The challenge spans four continents
There is global competition for the control of lithium, the metal essential to many technologies, starting with electric batteries (both the ones we use in electric cars and wind turbines). The current trend in this race is as follows: America makes deals with Australia, which in turn is trying to avoid China’s embrace; while Beijing wants to strengthen itself in Africa and Latin America. Maybe I’m missing something, but Europe seems to be lagging behind in this area as well, as if it hasn’t understood the importance of what is at stake.
China does not own it, but refines it at home
Even stones understood that lithium is “the oil of the future”. That its production is also dominated by China. However, sometimes the general perception stops there. And perhaps China’s dominance is being misinterpreted as a “natural” fact, much like the oil supply that Saudi Arabia has underground. But that’s not the case at all. There is little lithium underground in China, about 8% of the world’s reserves. The fact is that the People’s Republic, with a far-sightedness that is lacking in our latitudes, has appropriated the mining rights in foreign territories or long-term supply contracts from mines that are literally on the antipodes. In addition, China itself has taken on the task of processing and refining the raw mineral, which is useless as such. This processing of lithium-bearing soil is profitable, but very polluting work: for this reason, in the name of environmental protection, westerners have decided to carry it out as far away as possible.
The meaning of Australia
In the new geopolitical context, being dependent on China for all our green technologies is insane. So Australia and the United States are working together to take back control of the “lithium chain.” No other country in the world plays such a crucial role as Australia: 53% of the world’s lithium is currently produced from its mines. But almost everything is sold to China. More specifically, according to a New York Times investigation, the main lithium extractor, Pilbara Minerals, sources from its mines in Western Australia a metalliferous soil from which spodumene, a mineral containing aluminum and lithium, is extracted. The lithium content is 6% of the raw ore. Spodumene currently sells for US$5,700 per tonne. But the final refining, from which the lithium for use in batteries is extracted, takes place in Chinese plants after the raw material spodumene was shipped to the People’s Republic by sea.
Australian industry, American subsidies
Now Australia wants to cut the umbilical cord with China and also move the refining phase to its own territory. Pilbara Minerals is working with Australian technology company Calix on a refinery that will produce industrial grade lithium from spodumene. This would allow Australian producers to receive US federal subsidies. Bound to America by a free trade agreement, Australia can apply for state aid for its companies under the Inflation Reduction Act. Despite its name, this law of the Biden administration is above all an industrial policy instrument that Washington wants to use to regain strategic control over sustainability chains, such as the electric battery industry.
According to the Canberra government, by 2027 Australia could already account for 20% of all world production of refined lithium. Biden and Australian Prime Minister Anthony Albanese discussed this at the recent G7 summit in Japan. For the Americans, given the close military alliance with Australia, relocating lithium refining to this country (and thus removing the Chinese monopoly) is a guarantee of future security. Of course, lithium refined in Australia will cost more as Australian wages are not the same as China’s and environmental regulations are much stricter. However, some of the additional costs will be borne by US taxpayers in the form of subsidies.
Xi Jinping alienated Canberra
In a sense, China caused it itself. His relations with Australia were excellent up until Covid. In 2020, after the outbreak of the pandemic, then-Australian Prime Minister Scott Morrison had the audacity to call for an international inquiry into the origin of the virus. Beijing responded with a harshness that confirms Xi Jinping’s inability to understand democracies: draconian economic sanctions have been imposed on Australian wine and the country’s commodities. Australia has canceled its participation in the Belt and Road Initiative (the New Silk Roads). Australia emerged from this diplomatic crisis convinced that it had to examine in depth its relations with Beijing: regaining control of lithium, in agreement with the United States, is one of the consequences. Another reason was Canberra’s entry into the Aukus Accords, the military agreement between the US, UK and Australia for the use of nuclear submarines (whose long range lets us imagine their use in saving Taiwan).
Beijing draws on Africa and Latin America
However, China continues to bet on lithium and feels the danger of losing its current semi-monopoly. He reacts accordingly. Over the past two years, Chinese companies in the industry have invested $4.5 billion to buy lithium mines in the rest of the world. With Australia shut down, China’s appetite is now focused on Africa and Latin America. The main Chinese investments in lithium mines were made in three African countries (Mali, Nigeria, Zimbabwe) and two Latin American countries (Mexico, Chile).
They are not completely quiet areas. In Mali and Nigeria, Chinese investors face security concerns amid the threat of jihadist terrorism. In Mexico and Chile, the unknowns are political: A wind of populist nationalism is blowing through Latin America, and many left-wing governments are talking about nationalizing lithium for control of their mineral resources. It’s a rehash of what happened to oil in the Arab world in the 1960s. Chile, along with Bolivia and Argentina, is discussing the creation of an “Opec Lithium Cartel,” an oligopolistic cartel modeled on the oil cartel. China must learn to deal with these local political trends, just as Westerners have had to adapt to the dictates of OPEC since 1973.
The example of Zimbabwe
An interesting case in Africa is Zimbabwe: In December 2022, the government there issued an export ban on raw lithium. Zimbabwe no longer wants to be just a commodity exporter. He demands that his foreign customers come and set up mineral refining factories on his territory. It is a legitimate and logical strategy aimed at locating the activities with the greatest added value close to the mines, keeping the profits from refining in-country and creating jobs beyond the simple work of the miners. Zimbabwe could lead the way by imposing a less unbalanced economic relationship model on China, a harbinger of African industrialization.