(agorabourse.fr) - Faced with Chinese pressure on rare earths, Europe is on the offensive. The Belgian chemical group Solvay, registered in Brussels, will now take a central place in the strategy of industrial sovereignty of the continent. The company has just concluded two key partnerships and is committed to providing Western industrialists with all 17 rare earth elements that are considered strategic.
And, most importantly, their recycling will be carried out directly in France!
China stunned the global industry when it decided to use rare earths as a diplomatic weapon. These chemical elements are indeed essential for all advanced industries, and although their scarcity has nothing to do with geology, the fact remains: China has become an important link in their supply chain.
By threatening to reduce or even suspend exports, China has exposed the vulnerability of its Western customers. Supply disruptions have indeed brought the European manufacturing industry to a standstill, while the actual cost of rare earths remains insignificant in the overall price of finished products. To prevent the collapse of Europe's economy due to the lack of these basic components (for example, when a shortage of $2 electronic chips halted car production chains for several weeks during the pandemic), the European Union and the United States redoubled their efforts to ensure the security of their supplies.
Last week, Solvay announced that it had signed two major contracts with permanent magnet manufacturers, which allows it to promote the company's plant for the separation of rare earths in La Rochelle.
Despite the fact that in the 1990s, France still processed half of the rare earths on the planet, the country will again become the center of Western production of samarium, neodymium, praseodymium and terbium.
For Solvay, the revival of this activity, which was considered to have finally shifted to the East, represents a favorable source of growth after 2024, when it recorded a 4% decrease in revenue and a significant decrease in profitability (-8% in EBITDA).
In April last year, China announced the suspension of exports of six rare earths vital to the automotive, telecommunications, energy transition and defense industries.
Despite the fact that on November 9, China suspended the ban on the export of gallium, germanium and antimony, the damage was done: Western industrialists can no longer take for granted the presence of this entire "family" of elements.
The production of radars, missiles, electronic chips, solar panels, wind turbines, smartphones, or even electric car engines thus finds itself dependent on the goodwill of Beijing, which can use export permits both as a tool of political discussion and as a way to damage competing Western industries.
And since more than 90% of rare earth refining is carried out in China, European and American industrialists have only a few alternative options. Such dependence on China is all the more unacceptable for the European economy, since the market for rare earths remains relatively small in size: the global market for basic rare metals is estimated at $15 billion per year. Therefore, Solvay decided to restart the recycling line, which will produce rare earth elements used in permanent magnets from recycled materials. Although the first output is expected no earlier than next year, the chemical group has already signed partnership agreements with the American Permag and Noveon, as well as with the British Less Common Metals, which will participate in their processing.
Moreover, Solvay says that its new La Rochelle line will be able to refine all 17 rare earths that are considered strategic. The company intends to start producing them from raw materials extracted in mines or from recycled products.
Solvay estimates that its industrial facility alone could cover almost a third of the needs of European industry with investments of about one hundred million euros. Securing European sovereignty has never been so cheap!
Given the importance, as well as the limited market for rare earths, Solvay is on its way to securing a comfortable cash inflow. Relatively small production volumes make it unlikely that there will be many players who could start a price war.
The creation of the European ecosystem is actively supported by the EU authorities. The European Commission is working on a major strategic inventory plan and plans to establish a procurement center to fulfill bulk orders. This will provide additional security for investments in the La Rochelle facility. The fact that American industrialists prefer to buy products from the Old Continent is also a very good omen. While the United States are also striving to meet most of their needs from local enterprises, the reality is that the Lynas refinery in Texas, although funded by the Pentagon, cannot output these products fast enough.
Even with the closure of borders, customs barriers and a willingness to always give preference to American products, Washington is pragmatic and prefers to depend on Europe rather than China.
Thus, the potential for a return on investment appears to be very favorable for Solvay, especially for it to become a European leader in rare earths, it needs less than 3.5% of its market capitalization.
After difficult years following the sharp rise in energy prices in Europe, the outlook is clearing for the chemical company which is worth, on the Brussels Stock Exchange, only ten times the cash flow expected this year.
