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The EU-Mercosur trade agreement, signed on January 9 after 26 years of discussion, could strengthen Brazil’s position as a strategic supplier to the European bloc of critical minerals, including lithium and rare earths, market participants told Fastmarkets on Wednesday January 21.
In a statement in Rio de Janeiro on January 15, European Commission President Ursula von der Leyen, in company with Brazilian President Lula da Silva, highlighted that Europe and Brazil were moving toward a very important political agreement on critical raw materials.
“It will frame our cooperation on joint investment projects in lithium, nickel and rare earths,” she said. “This is key for our digital and clean [energy] transitions. And also, for our strategic independence in a world where minerals tend to become an instrument of coercion.”
Brazilian mining association IBRAM said on the same day that the agreement would broaden access to the European market, create conditions for attracting investment, and preserve essential industrial policy instruments, in a context of growing global demand for strategic minerals.
According to a European Commission report published in September 2025, the EU is still not self-sufficient in the supply of these materials and will continue to rely on imports. “The EU-Mercosur agreement will be instrumental in securing critical raw material supplies,” it said, “since Mercosur countries are major producers of many of these materials and do so in a safe and sustainable manner.”
Although von der Leyen mentioned specifically lithium, nickel and rare earths on January 15, the report from last year also highlighted aluminium/bauxite, natural graphite, niobium, manganese, silicon metal, vanadium and tantalum as strategic minerals from Brazil in which the EU was interested.
The Commission said that the mutual benefits for the two trading blocs would be as listed in the table below:
Julio Nery, director of IBRAM, told Fastmarkets that the benefits of the agreement might be felt soon, with interest from European companies investing in critical minerals in Brazil, for example.
Marisa Cesar, chairwoman of the board of the Association of Critical Minerals (AMC) in Brazil and director of corporate affairs and sustainability at PLS, also told Fastmarkets that the agreement offered a better scenario for investments in lithium in Brazil.
“This alignment with the EU is a positive sign for Brazil, which is an important player in critical minerals,” she said. “Now, I hope that we pass via Congress a national policy for critical minerals that might attract even more investment. We have to show traceability, a higher level of governance and greater predictability to investors, which will influence the way they see the country.”
Brazilian congressman Arnaldo Jardim was preparing a bill on the subject, called PL2780, to establish the National Policy for Critical and Strategic Minerals (PNMCE), and the Committee for Critical and Strategic Minerals (CMCE), linked to the National Council for Mineral Policy, and providing other measures.
Meanwhile, Rodrigo Menck, chief financial officer at Atlas Critical Minerals, said that the benefits of the EU-Mercosur agreement might be felt more in the medium to long-term.
“We do not see a lot of capacity advancing in the chain outside of China now,” he said. “Currently, around 95% of spodumene goes to China; the US is starting now. Rare earths is even worse – 100% goes to China, and that’s it. Things will be kept like this for a long time.”
Market participants told Fastmarkets that they believed that, in 2026, Brazil would keep its competitive advantage in lithium production while it dealt with challenges such as funding, legal uncertainties and production problems.
Currently, there are three operational plants, owned by Sigma Lithium, CBL and AMG, and another 25 projects at different stages in Brazil.
The three working lithium plants were seeking to expand their operations in the coming years, to become more competitive in the global market.
But in recent months, there have been growing market rumors regarding Sigma’s production issues and the timeline for the expansion at Sigma’s Grota do Cirilo II project, according to Fastmarkets’ latest long-term research forecast.
The research highlighted that the forecast for Brazilian production was for it to grow at a compound annual growth rate (CAGR) of 6.5% between 2025 and 2035, from 54,000 tonnes of lithium carbonate equivalent (LCE) in 2025 to about 101,000 tonnes of LCE in 2035.
According to Fastmarkets’ senior lithium analyst, Chandler Wu, the figure for Brazil currently is 60,600 tonnes of LCE in 2026, but this will soon need to be adjusted downward based on Sigma’s production issue.
“Sigma Lithium had a cash flow problem, so currently they are dealing with replacement of their debt to defer the payments,” he said. “The next round of replacement will be in February this year. I assumed Sigma could handle it based on the current favorable spodumene price, and return to normal operation in 2026, but phase II of Grota do Cirilo has to be pushed back.”
Recently, Sigma announced that it has sold 100,000 tonnes of lithium fines with 1.2% to 1.5% of lithium oxide content, which was stored at the Port of Vitoria.
“Sigma Lithium is advancing its remobilization plan at its Mine 1, as part of the successful implementation of a complete restructuring of its mining operations in the fourth quarter of 2025,” the company said. “The company’s remobilization of mining personnel and smaller equipment continues, and is expected to be concluded during January 2026.”
But market participants told Fastmarkets that it was unlikely that Sigma would soon resume production, which they said has been stopped since August.
According to an industry source, Sigma faced a lack of equipment and a lack of funding to buy replacements. “Sigma is now facing a lot of problems. I cannot even list them all, but they include not being able to pay suppliers, problems with the government which tarnish the image of mining in Brazil, and influences other producers,” he said.
Fastmarkets contacted Sigma’s press office for comment but had not received a reply at the time of publication.
Brazil’s Ministry of Labor and Employment (MET) said in January 14 that it would make a decision whether to shut down three Sigma waste piles amid “grave and imminent” risk to the community.
In an official note, Sigma said that the waste piles were composed solely of soil, with no contaminants or toxins.
“They are entirely within the safety parameters established by the competent authorities, and have been proven stable, according to rigorous reports prepared by independent auditors,” the company said. “The company also emphasizes that the current administrative review does not affect its ability to operate, nor does it compromise the schedule for resuming activities, which remains unchanged.”
Wu said: “The company said it would not affect Sigma’s ability to operate or compromise its schedule for resuming production, but I wonder whether it’s a big problem for their waste piles. I would doubt what Sigma said if more infrastructure were needed for its waste pile to meet the requirement.
“Conflict of interest is one factor. Another is the strict mining rules in Minas Gerais – production is only allowed after this issue is fixed. We have seen many projects in Brazil postponed due to mining risk,” he added.
Brazilian exports of spodumene dropped in 2025 compared with 2024, according to data from Comex Stat.
Nery highlighted that this fall might be because of Sigma stopping producing. “Sigma is the largest lithium producer in Brazil. Anything that happens there will affect the numbers,” he said.
According to an industry source, in 2025, Sigma exported part of its production using a different Common Nomenclature of Mercosur (NCM) – not spodumene [25309010], but lithium oxide [28252010]. That was why data showed a huge decrease in spodumene exports.
Data from Comex Stat showed that in 2024, Brazil exported 6,221,546 net kg of lithium oxide, while in 2025, it jumped to 161,088,587 net kg.
Vinicius Alvarenga, chief executive officer of Companhia Brasileira de Lítio (CBL), told Fastmarkets that CBL’s production remained the same, at maximum capacity.
“We did not reduce our production in 2025 and our expansion project continues to be implemented,” he said.
The project will double mining production to 100,000 tonnes per year of spodumene concentrate from 50,000 tpy and will expand CBL’s chemical production, for both battery and technical grade, to 6,000 tpy of LCE from 2,000 tpy. The initial forecast was that the plant might be ready in 24 months, once the new project received a license.
For Alvarenga, in 2026, Brazil must continue to be the provider of one of the cheapest spodumenes of the world.
“Until 2028, I do not see any of the projects producing lithium in Brazil,” he said. “CBL’s expansion for sure will be ready in 2028, but that’s because we are a brownfield project – we will use the entire structure from the current plant. This is the least capital-intensive refinery project in the market, compared with other refinery projects worldwide currently.”
Nery also believed that it was not possible that projects would start to produce in the next three years. “We do not see projects producing, but development will continue. Brazil has really big potential,” he said.
For Menck, 2026 might be the year of lithium and rare earths projects seeking funding and reviewing licenses amid pressure from the government.
According to Cesar, foreign investment in lithium plants will advance in 2026.
“AMC is optimistic that things will move forward,” she said. “The government has a demand for critical minerals; there’s a window of opportunity given to the geopolitical situation, and Brazil is a key player for several countries. The Mercosur agreement includes critical minerals on the agenda; and the US depends on us for critical minerals.”
On the other hand, she highlighted that in 2026 Brazil will face general elections, which might affect the mining sector. “In the state of Minas Gerais, for example, we have politicians in favor of mining activities, and others not. A political year might bring some trouble,” she said.
Also, internal challenges remain for the country, such as funding and legal uncertainties.
In September 2025, the Federal Public Prosecutor’s Office (MPF) recommended the suspension, review or annulment of environmental licenses granted for lithium mining projects in the municipalities of Araçuaí, in the state of Minas Gerais and adjacent areas. This is the region known as “Lithium Valley” where lithium is produced.
In the document, MPF recommended the urgent mapping of affected communities whose traditional territories are in the region.
So far, the measure has not affected production in the area. Nery highlighted that this kind of recommendation was subject to judicial review – the final decision will be made by a judge. “So far, the companies have been able to prove that the situation is okay. The processes are being carried out in accordance with legal requirements,” he said.
To Cesar, it was necessary to create in the country a better relationship with the government to have a “predictable sector.”
AMC now had three main goals, she said, while creating a closer relationship with the Brazilian government: create predictability of environmental licensing and a clear definition of regulations to avoid unforeseen events during the process; government funding analysis to support junior mining companies, which currently need to give broad guarantees to receive funding; and to seek lower costs of supplies for lithium production.
In the past few months, the media has been constantly reporting on interest in the rare earths reserves in Brazil, mainly from the US.
Brazil has the second-largest reserves of rare earths in the world, at 21 million tonnes, according to the US Geological Survey (USGS). China has the largest reserve of rare earths at 44 million tonnes.
“The US is much more advanced in seeking an agreement with Brazil for rare earth elements, while Europe is still making progress,” a European source told Fastmarkets, adding that the EU-Mercosur trade agreement could expedite matters.
In October last year, IBRAM and the Chargé d’Affaires of the US Embassy in Brazil, Gabriel Escobar, had a meeting to discuss a collaboration involving the US government, the Brazilian mining industry and the Brazilian government, in order to channel US investments into critical and strategic mineral production projects in Brazil.
William Jackson, chief emerging markets economist at Capital Economics, wrote in a report that interest in rare earth mining in Brazil has surged in the past couple of years, although it will take time, as well as more policy and financial support, for this to translate into higher output.
“Overall, we think it plausible that Brazil could become a mid-sized producer of mined rare earths, but it will probably remain at the lower value-added end of the supply chain,” Jackson said.
“It seems likely, then,” he added, “that these projects’ viability will depend on receiving more financial, technical and policy support. Brazil’s government has belatedly made rare earths a strategic priority and is seeking to provide financial support, leveraging its deposits to develop higher-value added downstream industries. But the government is fiscally strained and bureaucratic hurdles remain a major concern.”