China's lithium hold won't be undercut by Opec-style cartel as Argentina, Chile, Bolivia consider alliance

China is not at risk of losing its dominant position in the lithium supply chain despite ongoing discussions over the creation of a cartel for the metal similar to the one that regulates the global supply of oil, analysts said, as worldwide competition ramps up for the strategic resource seen as pivotal in decarbonisation efforts.

South American media reported in October that the foreign ministries of Argentina, Chile, and Bolivia - known collectively as the so-called lithium triangle owing to their majority share of the world's identified lithium reserves - are discussing a possible agreement on the production and pricing for the metal, which is an essential component in electric vehicle batteries.

Observers quickly drew parallels with the Organisation of the Petroleum Exporting Countries (Opec), the 13-member partnership which has an outsize role in setting global oil prices and production levels.

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"It's unlikely that a lithium organisation would be effective enough to challenge that dominance China has," said Chloe Herrera, an analyst with Lux Research, a sustainable innovation research company.

The three countries of the lithium triangle collectively account for around 56 per cent of the world's identified lithium reserves, according to estimates from the US Geological Survey, with Argentina and Chile responsible for around 32 per cent of global production.

Although Bolivia is believed to be home to the world's largest lithium deposits, it has so far struggled to launch its mining industry.

"China's main advantage is that it controls most of the lithium conversion capacity in the world. Most lithium still needs to pass through China before being used in cathodes and electrolytes," added Herrera.

Lithium conversion - also known as lithium refining - is the processing of the raw compound into a form usable for the manufacturing of electric vehicle batteries, such as lithium carbonate or lithium hydroxide.

Although China accounts for less than 6 per cent of suspected global lithium reserves, it controls over 60 per cent of the world's lithium refining capacity, according to research by Gavekal Dragonomics, and up to 80 per cent of global lithium-ion battery manufacturing, BloombergNEF found.

Chinese investment in lithium projects around the world could provide leverage in any Opec-style negotiations, said Chris Berry, president and founder of Mountain House Partners, a consultancy firm specialising in energy metals.

"I doubt any Opec-style arrangement is feasible or would have any impact on the lithium market any time soon, if ever," he said.

Despite record prices, Chinese companies have also continued paying for the metal to fuel growth in its huge electric vehicles market, according to Berry.

"They have proven their willingness to write large cheques for raw material in Australia, Africa and South America, so I wouldn't think they have anything to worry about here," Berry added.

The vastly different means of lithium extraction, from traditional mining to large evaporation pools, also makes standardisation across markets difficult to achieve, he said.

"Trying to establish a single price for multiple forms of lithium and multiple grades is a fool's errand," Berry added.

The explosion of electric vehicles and efforts to achieve carbon neutrality have led to skyrocketing demand for lithium in recent years, driving prices to astronomic levels.

In 2022, the spot price of processed lithium carbonate shot up by at least 179 per cent to 542,000 yuan (US$74, 166) per tonne, according to S&P Global Commodity Insights, from less than 40,000 yuan in November 2020, according to data from Trading Economics.

"It's quite a normal thing to see some push for resource nationalisation when markets are as strong as they are today," said Martin Jackson, a senior analyst focusing on lithium analysis as part of the battery materials team at CRU Group.

Thea Riofrancos, an associate professor of political science at Providence College, Rhode Island, whose research focuses on resource extraction and renewable energy, said regional cooperation between Argentina, Chile, and Bolivia could provide some leverage against larger international companies.

"I do see the possibility of these governments gaining leverage in negotiations with mining corporations or the downstream battery and auto firms who are becoming more active in securing lithium supplies, as well as potentially coordinating more among one another," she said.

CRU's Jackson added that lithium supply chains are diversifying at a tremendous rate as countries increase exploration and extraction, which will make it harder to control global supplies.

He said that while there were 29 lithium producing companies in 2021, that number is expected to balloon to 60 by 2024.

However, with increased diversification alongside rising geopolitical tensions leading Western countries to reassess their reliance on Chinese supply chains, Jackson cautioned that China could lose its world-leading position.

"There will be greater investment outside of China going forward," he said.

But Herrera from Lux Research believes that at least in the near term, China will continue to enjoy its dominant position in the market.

On Thursday, the Canadian government ordered Chinese state-owned companies to divest from three Canadian critical mining companies involved in lithium mining, citing national security concerns.

"[Chinese companies] Tianqi and Ganfeng are some of the largest lithium companies in the world with projects in multiple regions outside of China, and it will take up to a decade before we see some of that control slip, if ever," she said.

According to a Financial Times report at the end of October, Indonesia is also conducting a feasibility study of an Opec-style organisation for its vast troves of nickel, cobalt and manganese, which are also essential to lithium-ion batteries.

This article originally appeared on the South China Morning Post (SCMP).

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