The EU has also entered the race for South American minerals – just beating the US and China

There is a huge race for so-called critical raw materials in the world. These are the materials that are essential for modern industry, car manufacturing, mass communications, weaponry and many other areas. As such, they are also a crucial factor for competitiveness, as highlighted in both the Letta report on the future of the single market and the Draghi report on the future of European competitiveness, and the EU has already adopted legislation to ensure the supply of critical raw materials (CRM). This means tapping into existing European stocks and diversifying sources of supply.

However, this is also difficult because a large part of the raw materials can be extracted in China. For example, 97 per cent of magnesium and 71 per cent of gallium come from Asia, but even these have a higher dependence of 100 per cent for heavy rare earth elements (HREEs) and a similar exposure of 85 per cent for light rare earth elements (LREEs).

In this struggle, the EU’s attention is turning to South America. Where, unsurprisingly, European negotiators are bumping up against Chinese ambitions at every turn. In 2023, the EU signed a Memorandum of Understanding with Argentina and Chile on sustainable commodity value chains. In November 2024, the Interim Trade Agreement with Chile was ratified – the first EU trade agreement to include a separate chapter on energy and raw materials. As the Mercosur countries, especially Argentina and Brazil, are the main producers of CRM, this agreement will greatly help the EU to ensure an efficient, reliable and sustainable flow of critical raw materials.

According to a study by the European Parliament’s research service, France produces 76% of the hafnium used in the EU, Belgium 59% of the arsenic, Finland 38% of the nickel and Spain 31% of the strontium. However, 25 of the 34 critical raw materials on the EU list are produced in Latin America.

The main supplier is Brazil, but 79% of the EU’s supply of refined lithium comes from Chile. International Energy Agency projections show that demand for lithium could grow by more than 1500% by 2050 (with similar increases projected for nickel, cobalt and copper). According to the European Commission, EU demand for lithium is expected to increase 12-fold by 2030 and 21-fold by 2050.

The South American region is home to vast reserves of CRM, mainly lithium and copper, which are expected to play a key role in the transition to clean energy and the digitisation of the global economy. Lithium is an essential mineral for the production of lithium-ion batteries, which are used in laptops, smartphones, hybrid and electric vehicles, for example. Lithium-ion batteries are also increasingly used to store excess energy from wind, solar and other renewable sources.

But the fight for these materials on the global market is tangible and the EU is exposed to it. Most recently, China has banned exports of rare minerals such as gallium and germanium to the US. It is calculated that this move alone could reduce US gross domestic product by USD 3.4 billion.

In her speech on the new Commission and its programme to the European Parliament plenary in November 2024, European Commission President Ursula von der Leyen announced that the competitiveness compass would be the first major initiative of the new Commission. This is expected to be published in January. This would provide a framework for the rest of the mandate. Von der Leyen identified three pillars: “closing the innovation gap, developing a common plan for decarbonisation and competitiveness and strengthening the EU’s economic security.”

The last pillar, the third pillar, aims to ensure stable and secure supply chains, especially for critical raw materials (CRM). This objective is reflected in the President’s mission letter to the Commissioner for Trade and Economic Security, Maroš Šefčovič, who said that “EU trade policy should focus on the core objectives of competitiveness, security and sustainability”.

China’s ambitions in South America are worth a look. In terms of trade and investment relations, China has steadily strengthened its ties with the region over the past two decades and is now Latin America’s second largest trading partner after the US and ahead of the EU. According to the World Economic Forum, Latin America’s bilateral trade in goods with China has increased 26-fold, from $12 billion in 2000 to $315 billion in 2020, and will more than double to over $700 billion by 2035. Cooperation is even stronger in the context of critical raw materials, where China has overtaken the US and is the region’s main trading partner.

China currently has four bilateral free trade agreements (with Chile, Costa Rica, Ecuador and Peru) and aims to further strengthen its trade network. Negotiations are underway on a free trade agreement with Uruguay, and Brazilian President Luiz Inácio Lula da Silva has proposed to negotiate a free trade agreement between Mercosur and China once the agreement with the EU is finalised.

Another problem is that, although there are huge reserves in Latin America, these countries are under-exploiting. For example, Australia has half of Chile’s lithium reserves, yet they are the world’s biggest producers. South American countries cannot operate mining projects independently and on such a scale. This is why they are launching joint ventures, for example in 2023, Russia’s Uranium One Group and Chinese companies signed an agreement with Bolivia’s state-owned lithium company Yacimientos de Litio Bolivianos (YLB) to set up lithium carbonate production plants.

In Bolivia in particular, however, political instability and high levels of state interference make investment conditions unfavourable for companies.In 2019, for example, the Bolivian government terminated its partnership with German private company ACI Systems Alemania (ACISA) to develop a large lithium project after protests that the project would not benefit local communities. The German Institute for International and Security Affairs carried out a study on environmental rights and conflicts over minerals in Latin America and found that more than 40% of environmental conflicts are related to mineral extraction.

According to an analysis published last July by the Polish Institute of Economics on this subject, South America has 94.1% of the world’s niobium reserves, 56.7% of lithium, 36.3% of copper, 27.5% of natural graphite and 24.3% of fluorite. The main producers are Brazil, Chile, Peru and Mexico. Brazil is the world’s largest producer of niobium, accounting for 91.8% of world niobium production. In Latin America, Chile is the leading producer of lithium, holding 10% of the world’s proven reserves and accounting for 24% of world production. The region is also home to significant amounts of bauxite (10% of global reserves), antimony, manganese, nickel and rare earths. The Polish think tank estimates that between 2022 and 2023 alone, planned and active mining investments in Argentina, Brazil, Chile and Peru totaled $178 billion. However, they also point out that political and economic instability in the region continues to challenge plans to increase mining.

28% of the world’s documented environmental conflicts occurred here, and these conflicts were with local communities. These disputes are caused by a lack of environmental impact assessment, regulatory gaps in implementation and a lack of trust by local communities in foreign governments and companies. As a result, these communities often boycott public consultations, causing mines to shut down or cease operations.

The European Union’s dependence on energy raw materials from Russia has proved to be a mistake. The challenges facing the EU and its Member States today, including action on critical raw materials, stem from the scale of new conflicts, political and economic tensions, crises and intense competition for resources. Therefore, for critical raw materials, the European Union’s strategic objective is stability and security of supply, diversification of resources and security in terms of risk management,” said Bartosz Michalski, Global Senior Advisor at the Polish Institute of Economic Affairs.

This article was written as part of a collaboration within the European Data Journalists Network (EDJNET). EDJNET is a group of independent media organisations that produce data-driven reports on European issues. This article is published under the CC BY-SA 4.0 license.

Original source: https://m.hvg.hu/360/20250121_nyersanyagok_latin-amerika_versenykepesseg-eu.