Building Lithium Supply Chains: What Can the West Learn from Asia?

The green energy transition is well underway, with governments around the world stepping up their efforts to reduce carbon emissions and move away from fossil fuels.

In the US, the Biden administration has committed millions of dollars to securing supply of key raw materials and strengthening its domestic supply chain. Europe is not far behind with its own plans and investments.

As the urgency for reaching climate change goals increases, the west has been waking up to its dependence on Asia for critical minerals, and is realizing that it lacks control of its ambitious electrification objectives.

The US Inflation Reduction Act, which will pour around US$369 billion of federal funds into boosting domestic capacity to produce wind turbines, solar panels and electric vehicles (EVs), aims to tackle that. It has subsidies for EVs if a minimum proportion of critical minerals, including lithium, comes from the US or its free trade partners.

"Tell (automakers) to get aggressive and make sure that we're extracting in North America, we're processing in North America and we put a line on China," Democratic Senator Joe Manchin told reporters.

Lithium mining happens mostly in Australia from hard-rock sources and in Chile from brines.

China is the world's third largest lithium producer, with 2021 output of 14,000 metric tons. But it dominates at the refining and cell manufacturing level. According to Benchmark Mineral Intelligence, the country has 81 percent of the world's battery cathode manufacturing capacity, and 59 percent of its lithium-refining capacity.

“Our concern is that critical minerals could be vulnerable to manipulation, as we’ve seen in other areas, or weaponization,” US Energy Secretary Jennifer Granholm said at a recent event in Sydney, Australia.

The US has been playing catch-up with Asia when it comes to building up its lithium-ion supply chains.

“I don't blame the west for being late,” Daniel Jimenez of iLi Markets recently told the Investing News Network (INN). “The truth is this story started in Japan with batteries, then it moved into Korea and China. China was very good at recognizing the opportunity and moved very quickly into that.”

Jimenez said Europe is a good example of what could happen in coming years. EV production in the region has grown, with cell manufacturing capacity being built up as a result, and now the cathode industry following as well.

“I think this is going to naturally happen once electrification of cars becomes massive,” Jimenez said. “I think the relative advantage China has today will be more in the fact that they have probably developed technologies in specific areas where the west is behind.”

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.