Rare Earth Recycling is no longer a future sustainability challenge. It is a present-day operational challenge for Europe’s data centres. The reason is simple. AI infrastructure is growing faster than its supply chains. When that occurs, parts you once took for granted become important. Neodymium magnets are one such part. As supply became constrained, operators began to turn to their own facilities for solutions. Old hard drives, once discarded as trash, became a temporary lifeline. In this article, we explain how this happened, why the EU neodymium crisis unveiled significant weaknesses in recovery systems, and what concrete ways still exist to stabilize supply.

EU Magnet Crisis: HDDs as Lifeline Amid AI Surge

The EU magnet crisis did not come up slowly. It came when restrictions in trade, demand for AI hardware, & weak recovery infrastructure collided at the same time. So, this section goes through why HDDs became an emergency source, how AI workloads stressed recovery systems, & more:

Geopolitical Black Swan Ignites 2025 Neodymium Panic

The EU’s neodymium crisis intensified in 2025 when China reduced rare earth exports amid increasing trade tensions. Data centres bore the brunt early on since neodymium magnets are found in HDD motors, cooling fans, & vibration systems. Furthermore, as imports dried up, there was nothing for the procurement teams to fall back on. So, operators began using decommissioned hard drives within facilities. That seemed to make sense initially. However, EU regulations require permits for shredding and demagnetising. They take more than a year in many cases. During that time, functional drives remained locked up in storage, holding up rare earth recycling production.

AI GPU Explosion Overwhelms Recycling Throughput

AI infrastructure brought a change to the demand for magnets in a very specific manner. GPU-heavy servers make use of more fans, denser cooling layouts, & stronger control of vibration. Each change pushes magnet use per rack. Furthermore, recycling plants were made around steady HDD retirement volumes, not AI spikes. When GPU usage saw an increase, recovery systems could not scale fast enough. Moreover, early pilots reflected high losses due to mixed alloys/bonding materials. Operators had to discard the feedstock that failed purity checks. Throughput also went below expectations. Meanwhile, AI clusters kept coming online. Rare earth recycling capacity thus fell further behind demand each quarter.

Logistics Gridlock Crushes Decommission-to-Recovery Pipelines

Pulling a hard drive from a rack doesn’t imply that recovery is starting. Transport approval, secure handling, and processing capacity are required even after the decommissioning of material. In hubs such as Amsterdam, hundreds of thousands of drives quit service every year. Many of them wind up sitting in warehouses. Furthermore, transport permits are slow to come, and authorized recyclers cap the quantity of intake. At the same time, OEMs resist the full disassembly mandate, moving sorting downstream. Each wait adds to the cost and the risk. Moreover, the cost of reclamation exceeds that of virgin material. HDD rare earth recovery data centres in  Europe rely on breaks at logistics, not chemistry. So, Rare earth recycling is devalued before the process is initiated.

OEM Resistance Blocks Closed-Loop Scale

Closed-loop recovery relies on OEM involvement. Today, that collaboration is far from uniform. Certain manufacturers do not trace the components of HDDs at the serial number-level. In the absence of such information, recyclers have no way to confirm the origin or grade of a magnet. So, buyers are hesitant, particularly for regulated applications such as EV motors. In order to meet standards, magnets are re-sintered to a higher purity by the recyclers. This means costly upgrades and a long-term offtake deal. For many plants, it is not financially viable to invest without proven demand. Consequently, reclaimed data centre magnets rarely find a buyer for them. Additionally, rare earth recycling remains bottlenecked at a pilot scale rather than becoming a reliable industrial supply.

Mandates vs Reality: De-Risking EU Supply or Pipe Dream?

EU policy tries to push supply security forward, but real-world operations react in a different manner. So, this section takes you to the answer of how mandates behave on the ground, why incentives miss their mark, & more: 

CRMA 25% Quota Triggers HDD Hoarding Backlash

The Critical Raw Materials Act sought to ensure supply, but it altered behaviour first. Data centre operators started hoarding decommissioned HDDs rather than putting them back into the recovery channels. The secondary markets tightened, and prices increased rapidly. However, recycling capacity did not keep pace. Furthermore, permits still restrict throughput, and processing queues are years long. Stacked-up drives don’t produce recovered material. So, rare earth recycling substituted for only a small fraction of imports. Moreover, instead of financing recovery growth, capital was tied up, dormant in inventory. The EU neodymium crisis also stayed unresolved as quotas altered incentives but did not create real processing capacity.

EEG Credits Hinge on Unproven Purity Benchmarks

Germany’s EEG incentives reward plants with very high recovery yields. On the face of it, these targets are achievable. However, in reality, there are losses every step of the way. Transport vibration damages magnets. Adhesives contaminate feedstock, and sorting errors reduce capture rates. Furthermore, a majority of facilities are well below incentive thresholds once they are operating. A number of projects have also been initiated, with EEG support anticipated. But when actual data on recoveries were received, the credits vanished. Moreover, profits plummeted, and expansion plans were halted while operators took heavy losses. So, rare earth recycling went bust because policy benchmarks were based on test work, not what could be achieved in commercial-scale processing.

Battery Passport Mandates Expose HDD Traceability Gaps

Battery passport rules make the requirement of tracking materials from rack removal to recycler intake. Legacy data centres struggle to get to this requirement. Furthermore, older HDDs lack embedded identifiers or RFID tags. Retrofitting also takes time/labour. During this gap, recyclers cannot certify the origin of the material. This blocks entry into regulated recovery streams. Moreover, some magnets sit idle while others move into informal channels. HDD rare earth recovery data centres in Europe depend on slowing at this handoff point. Rare earth recycling stalls as information systems lag behind physical infrastructure. So, this creates compliance delays that disturb the otherwise viable recovery flows. 

Italy Pilots Prove Marginal Offset, Not Independence

Italy ran pilots connecting data centres directly to automotive demand. These systems made the recovery of limited tonnage each year and fed output into motor production. Technically, the process worked, but when we talk strategically, it did not scale. Furthermore, AI use pushed neodymium demand far faster than pilots could supply. GPU clusters took up more magnets than produced by recycling flows. Imports also continued to dominate supply. Moreover, what operators now call the “neodymium magnet recycling AI GPU shortage EU challenge” remained structural. These pilots proved that recycling can work. However, they also showed that small programs cannot offset AI demand without much larger investment in infrastructure.

Path to Viability: Narrow Escape from Crisis

Stability does not appear from just one fix. It needs changes at the exact points where systems tend to break. So, this section goes through which steps matter most & which investments actually minimize exposure: 

​​Breakthrough Hydrogenation Catalysts Erase Cobalt Bleed

Hydrogenation is the process whereby the recycled magnets are turned into powders for recycling. This process was problematic in older systems. The precious materials like cobalt and dysprosium would spill during the process, thus lowering the purity of the magnets. The latest catalyst designs address this leakage by preserving more of the magnetic material and requiring lower amounts of energy for this process. Additionally, this enables more of the magnetic material to be recycled without requiring any further equipment expansion in a plant. This improves the recovery economics at the core step. The chemistry is now correct, while the challenge stands to be scaling.

RFID Mandates & AI Sorting Close Traceability Gaps

Traceability is most effective when the data follows the material. The integration of RFID technology into new HDDs makes it simple to know the origin and destination of each HDD. Furthermore, upgrading the most crucial inventory will help the older data centres close the gap. After this, AI-assisted sorting can sort magnets based on quality and contamination at an early stage. As a result, this minimizes rejections and hastens the process of certification. The OEMs are assured of their output. HDD rare earth recovery across Europe also becomes possible to forecast. Additionally, rare earth recycling stabilizes as the tracking no longer breaks the chain of recovery. It doesn’t stand to be a chemistry problem. It is about aligning data flow with physical recovery steps. 

€200M Public-Private Re-Sintering Hubs Bypass Permitting

Re-sintering is the step by which recycled magnets can be made to have the same strength as newly made magnets. By placing this process in centralised hubs, Europe can overcome the delays/misunderstandings involved in regional approval. Funding from the public-private sectors can also distribute the risk involved in investment, making it more desirable. Furthermore, the data centres/recyclers provide the raw material, and the high-temperature processes are handled by the re-sintering facilities. The resulting products conform to EV & industry standards. They can also be sold without any discount. Additionally, data centre magnets restore their value, and rare earth recycling easily fits into the supply chain without acting merely as a spectator.

Cross-Chain Contracts Lock 5-Year GPU-to-EV Flows

Long-term contracts alter the behavior of everyone in the chain. Drive manufacturers are committing upfront to supply used equipment, and automakers are committing to purchasing recycled magnets. This certainty helps to anchor prices and makes it easier to plan. Then, logistics providers can confidently make investments knowing volumes will flow. Tariff protection also shields the recycled supply from being undercut by low-cost imports. Moreover, as yields on recovery improve, dependence on imports diminishes. So, rare earth recycling transitions from crisis response to infrastructure strategy.

Wrapping up

Rare earth recycling is now dictating the level of resilience Europe can achieve in its data centre sector. The EU neodymium crisis revealed slow permits, weak incentives, and brittle recovery. HDDs became a backup because there was no buffer. This article illustrates where the system breaks, why mandates flounder in practice, and which fixes address real constraints. These factors are going to shape how AI infrastructure develops throughout Europe. To further this conversation with operators, suppliers, and policy makers, the 3rd Net-Zero Data Centre Summit in Berlin, Germany, on 14-15 January 2026, will provide a timely opportunity to take the next steps.