Facing a Battle for Armored Steel, This Tank Maker Bought the Factory

MÜLHEIM, Germany—Threatened with a shortage of the hardened steel used to make parts of its tanks, one arms company went on the offensive: It bought a 200-year-old steel foundry to ensure supply.

Now, the 1,500-degree-Celsius molten metal pouring out of a giant ladle here will be used to make parts for KNDS’s Leopard 2 tanks and other armored vehicles that are currently playing a starring role on Ukrainian battlefields.

The ability of defense companies to secure steady and timely supplies of ballistic, or armored, steel and other specialty metals is crucial to the West’s race to rearm in the face of geopolitical tensions with Russia and China.  

However, some arms-industry executives in the U.S. and Europe complain that a declining number of suppliers have led to long lead times and higher prices.

Securing specialty metals is one of several supply-chain challenges facing the sector, where shortages of chips, rocket engines and other components have hindered efforts to arm Ukraine and replenish supplies sent there.

Seeking to secure enough supplies of cast-steel parts to feed an increase in production, KNDS bought an 80% controlling stake in a German steel foundry earlier this year.

The Friedrich Wilhelms-Hütte foundry has been making steel since 1811, helping fuel Germany’s rapid industrialization and later providing metal for the country’s Panzer tanks in World War II. 

In recent years, though, the foundry has struggled amid the pandemic and weak demand, falling into insolvency in 2021 before being taken over by a group of investors.

“It was a serious risk that it would close down,” said Ralf Ketzel,

KNDS declined to disclose financial details of its investment in the foundry, of which it was already a customer. The company is also talking to producers of steel plate to diversify its supplies of that product, too.

The Mülheim foundry currently makes around 1,000 metric tons a year of ballistic steel and expects to double output by the end of next year. Its workforce is also set to grow from 200 to 400, said Lars Steinheider, the foundry’s managing director. It continues to supply other companies.

Ballistic steel is hardened by adding a mix of metal alloys and then treating it with high temperatures. One grade of steel produced by the foundry is around twice as strong as steel typically used in construction, Steinheider said.  

The extra toughness of ballistic steel can help guard against penetration and offer blast protection. For instance, just 6.5 millimeters of the most common grade of ballistic steel would typically stop a North Atlantic Treaty Organization standard rifle bullet.

But the number of companies that make this specialty material is in decline, even though military spending is expected to remain high.

For steelmakers, the relatively small volume of metal needed, combined with the extra expertise, regulations and costs involved, means ballistic steel can be less attractive than making metal for cars, even though the specialty product typically commands a higher price.

For example, Volkswagen, Europe’s largest carmaker, delivered around five million vehicles last year, while production at KNDS, the region’s biggest maker of armored vehicles, was in the hundreds.

One of Europe’s largest steelmakers, Germany’s Thyssenkrupp, closed a mill that made steel plate for the defense industry in 2021, saying it couldn’t see an “economically viable” future for it. Last year, the facility was bought by U.S.-based financial-services company, Hilco Global and is now being dismantled after being sold to a buyer in Turkey.

The U.K.’s defense ministry in 2021 nationalized the loss-making Sheffield Forgemasters, one of Britain’s only producers of military-grade steel, to secure the supply of components.

Britain’s steel industry has declined in recent decades, meaning the West’s second-biggest military spender after the U.S. is reliant, for example, on French imports of the metal to build its next generation of nuclear submarines, a program valued at almost $40 billion.

KNDS’s Ketzel said the biggest risk to ballistic steel supplies in Europe is if the wider regional steel industry falls away. Western steel production has shrunk for at least a decade under pressure from cheaper imports and amid more costly regulations related to reducing carbon emissions.  

In the U.S., steel-supply issues are a concern but aren’t as acute as those for some other inputs, such as missile engines, said Frank St. John, chief operating officer of Lockheed Martin.

“We had a situation where lead times went from months to years…and those lead times are still pretty far out there,” he said about ordering steel.

Smaller military suppliers say they are finding it particularly hard.

Wisconsin Ordnance Works has made components for tanks since the Vietnam War and, like other U.S. defense contractors, is required to buy U.S. steel.

Over the past five years, the number of ballistic-steel suppliers has shrunk some 15%, according to James Robinson, chief executive of the Oshkosh, Wis.-based company. The prices of some grades of steel increased by as much as 170% during the pandemic, he said, and remain some 20% to 40% higher than before Covid-19 hit.

Smaller customers are at the back of the line when it comes to securing steel, Mr. Robinson said.

Not all companies are scrambling for supplies. General Dynamics, which makes the Abrams M1 tank and other U.S. armored vehicles, reuses steel from older tanks and transporters to make new ones, reducing its need for new metal.

The German foundry bought by KNDS, created by the 2015 merger of Germany’s Krauss-Maffei Wegmann and France’s Nexter Systems, specializes in steel casts of vehicle and machine parts. 

Scrap steel is put into an electric-arc furnace where it is melted by charges of electricity. Around 12 metric tons of the metal is then placed into a refiner, which uses gases to extract impurities. Bubbling, sparking molten metal is then poured into ladles, which are carried by cranes to the molds where the parts are made. 

Large crates with parts for Boxer and Puma infantry fighting vehicles, Panzerhaubitze howitzers and Leopard tanks sit throughout the facility.

The components made at the Mülheim foundry are part of a broader, cross-border supply chain encompassing myriad parts—from gun barrels to tank tracks to electronics—that end up at KNDS factories such as Munich. 

There, these components are assembled on pristine factory floors into Leopards, Boxers and other vehicles. On a recent visit to the assembly plant, two men lowered an engine into a Leopard destined for Hungary, while a second crew put the wiring into a Boxer for Britain as KNDS works to fulfill a record order book.

“We now, of course, have a growing business,” said Steinheider, the steel foundry’s managing director.

Write to Alistair MacDonald at [email protected]