Can Europe diversify its supply of critical raw materials?

With the EU's Critical Raw Materials' Act coming into force, the 27-nation bloc is looking to diversify its supplies of minerals away from China. But can it source enough of it at competitive prices?

AMG Lithium's refinery project is only a first step along the difficult path to make the EU more independent from China

In Bitterfeld-Wolfen they are used to chemical processing. But a lithium refinery is something entirely new to the eastern Germany town's industrial park that looks back to more than a century of chemical industry history. So new, it's the first of its kind in the whole of Europe.

As the European Union is scrambling to ensure enough supplies for its resource-hungry industries, AMG Lithium has set up shop in Bitterfeld-Wolfen with the aim of playing a crucial role in the EU plan.

The German subsidiary of US-based AMG Critical Materials N.V. wants to build a refinery plant for battery-grade lithium that it hopes will feed Europe's nascent battery industry without depending on Chinese supplies of the mineral.

AMG Lithium's CEO Stefan Scherer told DW the company will be able to cut out Chinese intermediaries from its lithium supply chain by 2028, and contributing to the EU's ambitious target of becoming self-reliant with regard to so-called critical raw materials. These include lithium, phosphorus and bauxite as well as so-called rare-earth minerals such as niobium, among 34 other elements.

CRMA to counter China's dominance

This Thursday (May 23), the 27-nation EU's first comprehensive minerals' strategy is comig into force. Called the Critical Raw Materials Act (CRMA), the regulation sets clear benchmarks for domestic capacities along the strategic raw material supply chain and to diversify EU supply by 2030.

Of the EU's annual consumption, at least 10% must be extracted domestically from within the bloc. At least 40% of the processing and 15% of the recycling capacities must be based in the EU. Overall "not more than 65% of each strategic raw material at any relevant stage of processing is to be sourced from a single third country."

"In order to geopolitically compete with other big players such as China and the US, it is quite important that the [CRMA ] regulation allows to coordinate the needs and demands of different member states," Melanie Müller, senior associate at the German Institute for International and Security Affairs (SWP), told DW.

At the moment, the EU's entire demand of rare-earth magnets, for example, is being met by Chinese exporters. China dominates global metals markets through mining itself, but especially by controlling the processing and refining of raw materials.

Meanwhile, the EU is regarding China's dominance as a threat to European supply chains and the continents green transition of various industries.

Unveiling the draft legislation in March 2023, EU Commission President Ursula von der Leyen said a reliable domestic raw materials base was "vital for manufacturing key technologies for our twin transition — like wind power generation, hydrogen storage or batteries."

A matter of time and money

In order to boost the EU's minerals mining output from currently 3% to the desired 10% by 2030, a number of new mining sites will have to be opened up.

But Alice Yu, an analyst with S&P Global Commodity Insights, told DW that it takes "on average, 17 years to develop a lithium mine from initially being discovered to go into production."

Stefan Scherer estimates the new plant will to cost about €140 million — €5 million are a grant from the regional government

And AMG Lithium's Stefan Scherer estimates that total investment costs to produce lithium hydroxide in a new plant would range between €500 million ($541 million) to €1 billion.

But Scherer said investing in commodities projects is difficult. The lithium price, for example, has crashed 80% since 2022. "People are very, very cautious putting money into lithium projects at this point, because with the current price level, it's very hard to make an investment case."

A joint initiative by France, Italy and Germany is planning to raise €2.5 billion in initial funding to support private resource projects. But commodities expert Alice Yu doubts that state money alone will spur necessary investment. "If we put these funds in perspective for lithium alone, you're looking at a mid-single-digit billion euros of investment needed just to meet the EU's 2030 target."

And what if China opens its huge investment purse seeking to participate in EU-based projects?

"So far the EU has been collaborative with Chinese battery production capacity investment in the EU. So if we go down looking at lithium refining, will you look to work with Chinese expertise and capital in this space, too?," Yu added.

Edited by: Uwe Hessler

Author: Mathis Richtmann