Petro to Electro: It is the Dragon vs the Rest on critical minerals

There is a fight among countries to secure the greatest share of critical battery minerals and China has taken a huge early lead
Illustrations by Ritika Bohra
Illustrations by Ritika Bohra

This is the second section of a five-part series. Read the first part here

Say it out loud — neodymium, molybdenum, titanium, lithium, cobalt, vanadium. These tongue-twisters are names of some of the elements that are crucial in the world’s transition from fossil fuels to greener ones.

Though scattered across the periodic table and known since ages, these elements have grown in stature in recent years because of their unique properties: a group of 17 elements, dubbed rare earths and placed at the bottom of periodic table, have remarkable electrical and magnetic properties, while a dozen others can store energy and transmit them with minimal losses. These are crucial in the new energy era where a battery is key for storing the variable solar and wind energy and powering vehicles.

Essentially, batteries have three main parts: cathode, anode and electrolyte, which collect and discharge electricity. Different minerals are used for making these parts depending on the technology. For instance, rechargeable batteries in hybrid electric vehicles (EVs) use a nickel-metal hydride which involves rare earth elements.

The global scramble is particularly high for lithium, cobalt, nickel, copper and graphite that are key to the dominant lithiumion (Li-ion) batteries, used to power anything from mobile phones to electric cars to power grids. These key minerals abound Earth’s crust.

Yet global uncertainties around their supply loom large. A primary reason for this uncertainty is that these minerals are concentrated in a few pockets and their supply chain is controlled by even fewer players.

Consider lithium. In theory, it is sufficiently available in the Earth’s crust, subsurface brines and even seawater. The salt flats of Argentina, Bolivia and Chile hold 54 per cent of the world’s lithium resources. The dominant position of the Latin American trio makes them known as the lithium triangle.

But when it comes to production, Australia takes the top spot (by contributing 49 per cent of the global trade flow), followed by Chile (22 per cent) and China (17 per cent). This disruption has become possible as supply chains are heavily concentrated. Chinese companies have pursued mine investments in both Australia and Latin America to ensure an overall command of lithium supply chain.

Worse, most mines of these critical minerals are located in fragile and unstable parts of the world. About 68 per cent of cobalt used globally is produced in conflict-rife Democratic Republic of Congo. Since most Congolese cobalt is produced by artisanal mining, child labour is known to be part of its supply chain.

Australia comes next with 20 per cent of the global reserves but contributes a small share to the global production. China, though it has one per cent of the global reserve of cobalt, has emerged as a dominant actor in its mining and supply by entering into a deal with mines in Congo.

According to a 2019 working paper of the Organization for Economic Co-operation and Development, eight of the 14 large cobalt mining firms in Congo are now Chinese-owned — they account for half of Congo’s output.

In fact, analysts say China today controls 70-80 per cent of the global trade of most critical minerals. “It is already a leader in mining and extraction of these strategic minerals,” states China Stakes its Claim in Latin American Energy, a report by the Institute of the Americas at the University of California, US.

“No other country has attained such a level of domination in the Li-ion battery value chain,” it notes. An analysis of data with the US Geological Survey by Down To Earth shows that China is a leading producer of all key Li-ion battery materials, irrespective of whether it has significant reserves or not.

This growing dominance of China over reserves and supply chain of critical minerals has sent jitters across most parts of the world, which is wary of the Asian giant’s intentions. During the early part of the last decade, when China cut its export quota of rare earths making global supply uncertain, it had stirred trade disputes.

Marc Schmid of the Martin Luther University Halle-Wittenberg, Germany, explains in a paper published in journal Intereconomics in 2019 that the US, Japan and EU had filed a complaint with the World Trade Organization (WTO), which in 2014 said China’s rare earth export quota was inconsistent with the body’s regulations. China dropped export quotas in 2015. But global concerns continue as a stable supply of these critical minerals are crucial for fulfilling climate ambitions.

What favoured China?

China’s rise in the new electro-economy has been meteoric. It has grabbed the advantage of being the sector’s early bird to systematically build its trade and industry. Starting around 2010, its electro-economy has grown to dominate the entire chain — from upstream mining of battery raw material (lithium, cobalt, nickel, graphite, manganese and rare earth elements), to midstream production of battery grade chemicals, cathode and anode; and to downstream production of Li-ion battery cells and other end products.

According to the Benchmark Mineral Intelligence, a London-based price reporting agency, in 2019, China accounts for 23 per cent of the global mine-output of battery minerals. Yet its chemical companies churn out 80 per cent of the world’s processed battery-grade raw materials and 66 per cent of the global production of cathodes and anodes for Li-ion batteries.

With mega battery factories, China dominates 73 per cent of the battery supply chain. In fact, in 2020 China led the world’s battery cell production with a 63.2 per cent share, while the US was in second place with 14.2 per cent. Where China does not have enough reserves, it is accessing mines overseas. “Though China is a mineral-rich is looking overseas to prevent overexploitation of its own resources,” notes the report by the Institute of the Americas.

China has supported mining and processing firms and mega battery manufacturing facilities with low-interest loans. Trade policy has, thus, secured minerals needed for batteries, especially for EVs. But this scale of change has been possible because of an aggressive domestic policy to build industry around electro-economy and electric mobility.

This industrial policy has evolved from quite early on. Hui He of US-based non-profit International Council of Clean Transportation, tracking electric mobility in China, explains, “China has built clear national strategies as part of its Five-Year Plans to set the top-down agenda for economic development and coordinated national ministry action, and maintain policy continuity in new energy vehicle development.”

The industrial plans, for instance, have set targets for EVs including market size and technology penetration rates, and identified policies and funding required to meet those goals. Diverse set of policies have helped it build the market.

These include pilot programmes, central and local purchase subsidies, tax breaks, production mandates, technical standards and city-specific measures. Both fiscal and non-fiscal measures included licensing, road access, parking, charging incentives, and government-private partnerships for electric taxi and ride-hailing fleets have played a role, Hui adds.

This policy support has continued even after the COVID-19 pandemic downturn. Strong local policies in Beijing, Shanghai and Shenzhen have further catalysed industrial growth. In fact, the Chinese government has partnered with technical bodies and industry on R&D and disbursed funds to help commercialise vehicle prototypes and technology-demonstration.

This has built consumer confidence and checked industry hesitation, says Hui. China has developed a comprehensive battery manufacturing supply chain internally and also the world’s largest public charging network.

To help build the domestic industry, China requires foreign automakers to enter joint ventures with Chinese firms to share profits and technology. Several global vehicle brands have entered into joint ventures with Chinese companies to access markets and secure supplies of battery materials.

Some of these joint ventures are: Toyota Motor Corp and BYD Co Ltd; Renault SA and Jiangling Motors Corporation Group; Volkswagen, FAW Group Corporation, JAC Motors and Star Charge for charging infrastructure; Ford Zotye Auto, BMW and Great Wall Motor; and Nissan Motor with Dongfeng Motor Group. Japanese automakers also buy batteries from China’s Contemporary Amperex Technology Co Ltd.

Tesla is the only exception that has not entered into a joint venture but has set up a factory in Shanghai to manufacture and export to the global market. China has become an export hub for EVs to make inroads into advanced markets. The net result is China has met its policy goal of 5 million EVs by 2020, and also cornered nearly half of the world’s electric car production and 90 per cent of heavy-duty EV production.

Chinese companies — BYD, BAIC Motor Corporation Ltd, Geely, and SAIC Motor Corporation Ltd — have achieved economies of scale with global sales. China owns the most technology patents in fast charging and wireless charging, as of 2019.

This reflects its ecosystem approach to the new programme. China’s strategy on vehicle production is clear — since it could not beat the West with internal combustion engine technology, it has taken the lead in electro-mobility.

De-risk supply disruption

With decarbonisation and the net-zero race gaining pace, countries have started to strategise to reduce dependence on China. The US and EU are taking steps to reduce supply risks and price volatility. Nations are jostling to invest in mines of these critical minerals to secure direct access to raw material outside China or getting into offtake agreements.

New mines are opening up in Latin America and other regions. Countries are improving stockpiling of these minerals, particularly cobalt which faces severe supply constraints. They are exploring substitution of such materials either by increasing battery-cell efficiency or by changing to a different chemistry. Focus is also shifting towards recycling of end-of-life of batteries to recover rare earths and other such critical minerals.

The US is prioritising mining and processing at home and in partner countries. Media reports say President Joe Biden is reviewing the vulnerability of critical supply chains including rare earth materials and that the government has subsidised some mining and processing companies.

Three North American companies are setting up a rare earths supply chain to reduce dependence on China for EVs and other technologies. The US is exploring rare earth production and processing facilities in Canada, a partnership in Australia, and agreements with Greenland to explore rare earth deposits, writes Schmid.

Europe is aggressively building its own supply network, with rise in EV sales. The European Commission has launched an action plan on critical raw materials and an industry alliance to strengthen EU’s “strategic autonomy” on key raw materials.

Europe aims to be 80 per cent self-sufficient in lithium for battery storage by 2025. Mining projects are under development across Europe. With lithium mines coming up in the Czech Republic and Portugal, Europe is likely to secure a substantial part of lithium within the continent for its vehicles.

The World Economic Forum (WEF) has proposed the idea of the G20 nations setting up a process to handle emerging tensions and also the possibility of the US, EU, China, Japan and South Korea pledging to increase support to international R&D initiatives on EVs.

This includes more funding for next generation battery technologies. WEF suggests that the EU work more closely with countries with deposits of metals and minerals to improve resource governance.

The race is on

The electro-economy has triggered a unique trend of automakers investing in mining projects to secure and control raw material sources. As per reports, Europe’s first lithium mine is looking for auto industry investors and automakers in Germany are considering the possibility of owning stakes in mining projects in Finland that can deliver lithium to comprise 25 gigawatt hours of battery cell supply starting at the end of 2021.

Reports also say Toyota’s trading arm Tshusho has acquired a 15 per cent stake in Australia-based miner Orocobre to secure rights and help fund lithium brine project in Argentina. This can take the form of fixed supply deal where an automaker agrees to take a bulk of the production while ensuring sustainable mining.

Margo Oge, former director of the Office of Transportation and Air Quality at the US Environmental Protection Agency, and now associated with global industry strategies, told DTE that massive shift towards electrification was leading to restructuring of the industry and the focus was on how to retain the value chain within the industry.

Governments need to support this transition. Even Tesla got a loan for its electric cars as part of the stimulus package from the Barack Obama administration in 2010. Global players in battery manufacturing like Panasonic have already partnered with Tesla to build a giga-battery factory in Nevada.

Livent, a Philadelphia-based company, operates one of the lowest-cost lithium mineral deposits in Argentina and is entering into a joint venture to buy Canada’s lithium mining projects. This move is to secure supplies of battery grade lithium.

Yet another strategy is to change the battery chemistry to not only reduce the need for constrained materials but also improve energy density (amount of energy batteries can store per kilogram over their cycle life) and performance of batteries.

Batteries for EVs come in different combinations, which include lithium-nickel-manganese-cobalt-oxide, lithium-manganese-oxide and lithium-nickel-cobalt-aluminium-oxide. While cobalt and lithium are currently dominantly used for energy storage, batteries can use a wide variety of minerals for cathode that include aluminium, lead and manganese.

With concerns over mineral supply chains, especially cobalt, the battery industry is innovating to reduce the amount of cobalt needed. According to a 2020 World Bank report, this is changing the proportionate mix of minerals. For example, Li-ion battery compositions can have mineral content ratio that requires 80 per cent nickel and 10 per cent each for manganese and cobalt for cathode.

In another composition nickel, manganese and cobalt can be used in equal proportions and in this combination, that is now more widely used, nickel demand is over 35 per cent lower. More efforts are also on to reduce the amount of cobalt required.

The 2020 World Bank report states that the shortages of minerals such as cobalt could incentivise shifts to different types of Li-ion battery. Also, lithium shortage could bring in other chemistries that can increase the demand for nickel. Such shifts can lead to a 23 per cent fall in the use of lithium in Li-ion batteries by 2050.

It is further anticipated that with improvement in energy density and the cycle life of batteries, demand for new batteries and some minerals can fall. For example, improvement in energy density of Li-ion batteries and more prolonged capacity of battery before it starts to fall below 80 per cent of its original capacity, can modify demand for minerals such as lithium, graphite and cobalt.

Industry watchers say that post-2030, newer battery options such as solid state Li-ion batteries and zinc-air batteries (powered by oxidising zinc with oxygen from the air) will be available that will further reduce demand for some minerals.

As the World Bank report explains, solid-state batteries will replace liquid electrolyte in conventional Li-ion batteries with solid alternatives like polymer or ceramic. Lithium demand is likely to remain strong for use in anode, but graphite’s can fall. Zinc-air batteries can reduce demand for lithium, graphite, nickel, manganese and cobalt. This may shift demand towards nickel, manganese and zinc, fuelling another wave of uncertainty and fears of trade war.

This article was first published in the 1-15 April, 2021 print edition of Down To Earth

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