Germany’s Defense Firms Need Steelmakers to Help Fuel the Boom | Company Business News-OxBig News Network

(Bloomberg) — German defense manufacturers including Rheinmetall AG are urging domestic steelmakers to ramp up production of military-grade metal, to secure their long-term ability to make armored trucks and tanks.

Their call comes as European nations including Germany boost defense spending in response to Russia’s war in Ukraine and President Donald Trump’s plan to scale back the US military’s involvement in the region. German defense firms currently rely primarily on Swedish steelmaker SSAB AB for their supply, exposing them to the risk of a shortfall as demand intensifies.

So far two producers — Salzgitter AG and Germany’s oldest joint-stock company AG der Dillinger Hüttenwerke — are publicly heeding the call to strengthen the domestic supply chain. Others remain hesitant, underscoring how difficult it is to quickly re-tune in such a capital-intensive industry.

Dillinger, founded with the permission of Napoleon Bonaparte over 200 years ago, has been military-certified since 2021. Though smaller than the likes of ArcelorMittal SA and Thyssenkrupp AG, its heavy-plate production gives it a key role in the defense industry from its base near Germany’s border with France.

The company told Bloomberg it’s in contact with “all well-known manufacturers of land vehicles in Germany and Europe” about supplying its steel.

Salzgitter is yet to deliver to the defense sector despite being one of Europe’s biggest steelmakers. But that is about to change, following Trump’s warnings about limiting US involvement in the region and the German government’s move to overhaul fiscal rules to allow for more defense spending.

“When we talk about resilience, it makes no sense to source steel from abroad in this day and age,” Thomas Möllmann, head of Salzgitter’s new defense task force, said in an interview. Supplying defense firms will restore steelmakers’ status as “systemically relevant” players in Germany, he said.

Though volume is low compared to sales to the auto industry, the defense industry is promising higher profit margins. Salzgitter had originally applied for military certification to supply emergency response agencies, for example, but will now seek contracts with defense manufacturers. Deliveries would start after its application is approved, potentially in the coming weeks, Möllmann said.

The demand is not in question. Rheinmetall said it needs several thousand tons of military-grade steel annually — a number that’s doubled in two years — and that it has purchased its first tranches from domestic producers. It declined to name the German companies, though it welcomes the extra supply.

Rheinmetall is among the major beneficiaries of Europe’s push to re-arm itself, responding to US demands that NATO members take more responsibility for their own security. The company’s stock price has almost tripled this year, vaulting it into the euro area’s main benchmark index.

Germany’s new ruling coalition agreed in March to effectively abolish borrowing limits for defense-related expenditure, allowing military procurement deals of unprecedented scale. The draft defense budget is expected to show an increase of about 15% to more than €60 billion ($69 billion) in 2025 and almost €70 billion in 2026 when it’s presented in the coming weeks.

The spending boost offers a respite to a steel industry that has struggled for years to compete with Chinese producers.

Still, most domestic steelmakers are holding back, saying even with the surge in demand the volume is too low to justify investment costs and the long military certification process.

Thyssenkrupp, for example, said it has no plans to reopen the heavy-plate plant that Germany’s biggest steelmaker closed in 2021 for economic reasons.

Smaller steelmaker Benteler does supply the defense industry, though the volumes it delivers are low. The company has noticed an up-tick in demand but has no plans for a separate defense technology or armaments division, according to Ralph Mathis, chief strategy officer at its Benteler Steel/Tube unit.

“It will always be a marginal area for us,” he said in an interview.

More domestic production has a knock-on benefit for German steel intermediaries such as Düsseldorf-based processor Klöckner & Co, which in March acquired Ambo-Stahl to prepare and cut steel with lasers to make parts for tanks, armored vehicles and marine vessels.

Most military steel processors in Germany are relatively small, making them vulnerable to periods of slow demand. Skills are often confined to a few individuals, and Klöckner’s Chief Executive Officer Felix Schmitz said bigger firms like his should take responsibility for ensuring the know-how survives.

More steelmakers may enter the defense space over time, he said. “If there are bottlenecks due to high demand and military-grade steel becomes even more expensive, this may become more interesting for some producers,” he said.

Germany should consider purchasing guarantees because heavy-plate production is still too expensive for some steelmakers, said Hans Christoph Atzpodien, chairman of the Federation of German Security and Defense Industries. 

The government has said steel is a matter of national security, but has stopped short of measures to bolster domestic production for military use.

“Defense capability and security are collective goods. You can’t expect individuals to take care of this in their own private economic interests,” Atzpodien said. “The state has to think about how to do it, and especially how to get collective and private economic interests adequately aligned.”

–With assistance from Michael Nienaber.

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