How Far Will China Go To Get Its Hands On The ‘White Gold’?

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  • Lithium Triangle contains more than half of the world’s reserves of the critical metal that is used in batteries.
  • But the metal’s mining and refinery have been politicised amid rising geopolitical tensions with the West and an ongoing supply-chain crisis.
  • Chinese companies are the biggest buyers and investors of lithium mines around the globe.

Just days after Argentinian President Alberto Fernandez signed his country up for China’s Belt and Road Initiative during a high-profile trip to Beijing this month, the spot price of lithium metal in the Chinese market reached 2 million yuan (US$315,000) per tonne for the first time – more than four times what it cost a year ago, says an article published in SCMP.

Major players in the supply chain

The two countries happen to be the world’s major players in the supply chain of metal – an essential material used in electric vehicle (EV) batteries.

Argentina is located in a region with the highest concentrations of the mineral – South America’s so-called Lithium Triangle, which contains more than half of the world’s reserves – while Chinese companies are the biggest buyers and investors of lithium mines around the globe and refine two-thirds of the world’s lithium.

The White Gold

As major economies are all aiming to shift to electric cars in the global fight against climate change, the silvery-white alkali metal has been increasingly called “the new oil” and “white gold”.

The fact that China and Argentina are forging closer ties has touched a nerve among Western countries, which have vowed to reduce their dependence on lithium from China.

Meanwhile, Chinese experts contend that the country’s global pursuit of the metal is based on market demands and equates to business as usual for Chinese firms.

Increase in global demands

According to an estimation by the International Energy Agency, global demand for lithium would increase by more than 4,000 percent by 2040 if the world achieves its climate goals.

“These trends indicate that control of the lithium industry could reap major benefits in the future, which will likely increase the geopolitical contention between great powers,” said Ryan Berg, a senior fellow at the Washington-based Centre for Strategic and International Studies think tank, in a commentary in August.

The lithium triangle

Most major economies have already elevated lithium’s importance to that of a strategic mineral in the supply chain, while experts say that the metal’s mining and refinery have been further politicised amid rising geopolitical tensions and an ongoing supply-chain crisis.

“Capacity revolves around key sources like Chile and China, which means that simmering trade tensions between China and the US are coming into play,” said a note from Panjiva Research on February 9. Parts of Chile, Bolivia, and Argentina form the Lithium Triangle.

Vulnerable future of US auto industry

China’s 14th five-year plan, which set the tone for the country’s development from 2021-25, highlighted the need to create more resilient industrial supply chains while enhancing the nation’s competitiveness in emerging technology sectors such as EVs.

Similarly, the administration of US President Joe Biden ordered a 100-day review of the domestic supply chain last year, saying China’s dominance in lithium refinery “presents a critical vulnerability to the future of the US domestic auto industry”.

“The high-capacity battery market is arguably one of the most critical to our nation’s interests,” the report said.

“China, in particular, has created a distorted supply-chain landscape through non-market or government intervention from state-controlled firms, both domestically and in developing economies.”

A major impediment to Europe’s participation

And in Europe, where opposition from local residents and environmental groups against the construction of lithium mining projects has been a major impediment to the region’s participation in the supply chain of the metal, the European Commission categorised lithium as a “critical raw material” for the first time in September 2020.

Zha Daojiong, a professor with the School of International Studies at Peking University, said that the moves by Western countries are aimed at reducing the share of Chinese supply of the metal, including semi-processed materials.

“Public discussions about the China factor in the global resource industry chain, therefore, are partly aimed at winning over opposition to extractive reshoring on grounds such as environmental protection in Western societies,” Zha said.

He added that it was unfair to exclusively focus on the national ownership of a company involved in the initial phase of the industrial chain – unearthing minerals.

“Be it lithium or cobalt, industry utilisation involves specialisation in processing ores into intermediate ingredients and mixing with minerals that are less rare or critical. The process is long and takes place in different localities around the world,” Zha said.

Competition for lithium among MNCs

A researcher and adviser to the Chinese government in the field of energy security, speaking on condition of anonymity, also said that competition for critical resources such as lithium should take place among multinational companies rather than governments and that the global quest to secure lithium supplies is a normal process in the internationalisation of Chinese companies.

“I don’t like to exaggerate it to the level of national strategic competition,” the source said. “Even though it is inevitable that market competition may encounter some political obstacles, in the long run, the supply of energy resources is more of a business and [based on] market behaviour.”

Closed-loop supply chain

Due to the increasing demand for batteries in China, owing to the rapid development of its EV industry, Chinese mining companies, battery manufacturers and carmakers are all on the hunt to secure a steady supply of the mineral, and this has contributed to the nation’s dominance in the supply chain.

“Investments into upstream and battery-recycling activities show that companies are looking to create a ‘closed-loop’ supply chain, which is more sustainable,” said a note by Fitch Solutions in November.

Major battlefields for lithium

For these companies, Latin America has been the major battlefield. The Lithium Triangle is home to 56 percent of the world’s lithium resources, according to the 2022 Mineral Commodity Summaries from the US Geological Survey.

Argentina, which has 10 percent of the world’s reserves underneath its Great Salt Flats, has been a major destination for Chinese investment. This is also in line with the commitment by the current Argentinian administration under President Fernandez to develop the country’s lithium resources, according to experts.

China-Argentina Cooperation

Ganfeng Lithium, one of China’s leading lithium producers, has invested in multiple extraction ventures in Argentina and also signed a deal with its government to develop a local lithium-ion battery factory.

“These [types of] agreements and investments show how China and Argentina have encountered ways to cooperate in the development of a sector that both parties consider strategic,” said Juliana Gonzalez Jauregui, a researcher at the Latin American Faculty of Social Sciences, in a December paper.

Argentina’s interest in energy efficiency

“This is not only because China seeks access to the country’s lithium supply but also due to Argentina’s interest in promoting energy efficiency through electric vehicles,” she added.

As Fernandez signed his country up for the Belt and Road Initiative – China’s sweeping infrastructure plan that aims to grow global trade – paving the way for investments worth more than US$23 billion, experts are expecting further cooperation between the two countries on strategic resources. But for China, that doesn’t necessarily mean less competition from other countries.

“Lithium is a strategic resource; it certainly has something to do with the relationship between two countries,” said Xu Shicheng, a research fellow in Latin American studies at the Chinese Academy of Social Sciences. “But for a country of the moderate left like Argentina, its foreign policy is pragmatic.”

Rising nationalism is a risk for Chinese firms

He noted that Fernandez also met with Russian President Vladimir Putin before visiting China, and Argentinian Foreign Minister Santiago Cafiero went to Washington to meet with US Secretary of State Antony Blinken in January.

Meanwhile, for Chinese firms investing in the extraction of lithium in Latin America, subnational and local engagements have gone beyond economics, experts said, as resistance from indigenous communities on the grounds of environmental and societal concerns has been a major obstacle.

While in Chile, another major destination for China’s lithium-extraction investments – and home to 42 percent of the world’s known reserves – rising nationalism has further added to the risks for Chinese firms.

In January, Chinese carmaker BYD’s US$61 million lithium-mining deal with Chile was suspended by a local court, two days after it won the rights to extract up to 80,000 tonnes of the coveted metal.

The bidding came as the country was in the midst of a presidential transition. Left-wing president-elect Gabriel Boric, who will be inaugurated in March, has proposed the creation of a state company for lithium extraction.

Facing soaring lithium prices, it makes sense that Latin American countries would want to make full use of the opportunity, analysts say, especially as many battery manufacturers are committed to developing new technology to reduce their reliance on certain materials, including lithium.

“The price of lithium won’t be so high forever,” said the energy adviser to the Chinese government. “Once they find a good replacement, lithium will be no longer important overnight.”

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Source: SCMP

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