International supply of raw material
In 2014, the prices of almost all raw materials fell. Both energy raw materials, such as gas, coal and in particular crude oil, as well as industrial metals and other mineral raw materials became cheaper on a wide front. The HWWI raw material price index documents this development in striking fashion: after falling in 2013, prices fell a further 7 percent in 2014. Crude oil bears the main responsibility for the fall in prices. The index charts a drop of almost 7.5 percent. Industrial raw materials also underwent a significant loss of 5 percent in the same period.
The price falls are admittedly somewhat cushioned by the depreciation of the euro but there is a discernible lightening of the automotive supply chain load. Admittedly, the current price level is a snapshot. There have been similar low-priced phases in the past and a subsequent ramping-up in all relevant industrial segments. A purely demand-driven inflation rate was exacerbated in 2014 by the failure of investment in mines, smelters and semi-manufactured goods plants to materialize. Worldwide capacity was scarcely any greater as compared with the last record price in 2007 and 2008. Taking the example of aluminum rolled products, a product could soon gain considerable price momentum. Especially if globally significant volume models increase the aluminum content, bottlenecks will be unavoidable.
Against this backdrop it is important also to take a close look at European commodities and raw materials companies. Low prices, on the one hand, and rising energy costs, on the other, are increasingly challenging the business model. This poses a threat to the supply chain, especially in the early stages. The demands of the automotive industry as regards lightweight construction are considerable. In this context, geographical proximity and historically established tie-ins between steel, aluminum and other industries and the automotive supply chain are advantageous.
Conflict minerals: European regulation needs sound instinct
In 2014, the European Commission submitted draft regulations on how to deal with conflict minerals. After the USA, that marked the engagement of the second-largest economic area with the issue of transparency and sustainability in the raw material supply chain. As defined by the USA and the EU, tantalum, tungsten, tin and gold rate as conflict minerals. These raw materials are used in almost all industries. The idea behind the regulations is to stop the financing of armed conflicts through mining activities in the conflict regions. Whereas the US regulations opted for a mandatory approach spanning the entire process chain from the mine to the end product, the European Commission proposed a different path. In its draft regulations, it recommended starting with the European importers of metals and ores and with European smelters. These companies could have themselves voluntarily certified to document that their raw material input is not implicated with conflict.
From the automotive industry’s perspective, this is the correct route. The European Commission has recognized that a comprehensive reporting requirement throughout the supply chain can place an excessive burden on small and medium-sized enterprises in particular. Experience has also shown that the US regulations would not improve the situation in the Democratic Republic of Congo. The US approach would instead have resulted in an avoidance strategy – with dramatic consequences for mineworkers in the eastern provinces. Since the outset, German industry has advocated an approach that is effective on the ground. The companies of the German automotive industry want to contribute to a sensible solution for people in the Congo. A reporting requirement throughout the very complex automotive industry supply chain is however not sensible, and difficult to implement.