Europe is stepping up efforts to secure critical raw materials, but the region’s biggest vulnerability is increasingly shifting away from access to mineral deposits and toward what happens after extraction. The shortage of refining, separation and processing capacity is emerging as one of the most significant obstacles to Europe’s ambitions to build resilient supply chains for batteries, electronics, defence systems and other strategic industries.
For years, the European debate over critical minerals has centred on developing new lithium, rare-earth and battery-material mines. More recently, however, policymakers and industry leaders have begun focusing on the middle of the supply chain — the stage where extracted resources are converted into usable industrial materials. This so-called midstream gap leaves European manufacturers exposed even when the original mineral does not come from China.
A European Parliament study published in July 2026 identified this weakness as a major structural problem for the European Union. The bloc has mineral resources, sophisticated manufacturing industries and an expanding pipeline of recycling projects, but it continues to rely heavily on foreign countries for the refining and processing required to transform raw materials into industrial inputs.
China remains the dominant force at this stage of the global supply chain. According to the study, the country accounts for approximately 90% of global rare-earth refining and around 75% of lithium and cobalt refining. That concentration creates a vulnerability that cannot be solved simply by opening more mines.
A European company could source lithium, cobalt or rare earths from Australia, Africa, Canada or another supplier outside China, yet the material could still ultimately depend on Chinese processing capacity before reaching a battery plant, electronics manufacturer, magnet producer or defence contractor. The exposure was highlighted again on July 16, when the International Energy Agency warned that the full implementation of Chinese restrictions on rare-earth exports could disrupt around $6.5 trillion in industrial production outside China. European and US companies together account for almost half of the potentially exposed output.
The same structural weakness is visible in graphite, another strategically important material for the battery industry. 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 restrictions affecting graphite supplies. The message for Europe is increasingly clear: securing mineral deposits is only the first step. Without sufficient processing capacity, control over the supply chain remains elsewhere.
Europe Sets Ambitious Critical Minerals Targets
The European Union has already established quantitative targets aimed at reducing its dependence on concentrated foreign supply chains. Under the EU Critical Raw Materials Act, the bloc aims by 2030 to develop domestic extraction capacity equivalent to at least 10% of annual EU consumption of strategic raw materials. It also wants domestic processing capacity to reach 40% of annual consumption, while recycling should cover 25%.
Another key objective is to prevent excessive dependence on a single external supplier. The EU wants no more than 65% of its annual consumption of any strategic raw material, at the relevant processing stage, to come from one third country. The targets have prompted Brussels to identify projects considered strategically important for strengthening European supply chains. The first selection included 47 projects within the EU and 13 projects in partner countries. These initiatives span mining, processing, recycling and the development of substitute materials.
Yet strategic status alone cannot guarantee that a project will become a profitable industrial operation. Building a refinery or separation plant requires substantial upfront capital, while project developers must contend with volatile commodity prices, lengthy permitting and construction periods, uncertain demand and intense competition from established producers. The competitive disadvantage can be particularly significant when European facilities are compared with large-scale processing operations in countries that have already spent decades developing integrated supply chains.
European projects also operate under stricter environmental, labour and reporting requirements. These standards can provide important long-term benefits, but they can increase operating and construction costs at a time when European producers are competing against lower-cost international suppliers. The result is a difficult investment equation: Europe needs more domestic processing capacity, but the economics of building that capacity can remain challenging without long-term commercial commitments.
Europe Faces a Critical Minerals Financing Gap
Funding is becoming one of the central issues in Europe’s attempt to close its processing deficit. The European Parliament study estimated identifiable EU public support for critical minerals at approximately €5 billion to €6 billion between 2024 and 2026. For the United States, the study estimated public support at around €46 billion over the comparable period.
The difference is not simply a question of how much money governments provide. The structure of the support also matters. European policy has relied significantly on conventional grants and loans, whereas US measures make greater use of tax credits, public procurement, production incentives and other mechanisms designed to reduce market risk for investors.
For a European processing company, receiving financial support to build a plant does not necessarily solve the underlying commercial problem.
A refinery may secure funding for construction yet struggle to sign enough long-term contracts with customers willing to pay prices that make the facility economically viable. When commodity prices fall, manufacturers can have a strong incentive to return to cheaper imported materials, even if they have previously expressed support for developing European supply chains. This creates what could be described as a bankability gap. The challenge is not merely finding money to build processing infrastructure. It is creating enough certainty around future revenues to convince private investors and lenders that those facilities can remain competitive throughout commodity-price cycles.
As a result, proposals for contracts for difference, guaranteed offtake agreements, minimum-price mechanisms and joint purchasing arrangements are gaining importance in the European critical-minerals debate. Such instruments could provide producers with greater visibility over future revenues while giving European manufacturers more certainty about access to strategically important materials.
EU Moves Toward Aggregated Demand
The European Union is also attempting to address the demand side of the equation. 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 focus includes rare earths, battery materials and resources considered important to the defence sector.
Aggregating demand could help address one of the fundamental weaknesses facing new European processing projects. Individual manufacturers may not be large enough or willing to commit to long-term purchases on their own, but a coordinated purchasing mechanism could create a larger and more predictable customer base.
Europe is simultaneously considering coordinated strategic stockpiles for materials including rare earths, gallium and tungsten. Stockpiling can provide a buffer during temporary supply disruptions, allowing industrial consumers to continue operating while alternative supplies are secured. But inventories are ultimately a short-term resilience measure. They cannot replace permanent refining, separation and processing capacity. If Europe wants greater control over its critical-minerals supply chains, it will ultimately need industrial facilities capable of processing materials within Europe at competitive costs.
New European Processing Projects Begin to Take Shape
There are already signs that investment is beginning to move beyond mining and toward processing. In Greece, the European Investment Bank is providing €90 million to METLEN to modernise bauxite operations and develop a facility for producing gallium.
Gallium is commonly recovered as a by-product of aluminium processing, making the integration of gallium production with an existing industrial operation particularly significant. Instead of developing an entirely separate supply chain, the project aims to extract additional strategic value from an established raw-material and processing base. The project illustrates a broader principle behind Europe’s strategy: critical minerals do not necessarily have to come from standalone mines. Some can be recovered as by-products from existing industrial processes.
Another initiative is taking shape in the Netherlands, where Nth Cycle and Trafigura have advanced plans for a battery black-mass refining facility. The project has received support through a €7.5 million Critical Raw Materials initiative and is linked to a long-term lithium offtake arrangement.
Black mass, produced from the recycling of batteries, represents an increasingly important source of battery metals. Developing domestic refining capacity for these materials could allow Europe to capture more value from its own battery waste while reducing dependence on imported refined materials. Together, such projects point toward the kind of integrated industrial model that Europe increasingly needs.
From Mines to Industrial Ecosystems
The next stage of Europe’s critical-minerals strategy will depend on whether policymakers and investors can move beyond isolated projects and create interconnected supply chains. A successful European ecosystem would connect miners, recyclers, refiners, chemical processors, magnet manufacturers, battery producers and final industrial customers through long-term commercial relationships.
That integration matters because each stage of the supply chain depends on the next. A mine cannot guarantee strategic independence if its output must be exported for processing. A refinery cannot remain economically viable without reliable access to raw materials and customers. A battery manufacturer cannot secure supply resilience if refined materials remain dependent on a small number of foreign processors.
The economic case therefore depends on developing the entire chain rather than concentrating investment on extraction alone. Europe may have substantial geological potential and world-class industrial companies, but mineral resources do not automatically translate into strategic supply security. The crucial question is whether extracted material can be transformed into commercially competitive products within a diversified European supply chain.
Processing Capacity Will Determine Europe’s Critical Minerals Strategy
Europe’s critical-minerals challenge is entering a new phase. The region is no longer simply asking where it can find lithium, rare earths, graphite, gallium and other strategic resources. It is increasingly asking where those materials will be refined, separated, recycled and converted into the products required by European industry. That distinction could determine whether the EU’s strategy succeeds.
The bloc can designate strategic deposits, accelerate permitting and provide financial support for mining projects. But if processing remains concentrated overseas, Europe could increase its domestic extraction while leaving the most strategically important stage of the supply chain vulnerable.
Closing that gap will require more than public funding. It will require long-term offtake contracts, predictable regulation, risk-sharing mechanisms, private investment and closer integration between raw-material producers and downstream manufacturers.
The projects now emerging in Greece and the Netherlands provide examples of how that model could develop, combining resource production or recovery with processing and long-term commercial demand. Ultimately, Europe’s critical-minerals strategy will not be measured by the number of deposits given strategic status or the number of mining projects announced. Its success will depend on how many commercially viable, environmentally credible and globally competitive processing facilities actually reach production. For Europe, the race for critical minerals is therefore no longer just a race to secure resources. It is a race to build the industrial capacity needed to turn those resources into strategic materials — and that is where the region’s biggest supply-chain challenge now lies.
