Lithium Prices Skyrocket As China Cements Leadership Position

Lithium prices are through the roof, and they’re not going down any time soon. As an essential component of electric cars and solar power, the demand for lithium-ion batteries is going to keep on climbing as the world tries to make good on its decarbonization pledges. In fact, according to estimates from the International Energy Agency, global demand for the “white gold” is projected to increase by a stunning 4,000 percent by just 2040 if global climate goals are met.

Ironically, this essential component of renewable energies is a finite (read: non-renewable) resource with considerable geopolitical underpinnings. The world’s lithium production is dominated by just a handful of countries. Australia is the top producer, followed by Chile, China, and Argentina. Now, Argentina and China are teaming up in an alliance that is making many lithium buyers and would-be competitors nervous, as the oligopoly on the south-after metal grows even smaller. This month, Argentinian President Alberto Fernandez signed onto China’s ambitious Belt and Road Initiative, a sweeping worldwide infrastructure project designed to bolster China’s economy, foster international trade, and boost China’s economic and industrial presence in countries across the globe. As Argentina and China cozy up, lithium prices have hit an all-time high at $78,000 USD per tonne, more than quadruple its price four years ago.

Argentina is one point of South America’s so-called “Lithium Triangle,” which altogether holds more than half of the globe’s lithium reserves. While Australia and South America together represent 85% of the world’s lithium production, according to market intelligence provider IHS Markit, China itself has massive lithium reserves, and Chinese companies refine a whopping two-thirds of the world’s lithium, placing them at a critical point of the global supply chain. What’s more, Chinese firms are the biggest buyers and investors of lithium mines both domestically and abroad, giving them something close to omnipresence in the global lithium market. Together, China and Argentina represent a formidable force with considerable leverage over the global green energy transition.

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What’s more, China’s own hefy lithium reserves recently increased substantially with the discovery of a new lithium deposit near Mount Everest. The freshly discovered vast cache of the alkali metal could be China’s third largest. According to scientists from the Institute of Geology and Geophysics at the Chinese Academy of Sciences (CAS), the deposit may contain as much as 1 million tonnes of lithium oxide. The ore deposit has already been deemed to be worth mining, with high enough lithium content to be of “industrial value.” The deposit is shallow, easily extractable, and a huge leg up in global lithium markets for Beijing.

While many Western countries have said that they will reduce their dependence on China for lithium, this new discovery, as well as the freshly inked alliance with Argentina, will make that goal much more difficult. While Chinese representatives say that the move is nothing more than good business related to clear market demand, the West nonetheless feels threatened by the potential bargaining power that the market consolidation will give to Beijing as lithium demand continues to skyrocket across the globe. “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,” Ryan Berg, a senior fellow at the Washington-based think tank Centre for Strategic and International Studies, was quoted by China Macro Economy

Faced with this reality, the West is hurrying to amp up its own lithium production. The United Kingdom is joining the race by mining ore that is a mere 1% lithium, which is now a worthwhile pursuit considering the metal’s going rate as well as the geopolitical implications of having any amount of domestic lithium production capacity. In the United States, too, California is throwing its hat into the ring. Governor Gavin Newsom has announced a $35 million investment in lithium mining in the state’s Imperial Valley, which is now being marketed as “the Saudi Arabia of lithium.” While this is a somewhat laughable overstatement when comparing the Imperial Valley’s lithium reserves to that of Australia or the Lithium Triangle, the Imperial Valley does have the potential to ease the U.S.’s dependence on Chinese-refined lithium.

By Haley Zaremba for Oilprice.com

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