Bloomberg: Steelmakers urged to arm Germany’s military expansion

As Germany ramps up defence spending amid growing geopolitical tensions, the country’s leading arms manufacturers are sounding the alarm over a critical bottleneck—military-grade steel. According to a detailed report by Bloomberg, companies like Rheinmetall AG are calling on domestic steel producers to step up production to meet the surging demand for armoured vehicles and tanks, as Europe re-arms in the wake of Russia’s invasion of Ukraine and shifting US military commitments under former President Donald Trump.

Currently, German defence firms largely depend on Sweden’s SSAB AB for steel, exposing them to supply risks amid rising demand. So far, two German producers — Salzgitter AG and AG der Dillinger Hüttenwerke, the country’s oldest joint-stock company — have publicly committed to strengthening local supply chains. 

Dillinger, military-certified since 2021, supplies heavy plates crucial for defence, and is in talks with multiple European land vehicle manufacturers. Salzgitter, one of Europe’s largest steelmakers, plans to enter the defence sector soon, driven by increased German defence spending and US strategic shifts.

Thomas Möllmann, head of Salzgitter’s defence task force, emphasised that sourcing steel domestically is key to resilience and restoring the steelmakers’ systemic importance in Germany. While defence-related sales volumes remain small compared to the auto industry, profit margins are higher, making the sector attractive.

Rheinmetall reports its annual military-grade steel needs have doubled in two years and has begun purchasing from German suppliers, although it did not name specific companies. The firm is a major beneficiary of Europe’s rearmament push, with its stock price nearly tripling this year amid NATO’s call for increased European security responsibility.

Germany’s new coalition government has eased borrowing limits for defence, planning to increase military spending by about 15% to over €60 billion in 2025 and nearly €70 billion in 2026. This budget surge offers a much-needed boost to the steel industry, which has struggled to compete with cheaper Chinese imports.

Despite this, many German steelmakers remain cautious. The capital-intensive nature of steel production, lengthy military certification processes, and relatively low volumes deter new investments. Thyssenkrupp, Germany’s largest steelmaker, has no plans to reopen its closed heavy-plate plant, while smaller firms like Benteler, which already supplies the defence sector in small volumes, see defence as a marginal business.

Increasing domestic steel production also benefits intermediaries like Klöckner & Co, which recently acquired a steel processing firm to cut and prepare steel for military vehicles and vessels. However, many military steel processors are small, vulnerable to demand fluctuations, and rely on limited skilled personnel. Klöckner’s CEO, Felix Schmitz, suggests that larger companies must ensure that specialised know-how endures.

Hans Christoph Atzpodien, chairman of the Federation of German Security and Defence Industries, suggests Germany might need purchase guarantees to offset the high costs of heavy-plate production for some steelmakers. While the government acknowledges steel as a national security matter, it has yet to implement direct measures to boost military-grade steel production.

Atzpodien stressed the importance of aligning collective security interests with private economic motivations, saying, “Defence capability and security are collective goods. The state must consider how to manage this and ensure public and private interests align adequately.”

By Tamilla Hasanova