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Soaring lithium prices ignite a global energy war

With the rapid growth of new energy vehicle sales and lithium as an important raw material for power batteries, its demand continues to rise. Public information shows that more than 60% of the lithium mined globally in 2021 was used to make power batteries. In power batteries, lithium carbonate alone accounts for nearly 40% of the manufacturing cost, and the cost of power batteries accounts for about half of the cost of the whole vehicle. The rapid imbalance between supply and demand led to a sharp rise in the price of battery-grade lithium carbonate.

Cumulative li-ion battery demand for EV+ESS applications in GWh
Data source: Bloomberg

Recently, a report concluded that the average spot price of battery-grade lithium carbonate has risen, hitting a record high. Behind the tight supply and demand relationship reflected by the price, the entire industrial chain, from the extension of new energy vehicle manufacturing to the production of upstream raw materials, has been added to the layout of lithium resources. Around the “white oil” of the new era, lithium has opened a new energy battle.

Chinese-funded enterprises are the first to stand ahead

In nature, lithium mainly exists in the earth’s crust in the form of compounds, and the form of lithium ore can be divided into Salt Lake brine, hard lithous lithium ore, and lithium clay ore. Hard rock lithium ore is important due to the relatively low mining cost, followed by salt lake brine. These two lithium ores are also the most important sources of lithium raw materials.

According to data released by the US Geological Survey, as of 2021, the total amount of global lithium resources is 89 million tons, and the proven reserves are 22 million tons. Compared with the 100,000 tons of lithium resources in 2021, the existing lithium reserves can fully meet the demand in the future. However, the distribution of lithium resources is not even, resulting in the global competition for lithium mines, completely concentrated in individual countries and regions.

At present, the South American “lithium triangle”, composed of Bolivia, Argentina, and Chile, has a total of 57% of the proven lithium resources and is mainly brine from salt lakes. The United States and Australia have 10% and 8% lithium reserves, respectively, mainly in the form of lithium ore. China’s lithium reserves are only 6%, and 80% of them are salt lake brine.

Although the “lithium triangle” occupies half of the lithium reserves, not many have been put into production due to mining technology and environmental restrictions. In addition, the United States policy on the development of lithium batteries has been uncertain, and the domestic environmental pressure on energy extraction and processing is large, so lithium production is also very limited. Relatively speaking, Australia’s lithium resources have become the world’s most important source of lithium product supply because of its high-quality, low-cost hard rock lithium mine and perfect infrastructure.

For example, the Greenbushes mine in Western Australia, the world’s largest and highest-quality spodumene mine, is owned by Telison Corporation, which is 51% owned by Chinese lithium giant Tianqi Lithium. In May 2018, Tianqi Lithium spent another 25.9 billion yuan to acquire a 24% stake in Chilean lithium giant SQM, making it the company’s second-largest company. However, in 2020, due to the debt ratio once as high as 80%, Tianqi Lithium had to sell the equity of Telison.

Another domestic giant, Ganfeng Lithium, has been overseas since 2015. Through the batch acquisition, Ganfeng Lithium acquired a 50% stake in the Mt Marion project owned by Australia’s RIM and plans to double the lithium concentrate capacity to 900,000 tons a year by the end of this year through expansion.

After doing their best to buy lithium mines in Australia, Chinese companies have targeted South America and Africa, and the nine known lithium mines in Africa are controlled or underwritten by Chinese capital. Among them, Ganfeng Lithium won half of the shares of the Goulamina project in Mali, a landlocked country in West Africa, China Mining Resources controlled the Bikita project in Zimbabwe, and Arcadia, another project in Zimbabwe, was taken over by Huayou Cobalt.

The price has increased 14 times in 2 years, and car companies are busy looking for lithium

From 40,000 yuan/ton in October 2020 to 590,000 yuan/ton now, the price of domestic battery-grade lithium carbonate has increased by more than 14 times in 2 years. The soaring cost of upstream raw materials has also forced midstream manufacturers and car companies to join the competition for lithium resources, and CATL has taken the lead due to its “advanced” resource awareness.

As early as 2016, CATL acquired part of the equity of North American Lithium, and later completed the holding in March 2018. In September 2019, in order to acquire 8.5% of the shares of Australian lithium mining company Pilbara Minerals, CATL invested 55 million Australian dollars, successfully becoming its third largest shareholder; A year later, CATL invested 8.58 million Canadian dollars in the Canadian mining giant Neo Lithium.

CATL issued another announcement in April 2022, saying that its holding subsidiary ‘Yichun Times‘ successfully bid for the prospecting right of ceramic clay (containing lithium) in a mining area in Yifeng County, Jiangxi Province, with a price of 865 million yuan. So far, CATL has completed lithium resources throughout Guizhou, Sichuan and Jiangxi alone.

As the two brands with the highest sales of new energy vehicles in the world, BYD and Tesla are also trying to expand upstream to avoid the soaring cost of battery raw materials. 

At the beginning of 2022, BYD was rumoured to bid for the exploration rights and production rights of a lithium mine in Chile for US$61 million. Still, due to the obstruction of local administrative departments, it was unable to reach a deal. Subsequently, in March this year, BYD simply took out 3 billion yuan of strategic investors in the domestic mining enterprise Shengxin Lithium Energy and obtained more than 5% of the latter’s equity. According to the data, the product sales of Shengxin Lithium Energy reached 42,000 tons in 2021, but this is not BYD’s largest investment.

In May this year, it was reported that “BYD has found 6 lithium mines in Africa, and all of them have reached the intention of acquisition”, and “according to BYD’s internal calculations, in these 6 lithium mines, the ore grade of 2.5% lithium oxide has reached more than 25 million tons, which can be converted into lithium carbonate up to 1 million tons.” This figure is enough to cover BYD’s capacity demand in the next 10 years.

Unlike BYD, Tesla is not directly involved in the exploration and production of upstream lithium mines but places orders with upstream lithium suppliers in a cooperative manner. In February, for example, Tesla signed a five-year agreement with Australian lithium supplier Liontown Resources to secure no less than 100,000 metric tons of spodumene concentrate per year.

By March, Australian lithium miner CoreLithium also announced a supply agreement with Tesla, promising to supply Tesla with 110,000 tons of spodumene concentrate over the next four years. In addition, there are rumours that when domestic lithium mining giant Tianqi Lithium launched its IPO in June this year, Tesla also planned to participate in the subscription of shares in Tianqi Lithium.

It should be noted that compared with the lithium exploration and production rights obtained by Tianqi Lithium and Ganfeng Lithium through equity participation or holding earlier, most car companies, such as Tesla, only obtain the underwriting rights of lithium mine projects. That is, the lithium mine suppliers who cooperate are required to guarantee to provide a certain amount of lithium ore products in the future, but they cannot form constraints on procurement costs. Therefore, even Tesla, the world’s number one, can only ensure that future production capacity will not be seriously affected by the skyrocketing cost of battery raw materials.

A protracted battle for lithium

If we compare the time when mining companies entered overseas lithium mines and the change curve of domestic lithium carbonate prices, a very prominent problem will be found: it is clear that Chinese mining companies began the layout of lithium mines 6 or 7 years ago, why are lithium mine prices still rising outrageously today? The answer lies in the cyclicality of lithium mines.

After the rapid rise in demand caused by new energy vehicle manufacturing, even if the supply of upstream raw materials has a certain margin reserve before, it is difficult to quickly fill the market gap in a short period of time. Therefore, even if global mining companies and car companies accelerate the purchase of lithium resources, the global lithium supply shortage pattern will continue for 2 to 3 years.

image source: riotimesonline

In addition to the industry cycle and the internal competition of upstream, middle and downstream enterprises, lithium mine development has also been interfered with by some external resistance. In September, South America’s lithium triangle — Argentina, Bolivia and Chile announced they were considering setting up a “lithium OPEC” similar to the Organization of the Petroleum Exporting Countries (OPEC) to control lithium sales prices by jointly limiting lithium mining capacity. According to ‘LatePost’, the specific plan of the Chilean government is to intervene in the lithium exploration and construction stage, and cut and sell lithium mining rights to reduce the shareholding ratio of a single enterprise in lithium mine projects. 

Earlier this month, Canada’s Ministry of Innovation, Technology and Economic Development also issued an announcement requiring three Chinese companies, China Mining Corporation, Shengze Lithium and Zanger Mining, to divest or cancel their equity investments in Canadian lithium mining companies within 90 days, citing “threats to Canada’s national security and critical mineral supply chains”.

It is enough to see that the energy war around lithium mines has risen to the international level. In the future, lithium mines are very likely to be like oil as a strategic resource to influence global economic development and even political pattern. From the current point of view, the control of lithium resources will also have a greater impact on the entire industrial chain of mineral reserves, product development and downstream applications. 

In the past few years of rapid development of new energy, there have been voices that “new energy vehicles will soon replace fuel vehicles” perhaps this view is just based on optimism about the development of new energy vehicles. However, in the upstream energy competition, we can see that new energy manufacturers that rely heavily on power batteries do not have the ability to stand alone

About the author

The write-up is authored by Neeraj Kumar Singal – Founder and CEO of Semco Group. He is passionate about Clean Energy and working on various projects to build a robust Lithium-ion ecosystem. One of his ventures, SEMCO Infratech, is a solution provider of Lithium-ion cell manufacturing and pack assembly equipment. He can be reached at nks@semcoindia.com.

Also by author: Fire safety in Lithium-ion battery pack manufacturing and testing facilities

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