Building Lithium Supply Chains: What Can the West Learn from Asia?
The green energy transition is well underway, with governments around the world stepping up their efforts to reduce carbon emissions and move away from fossil fuels.
Moves from the US Biden administration have seen millions of dollars committed to securing supply of key raw materials and strengthening its domestic supply chain. Europe is not far behind, with its own plans and investments also moving ahead.
As the urgency for reaching climate change goals increases, the West has been waking up to the dependence it has on Asia for its critical minerals supply chains and as a result the lack of control to meet its ambitious electrification objectives.
The most recent US Inflation Reduction Act, which will pour around US$369 billion of federal funds into boosting domestic capacity to produce wind turbines, solar panels and electric vehicles, aims to tackle that. The bill includes subsidies for EVs, as long as a minimum proportion of critical minerals, including lithium, comes from the US or its free trade partners.
“Tell (automakers) to get aggressive and make sure that we’re extracting in North America, we’re processing in North America and we put a line on China,” Democratic Senator Joe Manchin told reporters.
Lithium mining happens mostly in Australia, from hard-rock, and in Chile, from brines. China is currently the third-largest lithium producer in the world, with output reaching 14,000 metric tons in 2021, according to the US Geological Survey.
But China’s dominance comes at the refining and cell manufacturing level. According to Benchmark Mineral Intelligence, China currently has 81 percent of the world’s battery cathode manufacturing capacity and 59 percent of its lithium refining capacity.
“Our concern is that critical minerals could be vulnerable to manipulation, as we’ve seen in other areas, or weaponization,” US Energy Secretary Jennifer Granholm said at a recent event in Sydney.
The US has been playing catch up with Asia when it comes to building up its lithium-ion supply chains.
“I don’t blame the West for being late,” Daniel Jimenez of iLi Markets told the Investing News Network. “The truth is this story started in Japan with batteries, then it moved into Korea and China. China was very good at recognizing the opportunity and moved very quickly into that.”
Jimenez said Europe is a good example of what could happen in coming years. EV production in the region has grown, with cell manufacturing capacity being built up as a result and now the cathode industry following as well.
“I think this is going to naturally happen once electrification of cars becomes massive,” Jimenez said. “I think the relative advantage China has today will be more in the fact that they have probably developed technologies in specific areas where the West is behind.”
Learning lessons from Asia
While China dominates the refining capacity for lithium, the Asian country also has controlling stakes and interests in a number of mines around the world. Meanwhile, Japan and Korea are home to four of the biggest cell manufacturers in the world.
Much has been said about the dependence of the West on Asia, in particular when it comes to the EV supply chain, but there are also lessons to be learned from the rise of the region.
“If there’s a flaw in the Chinese model; it’s that they build the capacity at all costs, and they worry about excess capacity after the fact. And we have seen that in any number of industries,” Chris Berry of House Mountain Partners said. “On the lithium side, there’s always excess conversion capacity in China, there has been for a long time, even as they build out more conversion capacity on shore today.”
For Berry, the lesson the West can learn from China is to “walk before you run.”
“Try and sort of right size capacity with what we actually think is going to be there at any given point in time,” he said. “So I would just caution participants along the supply chain to think very carefully about access to raw materials, and then the ability to feed that downstream.”
He added that China has never thought like that.
“They said, okay, we’re going to own this business. So if it’s building 700 gigawatt hours by a certain year, we’re going to do it. We’ll worry about the capacity later,” Berry said. “We, in our financial and economic system here, can’t afford to do that. So it’s a big lesson.”
China, Japan and Korea all tend to look long term, Joe Lowry of Global Lithium told INN.
“They all tend to be willing to sacrifice in the short term for long term gains,” he said. “I think, since I’ve been involved in this market, China has always been ahead of the curve, willing to invest ahead, not saying well, if this doesn’t pay back in three and a half years or five years, we’re not going to do this project.”
For the lithium expert, the West is suffering now because of the short term thinking that most of the companies have, forced on by Wall Street or poor leadership in some cases.
“Thinking for the long-term is the short-term thing that the West should internalize in the next five years,” he said. “If they start saying, okay, we need to modify our behavior, I think that that would be a bonus. But I don’t expect it to happen.”
Still, the West also has its advantages, which for Lowry is summed up in creativity.
“I think we do creativity and I think we’ve had many of the key inventions done not necessarily just in the US, but in the West, and then we seeded it to Asia, because we want to save a few bucks on production cost.”
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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