China chases lithium supply chain dominance

4 April 2018

China's ambition to lock down its lithium supply chain and solidify itself as a dominant player in electric vehicle (EV) production will have far-reaching implications for global suppliers, according to a study by risk consultants Verisk Maplecroft.

In its report, 2018 Political Risk Outlook – China’s lithium supply chain strategy: solidify, diversify and control, Verisk Maplecroft analysts said China believes its plan to steer its auto market towards a battery-powered EV can only succeed if it can secure a reliable supply of the minerals and metals necessary for lithium-ion battery production. 

The Chinese government has previously stated it wants 2m EVs to be sold annually by 2020, for EVs to make up at least a fifth of new vehicle sales by 2025 and to eventually phase out internal combustion vehicles altogether. 

However, at present, according to the report, the Chinese government believes the country is too reliant on imports of raw materials used to make EV batteries, placing it at a disadvantage to other countries.

China’s lithium output makes up about 6% of global mine production, well behind exporters such as Australia (41%), Chile (34%) and Argentina (16%).

Hugo Brennan, Asia analyst at Verisk Maplecroft, said China would first have to increase its supply of lithium if it is to fulfil its ambitions to be a dominant player in EV production.

“For China to bolster its supply of lithium, we believe that Beijing will likely pursue three strategic objectives in 2018 – namely, to develop its domestic lithium resources, diversify its lithium imports and increase its influence over the global lithium value chain,” he said. 

“The progress China makes towards furthering these goals will go a long way to determining to what extent it can meet its EV ambitions.”

If China wanted to reduce its reliance on the leading overseas suppliers, Beijing would have to diversify the source of its lithium imports, replicating a model its has already used for its hydrocarbon sector, he added.

“Chinese firms are therefore likely to receive official encouragement to sign offtake agreements and strategic partnerships with companies from mid-tier and emerging production hubs – such as Zimbabwe, Brazil, Bolivia and Canada – to create a more diversified import model,” he said.

But, as the report pointed out, strategic investment in China’s mining operations domestically and globally would likely have an impact on pricing and competition within both the lithium extraction industry and the fast-emerging EV sector.

Brennan said as the government has made transitioning towards EV a national priority, it would most likely create significant policies to ensure China gets ahead of the game “in the global scramble for lithium resources”.

“Considerable state support for Chinese firms investing in lithium mining assets and processing facilities overseas is more than likely,” he said.

“This will increasingly reach not just tradition lithium producers, such as Tianqi Lithium and Ganfeng Lithium but beyond to include lithium-ion batteries and EV manufacturers, including the likes of CATL, BTD and Great Wall Motors.” 

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