The run on Latin America's resources

Deutsche Welle, 15 April 2013

Once neglected, now courted: Latin America is becoming increasingly important as a supplier of raw materials for German industry. China, Canada and the US are competitors in the race for natural resources.

Copper and lithium from Chile, iron ore from Brazil and gold from Peru: German industry is increasingly turning to South America when it comes to raw materials, seeking to join forces with the emerging region.

Germany launched a charm offensive in January when Chancellor Angela Merkel attended the EU-Latin America summit in Santiago de Chile to promote a new partnership among equals. Until then, the chancellor had shown but mild interest in the region, and since taking office in 2005 had visited the continent but once. Just three months after the summit in Chile, Ecuadorian President Rafael Correa opened German Industry's 13th Latin America Conference in Berlin on Monday (15.04.2013.)

Funds for friends

Chile and Brazil are among the world's most important mining nations, and along with Canada, the US, Australia, South Africa, China and Russia, they produce 50 percent of the global raw materials.

"Apart from Chile and Brazil, Peru is certainly attractive at the moment, too - all are stable countries with a high potential in raw materials," said Peter Buchholz, head of the German Raw Materials Agency (DERA). Political stability is a key factor on the market in particular because some raw materials are concentrated in just a few countries.

 Merkel has taken a sudden interest
in Latin America

An end to the boom is not in sight, certainly not where metals are concerned: the continent has copper, lithium and iron deposits as well as large zinc and lead deposits - not to mention various industrial metal alloys such as manganese, chrome, nickel and molybdenum.

According to DERA, 25 percent of all global investment in the exploration of new crude metal deposits goes to Latin America. With 26 percent, only slightly more is invested in North America. "Only 15 percent of all global exploration expenditures go to Africa," said Buchholz. "The figures exemplify the huge significance Latin America has for the mining and exploration sector."

Brazil, China and the US are the three most important raw materials suppliers - at least according a survey conducted among German businesses by the Federation of German Industries (BDI) in November. Chile and Mexico were also ranked among the top 10.

Catching up

Germany, however, has some catching up to do in the run on mineral resources. "Germany depends on functioning international raw materials markets," said Buchholz says. Canada, Australia, the US and above all China are competitors.

China is the most important trade partner for Brazil, Chile and Ecuador - and invests heavily in mining. By comparison, major German mining companies withdrew from the area in the 1990s because of a slump in prices. Ten years ago, they began trying to regain lost territory.

Most of the mined iron ore is used to make steel

As a result of the sluggish commitment, many raw materials are but commercial products for German businesses, which also gives them little influence on pricing. According to the Hanover-based Federal Institute for Geosciences and Natural Resources (BGR), costs surged by 25 percent in 2011 compared to the previous years while the scale of annual imports remained relatively stable.

The BDI survey shows that 61 percent of German businesses would like to see more political support. A year ago, a group of major companies including ThyssenKrupp, Bayer, Bosch, VW and BMW launched a Resource Alliance that has already been successful. The German government boosted grants for resource projects this year while so-called resource partnerships between countries aim to bring together potential business partners and pave the way for procurement contracts with German companies.

Endangering the environment

NGOs take a skeptical view of the global run on mineral resources. Mining increasingly pollutes rivers, groundwater and the air, Pirmin Spiegel, managing director of Germany's Misereor Catholic aid organization, said on the occasion of the presentation of a study documenting mining conditions and supply chains in the commodities sector. The study was commissioned by Misereor, Germany's Protestant Church "Bread for the World" campaign and the Global Policy Forum.

The group urged far tighter controls of businesses regarding human rights and labor violations. "The German government and the EU should commit companies to disclose financial transactions and proof of origin for resources," said Cornelia Füllkrug-Weitzel, president of "Bread for the World." Human rights and environmental protection are essential pillars of sustainable raw materials policies, she argues - and adds that is what the German government should take into account when supporting foreign trade and negotiating resource partnerships.

Related Article:

EU deal to tackle mining corruption