Europe is increasing investment in critical raw materials, but its exposure extends beyond access to mineral deposits. The European Union faces a significant shortage of refining, separation and processing capacity needed to convert raw materials into products for batteries, magnets, electronics and defence applications.
Dependence on overseas refining
A European Parliament study published in July 2026 identified the problem as Europe’s “midstream gap”. The EU has geological resources, advanced manufacturing industries and an expanding pipeline of recycling projects, but remains highly dependent on processing and refining facilities outside the bloc.
China accounts for approximately 90% of global rare-earth refining and about three-quarters of lithium and cobalt refining, according to the study. As a result, European manufacturers can remain exposed to Chinese supply-chain constraints even when the original minerals are sourced elsewhere.
Materials extracted outside China may still have to pass through Chinese processing facilities before reaching European battery, magnet, electronics or defence manufacturers. The exposure was highlighted on 16 July, when the International Energy Agency warned that full implementation of Chinese restrictions on rare-earth exports could disrupt about $6.5 trillion of industrial production outside China. European and US companies represent almost half of the output potentially affected.
Graphite presents another major processing vulnerability. China produces more than 90% of the world’s processed graphite, which is required for most lithium-ion battery anodes. The IEA estimated that industries representing a further $300 billion in production could face exposure to graphite-related restrictions.
EU targets for domestic capacity
The EU Critical Raw Materials Act sets 2030 benchmarks aimed at reducing these supply-chain dependencies. The bloc targets domestic extraction equivalent to at least 10% of annual consumption, domestic processing capacity equivalent to 40%, and recycling capacity equivalent to 25%.
The legislation also seeks to limit dependence on individual suppliers, with no more than 65% of the EU’s annual consumption of any strategic raw material at a relevant processing stage intended to come from a single third country.
The policy has supported a new pipeline of strategic projects. The first selection designated 47 projects within the EU and 13 projects in partner countries, covering extraction, processing, recycling and material substitution. Strategic designation, however, does not ensure that projects reach commercial operation. New refineries and separation facilities face substantial capital requirements, commodity-price volatility, lengthy development periods and competition from established producers operating at significantly larger scale. European projects also operate under stricter environmental, labour and reporting requirements. While these standards can support long-term sustainability, they create additional costs that may not be reflected in international commodity prices.
Public funding and project bankability
The European Parliament study estimated identifiable EU public support for critical minerals at approximately €5 billion to €6 billion between 2024 and 2026. US public support was estimated at about €46 billion over the comparable period. The difference extends beyond headline funding levels. European programmes remain heavily reliant on conventional grants and loans, while US policy uses a broader combination of tax credits, public procurement, production incentives and other measures intended to reduce market risk for investors.
European processing projects can therefore secure construction grants while still facing difficulties obtaining long-term customer commitments at prices capable of supporting investment returns. Buyers may favour European supply strategically but switch to lower-cost imported material when commodity markets weaken. This has increased attention on mechanisms including contracts for difference, guaranteed offtake agreements, minimum-price arrangements and joint purchasing.
The EU Raw Materials Mechanism, launched in April 2026, is intended to aggregate demand and connect European buyers with suppliers, financial institutions and storage providers. Its initial priorities include rare earths, battery materials and resources needed by the defence sector. The EU is also considering coordinated strategic stockpiles covering materials including rare earths, gallium and tungsten. Such inventories can help industries respond to short-term disruptions but do not substitute for permanent domestic refining and processing capacity.
Processing projects move toward development
Several projects are already advancing within Europe. In Greece, the European Investment Bank is providing €90 million to METLEN for the modernisation of bauxite operations and development of a gallium-production facility. Gallium is generally recovered as a by-product of aluminium processing, making integration with existing industrial operations an important element of the project.
In the Netherlands, Nth Cycle and Trafigura have advanced plans for a battery black-mass refining facility. The project has received €7.5 million through a Critical Raw Materials initiative and is linked to a long-term lithium offtake arrangement.
The projects connect mineral recovery with processing and customer commitments rather than treating extraction as a standalone supply-chain activity. The broader challenge is to develop industrial systems that connect miners, recyclers, refiners, magnet producers, battery manufacturers and final customers through long-term commercial arrangements. Without those links, Europe can expand mineral extraction while continuing to rely on overseas processors. The performance of its critical-minerals strategy will therefore depend on whether designated projects develop into commercially viable processing facilities that meet environmental requirements and enter production.
