Inside Neo’s rare earths factory

NARVA, Estonia — Europe’s grand bid to break China’s rare earth dominance begins on Russia’s doorstep.

The continent’s largest rare earth facility, at the far end of NATO’s eastern flank, is ramping up magnet production as part of a regional initiative to reduce import dependence on Beijing.

It was developed by Canadian Neo Performance Materials and opened In mid-September the magnet factory is located in the small industrial city of Narva. This little-known border city is separated from Russia by the Narva River, which is the external border of both NATO and the European Union.

While analysts expect the facility to play an important role in Europe’s plan to reduce its dependence on China, they warn that there is a long and difficult road ahead for the region to achieve its goal. mining strategy objectives.

Magnets made from rare earths are essential components for the functioning of modern technology such as electric vehicles, wind turbines, smartphones, medical equipment, artificial intelligence applications and precision weapons.

Speaking to CNBC via video call, Neo CEO Rahim Suleman said the facility is on track to produce 2,000 metric tons of rare earth magnets this year, then scaled up to 5,000 tons and beyond to keep up with a “tremendously fast-growing market.”

European region currently being imported Nearly all rare earth magnets come from China, but Suleman expects Neo’s Narva facility to be capable of meeting about 10% of that demand.

“Having said that, our view on that number is around 20,000 tonnes. So we have a lot more work to do, a lot more construction to do, because I think customers really need to diversify their supply chains,” Suleman said.

“We’re not talking about independence from any jurisdiction. We’re just talking about creating robust and diverse supply chains to reduce the risk of concentration,” he added.

Neo before announced Initial contracts with major automobile suppliers such as German auto giants Schaeffler and Bosch volkswagen And bmw.

Europe’s effort to achieve its resource security goals faces several obstacles. Analysts have cited problems such as a financing gap, burdensome regulation, limited and fragmented EU-made supply chains, and relatively high production costs. All this raises questions about the feasibility of the EU’s ambitious supply chain targets.

“Europe needs a massive increase in rare earth magnet capacity to even get close to a diversified supply chain for automakers,” Caroline Messecar, an analyst at Fastmarkets, told CNBC via email.

Once an obscure topic, rare earths have emerged as a key bargaining chip in the ongoing geopolitical rivalry between the United States and China.

China in October As part of an agreement reached between Chinese President Xi Jinping and US President Donald Trump, an agreement was reached to postpone the imposition of further export controls on rare earth minerals. But China’s rare earth restrictions remain in place, disrupting global supply chains.

Europe, in particular, remained at the center of tariff turbulence. in it Fall 2025 Economic ForecastThe European Commission, the EU’s executive arm, has found China’s export controls causing supply chain disruptions in various sectors such as automotive and green energy.

This brings the issue of supply diversification to the fore for European policymakers, especially as demand is predicted to increase until 2030 and EU supply remains largely dependent on a single supplier, a European Commission spokesperson said.

In response, European Commission President Ursula von der Leyen announced In October, it was reported that plans were afoot to launch a scheme called “RESourceEU” along the lines of the “REPowerEU” initiative aimed at tackling another supply problem: energy.

The Narva project predates these measures, but 18.7 million euros EU funding of ($21.7 million) is an example of what the EU hopes to achieve. While production is modest compared to overall demand, it shows how the EU plans to increase the bloc’s magnet production capacity and reduce dependence on Chinese supply.

China is the undisputed leader of the critical mineral supply chain, responsible for approximately 60% of the world’s rare earth mining and more than 90% of magnet production. Meanwhile, Europe is the world’s largest export market for Chinese rare earth elements.

Russian President Vladimir Putin speaking shortly after Moscow’s full-scale invasion of Ukraine in early 2022 in question Narva was historically part of Russia and had to be taken back.

When asked why the company is locating its new rare earth facility there, Neo’s Suleman said the firm already has an existing infrastructure presence in the country and “the right place is to be in Europe.”

“And then you go one step deeper, so you get into Estonia. We have a long history in Estonia. We already have a rare separation facility that can make both light rare earth elements, and we are developing heavy rare earth elements there,” Suleman said.

“We were extremely impressed with the quality of people in Estonia, their level of education, their commitment to hard work… So you put all that together with the support we received both in Estonia and in the EU, and it was a great choice for us,” he added.

Estonian MPs welcomed the potential of Neo’s magnet factory and said the facility would benefit the development of both the country and the wider region.

Jaanus Uiga, Estonian deputy secretary general for Energy and Mineral Resources, said Neo’s magnet factory opened “very timely”.

Speaking to CNBC on October 30, Uiga acknowledged the economic tensions between the United States and China over rare earths and said that Estonia and the EU should adapt to the evolving situation.

“This is a very unique processing capacity built in Estonia, and at the same time we are very happy about it because it happened in a region that is moving away from fossil fuels,” Uiga told CNBC’s “Squawk Box Asia.” he said.