Highlights

• The EU-Mercosur trade deal targets South America's lithium, graphite, and niobium reserves to reduce European dependence on Chinese-dominated critical mineral supply chains.
• Despite substantial reserves in Brazil and Argentina, the region lacks downstream processing infrastructure—meaning raw materials still flow to China for refining and value-add production.
• The agreement creates a strategic framework through tariff elimination, but investors should watch for concrete commitments in project financing, processing plants, and binding offtake agreements.

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Will the long-awaited EU–Mercosur trade agreement transform South America into a critical minerals powerhouse? The assertion, echoed by Maroš Šefčovič via a January 19, 2026 MercoPress report (opens in a new tab), claims this taps directly into Europe’s anxiety over Chinese dominance in rare earths and other strategic materials. The ambition is real. The timeline, less so.

Where the Geology Is Real—and the Politics Are Convenient

There is no dispute that Mercosur countries—especially Brazil and Argentina—sit atop substantial deposits of graphite, niobium, manganese, lithium, and rare earth elements. Brazil alone is often cited as holding the world’s second-largest rare earth reserves. These facts are solid. They explain why the European Union is eager to frame the deal as a supply-chain win amid efforts to de-risk from China, which still processes roughly 90% of global rare earth materials and nearly all heavy rare earths.

The Missing Middle: Processing, Permits, and Patience

What the article underplays is the yawning gap between reserves and reality. South America’s critical mineral sector remains constrained by underinvestment, permitting delays, infrastructure bottlenecks, and—most critically—a lack of downstream processing. Mining alone does not break dependency. Without separation, refining, alloying, and magnet production, raw materials still flow outward, often back to China or other Asian processors. The EU–Mercosur deal lowers tariffs; it does not conjure processing plants.

Trade Deal ≠ Supply Chain Security

Šefčovič’s suggestion that tariff elimination will catalyze mining investment is plausible but incomplete. Investors need long-term offtake agreements, regulatory certainty, and ESG clarity—especially in Europe, where domestic political resistance to mining runs high. European farmers’ protests over agriculture, while addressed with safeguards, highlight a broader truth: this deal is politically fragile, and ratification risks remain non-trivial.

What’s Notable for Rare Earth Investors

The deal’s true significance is strategic signaling. Europe is openly courting South America as an alternative resource corridor. That matters. But calling this a “powerhouse” moment risks overstating near-term impact. Critical minerals supply chains are built over decades, not trade cycles.

REEx Take

This agreement is a necessary but insufficient condition for reshaping rare earth and critical mineral supply chains. It creates a framework, not capacity. Investors should watch for concrete follow-through: project financing, processing commitments, and binding offtake—not celebratory rhetoric.

Source: MercoPress, Jan. 19, 2026; statements by Maroš Šefčovič.