Europe is working hard to supply arms to Ukraine. This week the 27 are expected to approve funding for an additional two billion euros to deliver shells to it. But the industry will struggle to meet these future orders.
These two billion will be added to the envelope of 8 billion dedicated to the “European Peace Facility” created to finance military aid to Ukraine until 2027. One billion euros will allow the 27 who draw in their national stock to support Kiev to replenish it. A billion more to buy these famous 155 mm shells which Ukraine needs so much. Foreign and defense ministers are expected to validate the decision today and heads of state endorse it at their summit. The money is at hand, but it will not be enough to materialize orders because the needs of Ukraine greatly exceed the production capacities of all of Europe.
Ukraine now consumes 100,000 shells per month, its defense minister would like to receive 250,000 from Europe
However, the fifteen or so European producers can today supply only half of what Ukraine demands. A production that today covers the demand of the 27 and other importing countries ensuring the profitability of the sector. It would therefore be necessary to double the current capacities just to grant kyiv’s wishes. Apart from the two European heavyweights, the German number one Rheinmetall and the French number two Nexter, the rest of the production is very fragmented, in decline since the fall of the Berlin wall. French commissioner Thierry Breton is touring manufacturers to identify their ability to fulfill future orders.
The industry is also facing a shortage of explosives
Only Rheinmetall is autonomous with its integrated sector. The other European producers have gradually lost interest in this production. Romania, for example, closed its last powder factory in 2002. Manufacturers urgently obtain supplies from India or South Korea. Rebuilding a sector in Europe will take time. The Czech Explosia, one of the largest European producers of the components needed for the 155 millimeter shell, is already running at maximum capacity, he estimates that he will not be able to do better before 2026. Romania plans to resurrect its expertise. The French specialist Eurenco is in the process of relocating its production of large caliber powder to its Bergerac site in the south-west.
This race for raw materials is driving up the price of shells
Plus 20% compared to the year before the start of the war in Ukraine. Because the bill for these explosives has doubled. Inflation that is not about to subside. The more factories there are to manufacture shells, the more the demand for explosives will increase. Further price increases are therefore to be expected. A very favorable context for industrialists. They made record profits in 2022. That doesn’t stop them from asking for more public support. In Germany, the head of Rheinmetall demands aid equivalent to that granted to the American semiconductor manufacturer Intel to open a new factory in Lower Saxony. Arguing that defense is as strategic as microchips.
The last blocking point, and not the least, concerns the ordering process
In theory, the 27 wish to pool their purchases, as they did for the anti-covid vaccine, in order to better negotiate prices with manufacturers. In practice, there is still no consensus on this very sensitive point. Each wanting first to replenish the stocks of his own army before thinking collectively.