Easing global reliance on Chinese lithium supplies

China’s domination of the lithium supply chain is well known, but continues to intensify despite the development of new projects elsewhere in the world. Chinese firms are ramping up production at home, while also heavily investing in new mines, brines and the wider battery supply chain overseas. Greater diversity of supply would ease the overdependence of electric vehicle (EV) manufacturers, battery storage developers and others on China, but there are many challenges to achieving this. 

Global lithium supply from brine and mine resources is growing rapidly, by an average of 27% a year between 2020 and 2027. By 2027, China is forecast to hosts 32% of global production domestically, with overseas projects controlled by Chinese companies accounting for a further 18%. This means Chinese entities control 50% of the total market, up from about 35% just five years ago. Projects such as Cauchari-Orlaroz in Argentina and Goulamina in Mali part owned by Ganfeng Lithium, and Tianqi Lithium’s stakes in SQM and Greenbushes have helped cement China’s market share dominance. To see a map of Chinese owned international lithium assets, fill in the below form. 

However, when just considering extractive resources, we’re missing a vital piece of the puzzle. Of the remaining 50%, nearly two-thirds is in the form of spodumene concentrate, useless for batteries, without further refining into lithium chemicals. But, Chinese company control of chemical lithium supply is even stronger, with existing production capacity and investment plans indicating that Chinese domestic plants will account for 81% of global spodumene refinery production by 2027, with just 15%, or 180kt lithium carbonate equivalent, not controlled by Chinese companies;  Australia, for instance, is only able to refine around 25% of its domestic production by 2027. This creates a western dependency on Chinese suppliers, given that European consumption of lithium in batteries by that date will be 300 kt LCE and North American 250 kt LCE.  

Over the past five years, lithium prices have gone from bust to boom and back to bust again because of a disjoint between demand and supply. New producers, such as Brazil and Zimbabwe, have emerged in recent years spurred on by higher prices, while the level of optimism over EV demand has subsequently waned creating the current market oversupply as demand growth rates have slowed.  

The slide deck available behind the form on this page provides a summarised evaluation of the technical, geopolitical, environmental, and economic factors underpinning lithium production from concentrate, brine and integrated hard rock. It covers a range of different metrics, including capex, opex and emissions intensity, energy and water use, and time to production, enabling analysis of the main options. 

Policy and trade uncertainty impacting demand 

Lithium demand is now ramping up during a period of profound international political, economic and geopolitical change and uncertainty. The US federal government’s opposition to supporting the energy transition may slow the uptake of EVs, but wider global demand for rechargeable lithium-ion batteries is likely to grow strongly, Wood Mackenzie analysts explained in a presentation at the London Metals Exchange in October. 

Rising trade tariffs complicate the emergence of new supply chains, with global growth and demand likely to be lower over the next few years as a result. China’s stimulus efforts have helped sustain demand but will not be retained in the long term, while European economies are still growing very slowly. Corporates may take a long-term view on demand, but current trade uncertainty is likely to act as a brake on investment. 

Government’s role in supporting lithium supply chain buildout 

Lithium reserves are not scarce and but the build out the lithium supply chain is not a quick process, particularly in the face of project technical risks linked to new process routes, permitting challenges and a volatile price environment. Furthermore, creating greater supply diversity would be supported by knowledge transfer out of China, but that would be contrary to prevailing trends.  

Governments have a key role to play in creating a fiscal framework conducive to new project development. We have undertaken a review, analysis and comparison of the fiscal regimes across the world's leading lithium-producing nations, assessing these locations on a post-tax basis and highlighting governments’ critical role in supporting supply chain development. The comparative evaluation shown as a government-take framework has been applied in different jurisdictions includes Australia, Argentina, Chile, the US and Zimbabwe. A chart summarising this work can be accessed by filling in the form. 

Beyond the fiscal framework, direct government support, possibly in the form of subsidies or loans, may be needed to build battery supply chain processing outside of China. This is because mid-stream processing often fails to generate substantial profits and will certainly be more expensive in the western world than in China. This is due in part to higher labour rates, and greater equipment and environmental costs. 

European and North American governments need to realise that hosting dirty processing facilities will have environmental downsides, although some production methods are less dirty than others. Despite the backtrack on environmental social and governance (ESG) standards in the US in particular, mining companies remain vigilant, responsible and wary of reputational damage. Failing to provide subsidies and accepting environmental downsides will only deepen the west’s dependence on China. 

Project development challenges 

Although lithium is not scarce, non-conventional deposit types and jurisdiction specific challenges make project and supply chain development more difficult and riskier. Even in the lithium triangle of South America, greater scrutiny on negative environmental impacts is pushing the industry towards Direct Lithium Extraction (DLE) and away from production via evaporation ponds. Moreover, current oversupply and low prices add extra challenges to the build out of new supply, particularly on projects with greater technical and geopolitical risk. 

A way to mitigate risk, is to share the burden. Automotive manufacturers are helping drive lithium projects in the US. Tesla is building refining capacity in Texas, while General Motors is partnering with Lithium Americans Corporation to prove the viability of producing refined lithium chemicals from lithium bearing clays in Nevada. 

The overarching challenge for the lithium industry is the production of refined lithium chemicals, particularly lithium hydroxide favoured by higher nickel cathode chemistries. But the battery sector is rapidly developing new battery chemistries and technologies, which favour different lithium products or require more stringent product specifications. This means that supply chains not only need to be built, but they must have built in agility, adaptability and room to improve.  

Learn more 

Fill out the form on this page to access an extract from the presentation slide deck and find out more about the latest developments in the lithium market. 

Lens Metals & Mining allows you to evaluate trends in the global lithium supply chain, while tracking demand and supply patterns for mines, smelters and refineries across all mining commodities. Our data analytical platform assesses technical, geopolitical, environmental and economic factors, to enable you to understand market drivers, derive immediate insights and quantify risk, to help you make informed decisions in a complex environment. Find out more about Lens Metals & Mining.