pressure on trade partners by imposing controls that limited overseas shipments.

In November, Beijing announced a temporary reprieve, suspending the controls on some sales until November 2026.

But European governments and manufacturers were left scarred by the experience, which underscored their heavy reliance on China and triggered a race to source alternative supplies. 

The German initiative is being carried by industry associations including the car lobby VDA and BSDV, which represents German defence companies. Machine tools lobby VDMA and ZVEI, a digital technology association, are also part of the talks.

One idea is to create a government agency inspired by the Japan Organisation for Metals and Energy Security (Jogmec), a one-stop shop that collaborates with the nation’s trading houses to ensure a stable supply of minerals as well as oil and natural gas for the world’s fifth-largest economy.

German companies could also fund a trading house, with the possibility of the federal government also taking a minority stake, although an agreement with officials had not yet been reached.

The cost of establishing the body is unclear, but one person familiar with the plans said that the total investment could amount to several hundred million euros.

The trading house would procure a portion of the supplies for critical raw materials demanded by industry, such as lithium used in the battery production, where domestic European production is currently very limited.

Some German industry players are advocating for collaborating directly with Japan, which has expressed interest in expanding its model abroad. “It’s better to pursue various tracks rather than just one,” said one of the people. 

German Chancellor Friedrich Merz discussed critical raw materials in a phone call this week with Japanese Prime Minister Sanae Takaichi.

Germany already has a raw materials agency, Dera, which monitors global supply chains and provides advice to companies. But the body needed to be reformed to meet industry needs, according to one of the people familiar with the plans. 

It would aim to complement a €1bn fund set up by the German development bank KfW to finance new projects for mining, processing and recycling critical raw materials.

The EU is also planning to create a centralised body to co-ordinate the purchasing and stockpiling of critical minerals.

But there is scepticism in Germany of the merits of that idea. 

“We in Germany are of the opinion that industry should make decisions by itself,” said one of the people. Governments and the European Commission should restrict themselves to buffer stockpiles.”

The VDA said it was in “regular exchange with relevant partners from industry and politics” about the supply of critical raw materials. 

Supply risks for business required “co-ordinated action”, while the Japanese system could serve “as a guide”, a spokesperson for BMW said without providing further details of the project. 

The BDSV, the VDMA and ZVEI declined to comment. Rheinmetall declined to comment.

The German economy ministry said that it welcomed private sector initiatives seeking to strengthen the resilience of supply chains for raw materials. It said it was too early to comment on possible government financial participation in the scheme because it did not yet have a concrete proposal.