Eric Onstad
LONDON (Reuters) – Four decades ago, a rare earth metals processing plant on France’s Atlantic coast was one of the world’s largest, producing materials used to make color televisions, arc lamps and camera lenses. Its current owner Solvay (EBR:) is seeking to return the La Rochelle plant to its former glory after years of declining productivity as Europe seeks to boost production of minerals that support the green energy transition.
The plant’s 76-year history is a microcosm of the challenges Europe and the United States face as they try to stem the massive migration of rare earth processing plants to China that began about 25 years ago.
China has become the dominant producer of rare earths (a group of 17 minerals), producing them at lower prices than in the West, with government support and often ignoring environmental concerns in a sector that can create toxic waste.
In recent years, China has strengthened sustainability and closed polluting factories.
In the 1980s and 1990s, the output of the La Rochelle plant set the benchmark for world rare earth prices. It currently supplies 4,000 metric tons a year of separated rare earth oxides, a fraction of the 298,000 tons China produced last year. Moreover, Solvay’s modest products focus on the types of processed rare earths used for automotive catalysts and electronics, rather than those needed for permanent magnets used in electric vehicles (EVs) and wind power. Solvay says it will begin producing them by next year. “At Solvay we want to put rare earth elements for permanent magnets back on the European map,” said An Nyttens, President of Solvay’s Rare Earth Products Division. “This is not an easy task, it will be done step by step, since it is necessary to build a chain from mining to magnet production.” Ultimately, the 160-year-old chemical group aims to supply 20% to 30% of the need for dedicated rare earth elements for magnet production in Europe, but Nuyttens said achieving this target may not be possible until 2030, without giving an exact date.
Under new EU law that came into force in May, the bloc has set ambitious 2030 targets for domestic production of critical minerals needed for the transition to a green economy: 10% of annual needs are mined, 25% refined and 40% processed domestically countries by the end of this decade. Block focused on rare earth elements as one of the most important critical minerals due to their use in permanent magnets that power electric vehicle motors and wind power. Demand in the EU is forecast to increase sixfold in the decade to 2030 and sevenfold by 2050.
But the EU will struggle to meet most rare earth targets, according to production forecasts compiled by Reuters and interviews with more than a dozen industry executives, consultants, EU-funded officials, industry groups and investors.
The lack of targets in the Critical Commodities Act (CRMA) could impact the bloc’s achievement of net-zero carbon targets, while opening up the prospect of further dependence on China amid rising geopolitical tensions with the West, analysts say. China accounts for 98% of EU imports of rare earth permanent magnets.
EU Commission spokeswoman Johanna Bernsel said they could not confirm Reuters’ findings, but said the bloc would do everything it could to promote projects that would help achieve CRMA’s goals.
“Projects in Europe will benefit from a simplified permitting process, as well as coordinated support to access risk mitigation financing tools and connect with downstream users,” Bernsel said.
THE WINDOW CLOSES QUICKLY
Before permanent magnets can be produced, the rare earth element supply chain must go through three main steps: mining, element separation, and metal/alloy production (the latter two both fall under the recycling target). Reuters collected production forecasts from companies and compared them with demand forecasts in a report by two EU-funded organizations to assess how the bloc is doing compared to its targets.
According to a Reuters analysis, the EU will have only meager rare earth mining by 2030; Similarly, in the metals and alloys sector there is only one low-margin project.
However, the bloc is likely to achieve one goal in its most advanced area – separation, meeting 45% of its needs by 2030.
The final stage of the supply chain – the production of magnets from metals – is not covered by the new law’s targets because they are a finished product, but EU production is expected to meet only 22% of expected demand by 2030, according to Reuters analysis.
Obstacles to increasing EU rare earth production include public resistance to new mines, wary support for European industry that benefits from cheap Chinese imports, limited financing, uncertain demand as growth in electric vehicle sales slows, and low metal prices.
“The window between now and 2030 will close very quickly, given how long it will take to get some of these projects and processing plants off the ground,” said Ryan Castillo of Adamas Intelligence, a consultancy that specializes in critical minerals.
Failure to include magnets in CRMA targets is a “blind spot” and sets the stage for “false positive” results, he added.
An EU official did not comment directly on these criticisms, but noted that the CRMA includes a number of measures to increase recycling.
MINING ON ICE
The European continent has rich deposits of rare earth metals, but they are not currently mined. The situation is unlikely to change in the near future as some projects have stalled due to public opposition. The only likely output in the EU by 2030 would be recycling waste from Sweden’s LKAB iron ore mines, which would supply about 1% of EU demand for oxides needed for magnets, according to a Reuters analysis.
The Norra Karr project in southern Sweden, which could have met much of the region’s needs, has been stalled for 10 years while the government gets approval and has also drawn opposition from environmentalists who say it could pollute drinking water.
An executive with project owner Leading Edge Materials said a new mining lease application is being submitted for the upgraded project, but did not provide a timeline for when production would begin. The Swedish government did not immediately respond to a Reuters request for comment.
The company plans to apply to have the project declared strategic under the CRMA, which would theoretically make fast track approval possible within 27 months. Another rare earth project, Sokli in Finland, also claims to be a strategic project, but has yet to undergo an environmental impact assessment and obtain permits. “It is unrealistic to have it operational before 2030,” said Matti Hietanen, CEO of state-owned Finland Minerals Group, which owns the project. Non-EU member Norway could supply 10% of the bloc’s demand by 2031, according to private company Rare Earths Norway, which said this month it has Europe’s largest rare earth deposit. Falling rare earth prices are also dampening the prospects for new mining projects. “At current price levels, most mines are simply not profitable, so support from governments and car makers is needed,” said Daan De Jonge of consultancy Benchmark Mineral Intelligence in London. EU companies are also preparing to take advantage of the huge recycling potential to produce critical rare earth elements, but it will be time before there are enough old electric vehicles and wind turbines to recycle. SUPPLY CHAIN INTEGRATION Other industry executives shared Solvay’s uncertainty about ramping up production by 2030, with some telling Reuters they could not commit to starting or ramping up production by then. Part of the wariness stems from demand for electric vehicle cooling in recent months after rising sharply for several years as consumers wait for more affordable models to hit the market. Sales of electric vehicles in Europe fell 9% in May. Another challenge for Europe is competition from cheaper imports from China, which has a highly integrated rare earth supply chain involving state-owned companies from mining to finished magnets.
Some of Europe’s key rare earth companies have long had operations in China or formed joint ventures with firms there and are using this experience to develop their new EU operations. One of them is Neo Performance Materials. The company has a rare earth metals extraction plant in Estonia, as well as facilities in other countries, including China. The company is also building a permanent magnet plant in Estonia, which is due to begin production next year and increase annual capacity to 2,000 tons over the next two to three years, enough to power about 1.5 million electric vehicles.
Expansion will depend on customers supporting the goals of the Critical Commodities Act.
“If they are going to buy 40% of their recyclable material here, we will fully support that demand with production capacity in Europe,” said CEO Rahim Suleman. While competing with China is difficult, Neo estimates the company can produce magnets that cost about $50 more per vehicle than imported magnets from China. Analysts say permanent magnets in hybrid and electric motors cost more than $300 per vehicle, or up to half the cost of the motor.
GKN (LON:) Powder Metallurgy has launched small-scale production of permanent magnets at a plant in Germany and is preparing to build a larger commercial facility based on demand. Slovenia’s Magneti Ljubljana, founded in 1951, is seeking to expand production, but this depends on customers agreeing to buy products that are more expensive than Chinese imports to diversify its supply and, in some cases, improve sustainability. “I’ve been working at this plant since 1986, and in that time 27 plants in Europe have closed magnet production because of price,” said managing director Albert Erman.