Dr. Ingo Rollwagen prospect on the German aluminium market

Professor Rollwagen, you are co-author of the policy paper entitled “Between COVID-19 consequences and the European Green Deal – challenges for SMEs in the aluminium processing industries in Germany”. Now Europe is experiencing a second wave of the pandemic on the one hand, but also broad-based aid for the industries. How is this being received?

The aluminium-processing companies in Germany are actively threatened, as shown not least by our survey, which we conducted with FAIReconomics especially for this policy paper. Almost all the companies surveyed are pessimistic about the near future. This view has become even more pessimistic due to the new lockdown at the beginning of 2021. If we take a look at the registration figures in the German and European automotive industry, this is not very surprising. The year of the Covid 19 pandemic was the worst for the European car market since records began in 1990. Compared to the previous year, new registrations for passenger vehicles in 2020 fell by almost 24 percent to 9.42 million vehicles.

However, the economic consequences of the COVID-19 health crisis: supply chain gridlock/disruption, the worst recession since 1945 on the one hand, but also the challenges posed by the Green Deal and the sustainable digital and circular transformation of businesses due to the upcoming CO2 pricing on the other hand, are also the biggest challenges.

Even though I think it is right to put subsidies not only into the preservation but also into the green modernisation and digitalisation of companies, state action is often limited to too few time-honoured dimensions, too little in keeping with the times and too slow, too ineffective and not spot-on. We constantly hear that the subsidies promised by the federal government do not reach the companies. Many fall off the radar because of their scale, but also because of other structures. Many new needs and challenges – the new dimensions in the greener orientation are not taken into account.

Among these dimensions – is EU trade policy one of them?

Yes, we find that German policy has a – let’s say a one-dimensional view. Economic policy always looks at the steel industry. Yet, and this is something the public and politicians fail to realise, the aluminium-processing industry, especially small and medium-sized enterprises, has an important role to play as part of the climate change in the European Union. However, the import tariffs on aluminium in Germany and the European Union have led to increasing international competition from developing countries and limited bargaining power vis-à-vis their customers, significantly limiting the ability of downstream German aluminium processing producers to pass on import tariffs directly.

Where are the hurdles for the companies, can you be more specific?

Germany and Europe are heavily dependent on imports due to a lack of raw materials and with primary production that has declined sharply in recent years. Import duties lead to a cost disadvantage for German semi-finished product manufacturers compared to foreign, non-European competitors. The introduction of a tariff on raw aluminium, for example, has resulted in an increase in the annual production costs of downstream aluminium by about 100 million euros in Germany alone and about one billion euros in Europe.

This is a sum, as we have shown in our policy paper, that is being taken away from small and medium-sized enterprises in Germany through the virtual surcharge on aluminium produced in the EU28. However, the companies need these funds to master the digital-sustainable transformation and to reimburse the associated costs. Per tonne of aluminium, the virtual surcharge paid by companies – due to the fact that EU primary aluminium producers also pay for aluminium produced within EU28 – amounts to about 85 euros per tonne of aluminium purchased. These are funds that are lacking for small and medium-sized enterprises. There is a danger of a distortion of competitiveness here

A far-reaching assumption (strong argument), how do you prove it?

From the point of view of the WTO as well as UNCTAD and the OECD, the tariffs levied here are not systematic and their effects on all economic entities are not comprehensible. Studies to date indicate that these measures have not produced the desired effect since their introduction, but rather lead to distortions of competition, although more in-depth analyses are needed.

Furthermore, there are only a few producers of primary aluminium left in Europe. For these companies, too, it cannot be seen beyond doubt that the originally intended effect of the tariffs, namely the protection of jobs, has been accomplished. There are rather indications that jobs have been cut or relocated.

In other words, you see the tariffs not only as a trade barrier, but also as a brake on the recovery of companies in and after the pandemic?

Absolutely, and this has nothing to do with particular interests, but with the connection of aluminium, a material needed for green technologies, with the recovery of the economy. A relatively simple decision to relieve the suffering middle class is to immediately lift import duties on raw aluminium. This would lower the production costs of downstream companies and thus support their ability to regain or maintain their competitiveness in Europe and on international markets.

It makes no sense to transfer many billions into the German economy to help it survive and to maintain an economically nonsensical trade barrier on an urgently needed raw material that the aluminium processing industry helps to pay for instead of relieving it. Abolishing these tariffs would therefore be both economically and systematically logical.

You have proposed further measures in the policy paper that are sustainable?

Yes, in order to win the future, multidimensional thinking and a broader range of further measures are needed. These include, among other things, increased support for research and development, especially more support for research on metallic alloys. Furthermore, we see R&D and application acceleration – so that innovative products – around the developments of the aluminium industry (lightweight construction, etc.) can reach the market faster as essential, as well as bureaucracy reduction – to reduce costs and increase agility. Administrative burdens disproportionately burden small and medium-sized enterprises in their sustainably oriented transformation.

There is an urgent need to look beyond the borders of the European Union, for example, to take real protective and remedial action to ensure security of supply and protect German SMEs from dumping from countries such as India and China, which are flooding the markets with semi-fabricated products manufactured with high carbon content.

The recovery plan in response to the coronavirus-induced challenge must support long-term growth in domestic production, high-value manufacturing and low-carbon innovation. It must maintain a strategic advantage in aluminium to ensure security of supply for key sectors. And it must involve working with key trading partners to share best practices as they adapt to the new conditions.

Professor Dr Ingo Rollwagen, Dr Ingo Rollwagen holds a professorship in General Management at Fresenius University/AMD.

Ingo Rollwagen is an expert on innovation and future issues. He deals with design and management strategies as well as technology and innovation management in and for the knowledge and creative industries. Structural change in the economy and society, the design and management of the future, innovations, projects and products, consumer generations and the derivation of business strategies – especially for design-based and knowledge-intensive companies – are the focus of his research and teaching.

Before being appointed and working as a professor, Ingo Rollwagen worked for 11 years at Deutsche Bank Research, the think tank of Deutsche Bank. In this capacity, he worked with other experts on scenarios for the future of value creation (“Germany in 2020 – a country on an expedition”) in 2006, among other things, in which more sustainable, knowledge- and design-based value creation played a major role. Before that, he worked for several years in futurology at DaimlerChrysler AG (Society and Technology Research Group) in Berlin.

He studied journalism and communication sciences, political science and business administration at the Free University of Berlin. Doctorate (summa cum laude) at the Technical University of Berlin in sociology of technology on the topic of “Time and Innovation: On the Synchronisation of Business, Science and Politics in the Development of Virtual Reality Technologies.

Original article: https://aluminiumandalloys.com/ingo-rollwagen-2/