(Adds comment from Swedish minister in paragraphs 30-31)

By Eric Onstad

LONDON, June 27 (Reuters) - Four decades ago, a rare

earth processing plant on France's Atlantic coast was one of the

largest in the world, churning out materials used to make colour

televisions, arc lights and camera lenses.

Its current owner Solvay is racing to return the

plant at La Rochelle to its former glory after years of

diminished output as Europe seeks to boost production of the

minerals fuelling the green energy transition.

The factory's 76-year history is a microcosm of the

challenges Europe and the United States face as they seek to

reverse massive migration of rare earth processing to China that

took place around 25 years ago.

China became dominant in rare earths, a group of 17

minerals, by producing them at lower prices than the

West, helped by government support, and often ignoring

environmental concerns in a sector that can create toxic waste.

In recent years, China has beefed up sustainability and

closed polluting operations.

In the 1980s and 1990s, output from the plant at La Rochelle

set the benchmark for global rare earth prices. It now supplies

4,000 metric tons a year of separated rare earth oxides, a

fraction of the 298,000 tons pumped out by China last year.

Moreover, Solvay's modest output is focused on the kind of

processed rare earths used for auto catalysts and electronics,

not the kind needed for permanent magnets used in electric

vehicles (EVs) and wind energy. Solvay says it will start

producing those by next year.

"We at Solvay want to put rare earths for permanent magnets

back on the map in Europe," said An Nuyttens, president of

Solvay's division that produces rare earth products.

"It's not an easy one, it's going to be step by step, as the

chain from mining up to magnets production needs to be built."

Eventually, the 160-year-old chemicals group aims to supply

20% to 30% of the separated rare earths demand for magnet

production in Europe, but Nuyttens said meeting that target may

not be possible until after 2030, giving no date.

Under a new EU law that entered into force in May, the bloc

has set ambitious 2030 targets for domestic production of

critical minerals required for its green transition - 10% of

annual needs mined, 25% recycled and 40% processed domestically

by the end of the decade.

The bloc has zeroed in on rare earths as one of the most

important critical minerals due to their use in permanent

magnets that power motors in EVs and wind energy. EU demand is

forecast to soar sixfold in the decade to 2030 and sevenfold by

2050.

The EU will struggle, however, to meet most of the goals in

rare earths, according to production forecasts gathered by

Reuters and interviews with over a dozen industry executives,

consultants, EU-funded officials, industry groups and investors.

Missing targets in the Critical Raw Material Act (CRMA) may

impact the bloc's zero carbon goals while opening the prospect

of further dependence on China amid heightened geopolitical

tension with the West, analysts say. China accounts for 98% of

EU rare earth permanent magnet imports.

EU Commission spokesperson Johanna Bernsel said they could

not confirm the Reuters findings, but said the bloc would do its

best to promote projects that help meet the goals in the CRMA.

"Projects in Europe will benefit from a streamlined

permitting process, as well as coordinated support for accessing

de-risking financing tools and matchmaking with downstream

users," Bernsel said.

WINDOW CLOSING FAST

There are three main steps in the rare earth supply chain

before permanent magnets can be produced - mining, separating

elements and producing metals/alloys (the latter two both come

under the processing target). Reuters compiled production

forecasts from companies and compared those with a demand

forecast in a report by two EU-funded bodies to assess how the

bloc is faring compared to its goals.

According to the Reuters analysis, the EU is due to have

only scant output from rare earth mines by 2030; and there is

similarly only one project in the metals and alloys sector,

which is low margin.

The bloc, however, is likely to meet one target in its most

advanced area, separation, producing 45% of needs by 2030.

The final stage of the supply chain - producing magnets from

the metals - is not covered by the targets in the new law since

they are a finished product, but EU output is expected to meet

only 22% of expected demand by 2030, according to the Reuters

analysis.

Obstacles to boosting EU rare earths output include public

opposition to new mines, wary support by European industry which

benefits from cheap Chinese imports, limited

funding, uncertain demand as EV sales growth falters and weak

prices for the metals.

"The window between now and 2030 is going to close very

quickly in the context of how long it takes to get some of these

projects and processing facilities off the ground," said Ryan

Castilloux at consultancy Adamas Intelligence, which specialises

in critical minerals.

Failing to include magnets in the CRMA targets is a

"blindspot" and sets up the law to generate "false-positive"

results, he added.

The EU spokesperson did not comment directly on that

criticism, but noted that CRMA includes several measures to

increase recycling.

MINING ON ICE

The European continent has rich rare earth deposits, but

there is currently no mining of them. That is unlikely to change

in the near term with some projects stalled due to public

opposition.

The only likely output in the EU by 2030 is re-processing

waste from Sweden's LKAB iron ore mines, which would contribute

about 1% of the EU's demand for oxides needed for magnets, based

on the Reuters analysis.

Southern Sweden's Norra Karr project, which could supply a

large portion of the region's demand, has been held up for 10

years in the government's permitting process and there has also

been opposition by environmentalists who say it could pollute

drinking water.

An executive of the project's owner, Leading Edge Materials ( LEMIF )

, said a new application for a mining lease is underway

for a redesigned project, but offered no timeline for starting

production.

The company plans to apply for the project to be declared

strategic under the CRMA, which in theory would make possible

fast-track permitting in 27 months.

Sweden is investigating what changes are needed to comply

with the CRMA, Deputy Prime Minister Ebba Busch told Reuters.

"Sweden is uniquely positioned to spearhead this

initiative... there is also an ongoing inquiry to see how we can

streamline the environmental permitting process."

Another rare earths mining project, Sokli in Finland, also

aims to be named a strategic project, but it still has to go

through environmental impact assessment and permitting.

"It's not realistic to have it commissioned before 2030,"

said Matti Hietanen, CEO of the project's owner, state-owned

Finnish Minerals Group.

Non-EU-member Norway could contribute 10% of the bloc's

demand by 2031, according to private company Rare Earths Norway,

which said this month it has Europe's biggest rare earth

deposit.

A slide in rare earth prices is also dampening prospects for

new mining projects.

"At current price levels, most mines are just not

profitable, so there must be support from governments and

automakers," said Daan De Jonge at consultancy Benchmark Mineral

Intelligence in London.

EU companies are also gearing up to take advantage of the

huge potential for recycling to supply critical rare earths, but

it will take time before there is enough supply of old EVs and

wind turbines to process.

INTEGRATING THE SUPPLY CHAIN

Other industry executives echoed Solvay's uncertainty about

ramping up output by 2030, with several telling Reuters they

could not commit to launching or raising production by then.

Some of the wariness is due to sales demand for electric

cars cooling in recent months after rising dramatically for

several years, as consumers wait for more affordable models to

hit the market. European EV sales fell 9% in May.

Another challenge for Europe is competing with cheaper

imports from China, which has a highly integrated rare earths

supply chain including state-owned firms from mining to finished

magnets.

Some of the key European rare earth firms have long had

operations in China or joint ventures with firms there and are

using that expertise to help boost their new EU ventures.

One of those is Neo Performance Materials ( NOPMF ). It has a

plant for separating rare earths in Estonia plus operations in

other countries including China.

It is also building a permanent magnet factory in Estonia,

which is due to launch output next year and ramp up to 2,000

tons annual capacity over the following two to three years,

enough magnets to power about 1.5 million EVs.

Expansion will depend on whether customers support the

Critical Raw Material Act targets.

"If they're going to buy 40% of their processed material

here, we will absolutely support that demand with production

capabilities in Europe," said CEO Rahim Suleman.

While competing with China is tough, Neo estimates it can

produce magnets that would cost about $20 to $50 per vehicle

more than imported magnets from China. The permanent magnets in

hybrid and EV motors cost more than $300 per vehicle or up to

half the cost of the motor, analysts say.

GKN Powder Metallurgy has launched small-scale production of

permanent magnets at a plant in Germany and is gearing up to

build a larger commercial facility based on demand.

Magneti Ljubljana in Slovenia, founded in 1951, aims to

expand output, but this depends on customers agreeing to

purchase products that are more expensive than Chinese imports

to diversify their supply and in some cases boost

sustainability.

"I've been working in this factory since 1986 and during

that time, 27 factories in Europe closed down the production of

magnets because of the price," Managing Director Albert Erman

said.