High costs, supply shortages loom over EU defence industry’s renaissance

By Aneta Zachová | EURACTIV.com and EURACTIV.cz

29-11-2022

EU member states are massively investing in national defence industries in response to Russia's war in Ukraine. However, prices and availability of some critical materials are complicating further development. [EPA/MYKOLA TYS]

Languages: Slovak

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The rising cost of materials, energy, and dependence on imports from third countries could limit the European defence industry's renaissance, representatives of the sector warn.

"Most of the raw materials necessary for the production of military products are not mined or are minimally mined in EU countries today," Jiří Hynek, head of the Association for Weapons and Defence Industry of the Czech Republic, told EURACTIV.cz.

Hynek also pointed out that the EU imports crucial materials from third countries, particularly Asia and Africa.

"To name but a few products that are in short supply on the market today – all packaging materials, many chemicals but also the cellulose needed for producing gunpowder. There is a shortage of synthetic rubber, and its prices are astronomical," Hynek said.

"For example, the much-demanded ballistic resistant vests could not have been produced here if the material had not been imported from Asia, mainly China. Some manufacturers have moved production straight there," he warned, adding that he does not see any efforts to address the situation.

One of the European frontrunners in the defence sector – Italy – is experiencing painful high prices. While the country so far imported several materials, such as aluminium, platinum, palladium or rhodium, from Russia, it had to find alternative suppliers.

"Steel has gone from around €700 per tonne to €3,500, while aluminium has risen from €5 per kilo to €15," Paolo Può, president of Cantiere Navale Vittoria, which produces military, commercial and transport ships, recently told Corriere della Sera.

Può also admitted that the company is currently asking the Italian government for intervention, as most of the company's contracts are signed with the state.

Some European companies have already prepared themselves to protect their business from skyrocketing prices and potential shortages.

"With regard to raw materials, we are taking precautions and have purchased large stocks of aluminium and important plastics, for example. In addition, we have purchased semiconductors or electronic components, so we should have a few supply problems in the medium term," a spokesperson of Rheinmetall, Germany's largest weapons manufacturer, told EURACTIV.

"Overall, we have significantly increased working capital, i.e. the value of inventories and working capital, this year," the spokesperson added.

As EURACTIV learnt, scarcity of chips and semiconductors was hindering the production of armaments in France even before the war in Ukraine.

Greece is also experiencing a shortage, but more in terms of rare-earth elements. On the other hand, Bulgaria or Spain sees no issues in this regard.

Further details on shortages of materials in the European defence industry remain taboo due to strategic and security reasons.

However, if investments do not go hand-in-hand with the rise of critical materials production, Europe could face another dependence challenge – something it is currently experiencing in the energy sector.

Languages: Slovak

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