Dr Martin Schneider & Dennis Behrouzi, VDZ, explain how the German cement industry is caught between geopolitical tensions and industrial transformation.
It was only a few months ago that people and companies in Germany found themselves to be quite optimistic about the near future. After the federal elections, a new government with high ambitions for the country was formed by the Social Democratic Party, the Greens and the Free Democratic Party. Beyond that, many restrictions in the context of the COVID19 pandemic were expected to end, enabling a new ‘normality’ in working and social life. As in many other countries, this optimism came to a harsh end in February with Russia’s invasion of Ukraine. The tragedy of this war, the human suffering, and the great sympathy for the Ukrainian people brought with it a new reality for everyone, including the German construction industry.
Rethinking supply chains
The situation in Ukraine has a historical dimension, not just because it has brought war back to Europe. It also forces whole countries and economic sectors to question traditional supply chains built up over the past decades. Products and goods usually imported from Ukraine, such as basic foods, are less available now due to the destruction of infrastructure and people leaving the country to seek shelter elsewhere. Furthermore, the sanctions by the European Union (EU) against the Russian government have had an impact on the import of specific goods such as coal and timber. There may be more restrictions in the future depending on the further course of Russia’s actions in Ukraine.
For instance, an embargo of Russian oil and natural gas is being discussed and could be expected soon. Germany is highly dependent on Russian energy imports, which amount to more than 50% of its natural gas requirements and more than a third of its crude oil requirements. It is clear that this dependency must be reduced as fast as possible, and the government has initiated the necessary actions.
How is the cement industry in Germany being affected by the current circumstances? The impact on the fuel energy mix seems to be – at first glance – limited. Almost 70% of the thermal energy need is met by locally available alternative fuels, such as waste tyres, fractions of industrial, commercial and municipal waste, or sewage sludge. Only 7% is covered by coal, corresponding to around 250 000 t. Cement producers using coal are directly affected by the coal embargo on physical deliveries to Germany, since coal has to be procured via other sources. This has a strong, direct impact on fuel costs. However, there is also an indirect impact on fuel costs for the industry as a whole, due to the effect on the availability of other fuels. Taking lignite as an example, supply contracts are often linked to the price of coal. On the other hand, a shortage is also expected due to a shift in demand in the electricity industry from coal to lignite. Similar indirect effects of the coal embargo can be seen on the market for alternative fuels.
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