BMI View: Germany's coal sector is one of the largest in Europe and is the main driver of mining activity in the country. Coal output continues to grow courtesy of strong demand for lignite used in the majority of the nation's power plants, however, the industry finds itself increasingly under threat from the rapid development of renewable energy production as well as growing opposition to fossil fuel-based energy production across the EU. These factors are likely to see the relative value of German mining gradually decline over the long-term.
Germany's mining sector is heavily focused around coal mining, with the country currently the largest producer of lignite, or brown coal, in the EU and boasting the eight highest annual output in global terms. Located primarily in the Rhineland region in Western Germany, the lignite mining industry remains a major employer. The industry's lobbying efforts and its obvious important to local employment have so far helped coal miners to withstand pressure from regional government and environmental groups to scale down their activities. Indeed, our forecasts point to continued, albeit moderate growth in German coal production over the next few years through to 2019. We project annual growth in output to average 0.4% year-on-year over 2015-2019.
Growth in coal production will support a modest increase in Germany's mining industry value over the period, with the sector set to increase its value from USD4.34bn in 2015 to USD4.99bn in 2019. However, the longer-term outlook for mining in the country looks less and less assured as the development of Germany's renewable energy sector reduces the need for fossil fuels. 2014 saw renewable sources, including wind and solar power replace lignite as the largest since contributor to power generation in the country, while the share of thermal, or hard coal also declines on a y-o-y basis. We expect the divergence between 'clean' and fossil fuel-based energy production to increase as the German government steps up its Green agenda and is seen to tow the line with the EU's Emissions Trading Scheme (ETS). While assurances from Berlin that coal-fired power plants and mines are safe for the time being, the coal industry as a whole will be braced for a growing battle for its survival over the coming decade. To make matters worse, the steady increase in coal imports into Germany and other EU states over the past few years will inject increased price competition into the local coal market. US imports to Germany alone have doubled in the five years to 2013.
|Still Going Strong|
|Germany - Mining Industry Value 2013-2019 (USDbn)|
Beyond the coal sector, we expect Germany's iron ore sector to record modest growth in the next five years. Germany's iron ore production totalled 0.4mnt in 2012, accounting for a fraction of a percent of global output. We expect Germany's share of global iron ore output to decline over the coming years as our modest growth forecast is overshadowed by rapid growth elsewhere, mainly in Australia, Brazil and West Africa.
Aside from coal and iron ore, there is almost no mining activity in the rest of the country due to the high cost of labour, high power costs, relatively stringent regulation and the relative lack of significant mineral deposits. The majority of the country's mines which were operating in the 1990s closed due to weak metal prices.