🔒 Can anything be done about China’s dominance in the lithium market? – David Fickling

In the race towards a greener future dominated by electric vehicles and renewable energy, the world finds itself grappling with a critical dependency: lithium. As leaders scramble to diversify their sources and reduce reliance on China, the reality sets in — efforts may be too little, too late. With Chinese capital intricately woven into the global lithium industry, breaking free from Beijing’s influence proves daunting. As the demand surges, cooperation with China emerges as a necessary, albeit uneasy, reality for nations seeking sustainable energy solutions.

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By David Fickling

In a world where electric vehicles and utility-scale batteries are taking over, it would be nice to not depend on a geopolitical rival for your most important raw material. ___STEADY_PAYWALL___

That’s been the thinking of leaders from developed countries, who’ve been seeking ways to China-proof the market for lithium, the light metal that’s essential for high-performance rechargeable power packs. 

“Parts of our key supply chains, including for clean energy, are currently over-concentrated in China,” US Treasury Secretary Janet Yellen said earlier this month during a visit to Chile, home to the largest lithium reserves. Second-ranked Australia last May entered a compact with the US to ensure reliable supplies of such critical minerals, with Canberra in October putting A$2 billion ($1.3 billion) into a financing facility to support exports.

There’s just one problem with all these plans: They’re coming nearly a decade too late. If rich democracies wanted to build a clean-energy industry free of Beijing’s influence, they should have had their checkbooks out when miners and processors were starved of cash during the 2010s. The global lithium industry is so interwoven with Chinese capital now that it’s going to be impossible to unpick. 

Take Albemarle Corp., the Charlotte, North Carolina-based miner whose processing plant Yellen visited during her trip to Chile. Its most important asset is a 49% stake in Greenbushes, a pit in Western Australia that’s the world’s largest deposit of lithium ore. Majority control, however, has been ultimately held for more than a decade by Chengdu-based Tianqi Lithium Corp.

China Inc. isn’t just a crucial partner to Albemarle — it’s a vital customer, too. A third of the company’s product went to the country in 2022, overtaking the US for the first time. Pilbara Minerals Ltd., owner of the second-biggest deposit in Australia, is even more dependent on the relationship: Offtake agreements signed with Ganfeng Lithium Group Co. and two other Chinese chemicals companies guarantee they’ll be able to purchase almost every ton of material it produces for the next few years, dependent only on the pace of its expansion plans.

In Chile, which trails Australia as the second-biggest producer of lithium, Chinese money is also dominant. Tianqi’s debt-fueled acquisition spree over the past decade left it with almost a quarter of shares in SQM SA, which extracts lithium from salt lakes in Chile’s high-altitude deserts. China itself trails Australia and Chile as the third-biggest producing nation, while Chinese capital was instrumental in lifting Argentina to fourth place.

Even in Canada, Chinese money has been crucial. Of the country’s two operating mines, one is owned by Beijing-based Sinomine Resource Group Co., while the other was owned by Chinese battery producer Contemporary Amperex Technology Co. until falling prices drove it into a period of  bankruptcy in 2021.

Add in Zimbabwe, where Zhejiang Huayou Cobalt Co. controls the only significant pit, and Brazil, where Sigma Lithium Corp. has reportedly held takeover talks with Shenzhen-based electric vehicle-maker BYD Co., and Chinese money is almost everywhere in the world lithium is being produced.

It’s not hard to see why China has a decisive advantage here. Lithium prices are volatile and projects can take years to come to fruition, so investors need to be extremely patient if they want to stake out a significant position. Cash given to jittery shareholders looking for a quick payday is cash not available for developing new projects — and equity investors in non-Chinese lithium producers are a demanding bunch. Dividends paid by Albemarle and SQM over the seven years through 2022 amounted to, respectively, 21% and 77% of net income. Shareholders in Tianqi and Ganfeng received just 2.7% and 6.8%, respectively, leaving management with far more capital for growth.

Government money can make a real difference. Australia’s Liontown Resources Ltd. stared into the abyss over the past six months after a takeover bid from Albemarle was scuppered by local billionaire Gina Rinehart and lithium prices collapsed. Shares soared as much as 18% Wednesday after it secured a A$550 million loan to get its key project started, including funding from Canberra. Offtake agreements, such as the ones General Motors Co. has signed with Lithium Americas Corp. and Tesla Inc. with Liontown, can also be decisive.

That might be enough to secure a few corners of the lithium industry that are free of Chinese influence, but large-scale production is going to have to be less purist. Six out of 10 electric vehicles sold this year will be in China, according to BloombergNEF. Set against numbers like that, the country’s control of 80% of ore processing doesn’t look particularly excessive.

If developed democracies want to secure the lithium they need to decarbonize their economies, they’re going to have to get comfortable with Beijing as not just a rival, but a partner.

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