- Control over refining and recycling, rather than raw material extraction, is increasingly determining global power in critical battery metals, with China holding a dominant position across the supply chain.
- Recycling offers major economic and strategic benefits by reducing energy costs, lowering dependence on volatile energy markets, and supporting a more sustainable circular economy for critical minerals.
- Europe risks falling behind due to high energy and labour costs, limited refining capacity, and continued reliance on imports, making investment in processing and advanced recycling technologies essential for economic sovereignty.
The global race over critical battery metals is continuously accelerating, but the decisive battle is fought not at the extraction sites but in the refining and recycling facilities.
While western industries are putting their hopes and investments into new deposits, China has long translated a fundamental insight into strategic action: whoever controls processing capacity ultimately determines prices and supply across the market.
This shift in power from resource extraction to resource processing and refining is having far-reaching consequences for the global energy transition and for Europe’s economic sovereignty.
China has already established the recycling of critical metals as an effective strategic tool for hedging against volatile energy costs. The country is reaping the rewards of this forward-looking strategy in many ways, gaining a significant competitive advantage over the global market.
In the case of aluminium, for example, recycling can save up to 95% of the energy costs that would be incurred in refining primary material.
Building sovereign power through recycling
These enormous savings are not just an economic advantage. They also make Chinese producers less exposed to price fluctuations in international energy markets. At a time when energy prices have become one of the greatest sources of uncertainty in the global economy, this independence is proving invaluable.
However, the importance of recycling goes far beyond simple cost savings: it is a key component of a sustainable energy transition. Critical battery metals such as lithium, cobalt, nickel, and rare earth elements are not available in unlimited quantities, and their extraction is often associated with significant environmental and social problems.
A well-functioning circular economy that efficiently recovers and recycles these metals reduces the demand for primary raw materials while minimising the environmental impact.
However, for many critical metals, recycling is still in its infancy. The recycling potential from waste and scrap remains below 5%for cobalt, lithium, and rare earths. And these sobering figures highlight the urgent need for technological advancements in the recovery of these essential minerals.
While efficient recycling processes have been in place for decades for metals such as aluminium and copper, the necessary technologies for recycling critical battery metals are yet to be developed, or require significant further efforts.
The International Energy Agency (IEA) forecasts that battery recycling could meet around 20 to 30% of the demand for lithium, nickel, and cobalt by 2050. However, this depends heavily on improving collection rates and developing more efficient recycling technologies.
The process behind recycling battery metals
Currently, three main processes compete in the battery recycling industry: pyrometallurgy, hydrometallurgy and so-called direct recycling.
Pyrometallurgy uses high temperatures to melt down batteries, but it is extremely energy-intensive and struggles to recover lithium, aluminium, and manganese. Hydrometallurgy uses chemical solvents and is less energy-intensive, but it produces significant amounts of liquid waste.
Direct recycling is considered the most promising method, as it requires the least amount of material, enables the highest rate of material recovery, and produces the lowest emissions. However, this process requires a complex sorting procedure, as it can only process one type of battery chemistry at a time.
The recycling rate of rare earths from waste streams is less than 1%. This extremely low rate is particularly problematic, as rare earths are essential for permanent magnets in electric motors and wind turbines.
However, there are encouraging developments: using innovative processes, researchers have achieved recovery rates of over 90% for neodymium and dysprosium. Such breakthroughs demonstrate that technological solutions are possible, but the path from laboratory development to industrial-scale production is long and capital-intensive.
What’s holding Europe back?
While Asia is continuously expanding its refining capacity, Europe is struggling with fundamental structural disadvantages.
The combination of persistently high energy prices – largely due to import-reliance and currently at levels reminiscent of when prices skyrocketed following the Russian invasion of Ukraine – and rising labour costs, which increased by 3.3% in the euro area in the fourth quarter of 2025, makes the development of competitive refining capacity a virtually insurmountable challenge.
Energy-intensive processes, such as the smelting and refining of metals, are simply more expensive in Europe than in regions with lower energy costs.
Added to this are strict environmental regulations, which, no matter how desirable they are, further drive up production costs.
The result of these unfavourable conditions is sobering: Europe remains dependent on imports for critical battery metals, even though the raw materials could, in theory, be found in its own soil or extracted through urban mining.
An Asian monopoly over refining and recycling critical battery metals
The figures speak for themselves: China controls the majority of global critical mineral refining, including 85-90% of rare earth processing and 68%, 65%, and 60% of global cobalt, nickel, and lithium refining, respectively. Together with other Asian countries, the region has established a near-monopoly that extends far beyond individual metals to encompass the entire value chain.
This dominance encapsulates not just control over production volumes, but, above all, pricing power. Those who own the smelting capacity can determine the terms on which raw materials are processed, and thus indirectly influence the market prices for the refined materials.
Experts across commodity trading agree: access to smelting capacity is now more important than simply owning mineral deposits. A country may have rich deposits of lithium, cobalt, or rare earths, but without the necessary infrastructure to process these raw materials, it remains reliant on the goodwill of those nations that possess modern smelting and refining facilities.
Not only can these countries set processing fees at their own discretion, but they can also exert political pressure by restricting access to their facilities or imposing conditions.
The risks of European dependency
This structural dependence poses significant risks to the European energy transition. Batteries for electric vehicles (EVs), stationary energy storage systems for renewable energy, electric motors for wind turbines, and numerous other key technologies underpinning the green transition require a continuous and reliable supply of high-quality processed critical metals.
Without its own, sufficiently large-scale refining capacity, Europe remains exposed not to both economic uncertainties and geopolitical risks. In the event of international tensions or trade disputes, access to these essential materials risk being restricted or used as a political tool.
The strategic importance of processing capacity thereby becomes particularly clear when one considers the entire value chain. While the extraction of raw materials is labour-intensive and capital-intensive, it ultimately generates relatively little added value, and the real economic value lies in the downstream processing stages.
Refining, alloying. and further processing raw materials into high-quality products for industrial applications not only creates jobs requiring higher qualifications, but also generates significantly higher profit margins. China has grasped this logic and has systematically moved up the value chain.
The challenge for Europe now is to overcome this structural disadvantage. In order to do so, what it needs is a coordinated continent-wide strategy, comprising several elements:
- Investment in energy-efficient processing technologies
- The establishment of a functioning circular economy for critical metals
- The promotion of research and development into advanced recycling technologies
- The safeguarding of a long-term energy supply at competitive prices
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The takeaway is clear: anyone wishing to have a say in this new era of energy insecurity and maintain economic sovereignty must not only secure raw materials but, above all, invest heavily in processing capacity and recycling technologies.
Otherwise, despite its ambitious climate targets and technological expertise, Europe risks becoming a mere spectator in the global race for the control of green technologies.
