Critical supply chains: Mineral feedstocks for batteries
Energy transition and mineral feedstocks
Energy transition has become a pillar of policy for most major governments. All Group of 20 (G20) members have published targets to reduce greenhouse gas emissions over the coming decades - even if the targets, the regulatory infrastructure around them, and the political will to meet them vary widely. Transport, a major component of energy policy, often centres on shifting to electric vehicles.
Indeed, this shift - and the supply chains that underpin it - have been elevated to strategic importance. In June 2021, United States President Joe Biden's administration issued preliminary findings from a 100-day review of supply chains providing critical goods to the US government and industry, including high-capacity Lithium-Ion (Li-ion) batteries and the minerals and materials used in battery production. The US government aims to secure the upstream supply of 35 minerals in total that are critical in the production of leading-edge technologies, including the cobalt and lithium that are essential for producing the cathodes in Li-ion batteries. Likewise, the European Commission in September 2020 issued an Action Plan on Critical Raw Materials, which lists cobalt, and, for the first time, lithium, as essential in the shift to electric vehicles (EV) and other technologies. Japan and Canada also identify nickel as a critical mineral.
Cobalt, lithium, and nickel are exposed to a range of supply chain risks because their production and processing are geographically concentrated and dominated by jurisdictions that have been alleged to violate labour and human rights and/or are geopolitical rivals to the US and Europe.
Risk and reliability
Whilst the cost of manufacturing Li-ion cathodes will be highly influenced by evolving battery feedstock prices, their geographic concentration implies high political, security, and reputational risks. The charts below weight trade flow data from the Global Trade Atlas by the concentration of total exports of that mineral from the main countries of origin and the dominant national-level Country Risk scores for those geographies. The resulting risk exposures are then adjusted for the molecular mass of the critical minerals that are used to produce the two dominant types of cathode technology: nickel-manganese-cobalt (higher energy density, higher cost, likely to be used in higher-end EV models); and lithium-iron phosphate (lower energy density, lower cost, likely to be used in entry-level models). The Global Trade Atlas covers 98% of merchandise imports and exports and is based on calibrated and harmonised official data; the 21 Country Risk scores cover political, security, and business risks for 211 geographies, are set by regional experts and calibrated by senior analysts.
- Nickel-manganese-cobalt oxide (NMC) cathodes are among the most exposed to country risks because of their high cobalt and nickel content. Cobalt and nickel exports are highly concentrated in countries with above average country risk scores, particularly legal and regulatory risks that can result in the revocation of production contracts and prohibitive regulatory costs to producers. A vulnerability affecting all cathode technologies relates to the lithium sourced from Latin America and lithium that is processed in Mainland China, where policy instability and regulatory uncertainty can disrupt supply.
- Lithium-iron-phosphate (LFP) supply chains are relatively resilient since these cathodes do not contain cobalt or nickel. Instead, they use two diversely sourced inputs, phosphate and iron, that are supplied by lower risk countries. Although LFP cathodes are less energy-dense and less recyclable than NMCs, they are cheaper to produce and the risks to cobalt and nickel supply chains are motivating EV original equipment manufacturers (OEMs) to explore production with these cathodes.
But these supply chain risks are of course diverse and idiosyncratic; and can be assessed, managed, and mitigated only by understanding their local context.
Risks to the lithium supply chain
China's dominance of lithium refining is a significant geopolitical risk to the large-scale adoption of EVs by the US and its allies. Over 96% of spodumene exports from Australia, a US-ally, go to Mainland China, where it is processed into lithium carbonate and the higher-grade lithium hydroxide, mostly for use in China itself although China is also the largest exporter of lithium hydroxide. The remainder of these processed compounds is almost all exported to South Korea and Japan. Increasingly, Chinese lithium producers are vertically integrating extraction to processing, having acquired, or farmed into assets in Australia and Latin America.
China's 14th Five Year Plan, released in 2021, highlighted "self-sufficiency" in core technology, resilience in industrial supply chains, and a leadership position in emerging technology -including EVs - as development targets.
Lithium concentrates in Latin America are extracted from brines and processed into lithium carbonates, after which they are processed into the higher-grade lithium hydroxide. These resources are more expensive to produce but supply is also more contested. Production from brines is concentrated in Chile and Argentina's salt flats. China is projected to be the largest importer of Chile's lithium carbonate, accounting for around 43% of Chile's total exports in 2021 - nearly double the share reported in 2020. The US imported 44% and 46% of all its lithium carbonate and higher-grade lithium hydroxide, respectively, from Chile. The remainder of the US's lithium carbonate is largely sourced from Argentina, and the remainder of its lithium hydroxide is sourced largely from Russia.
Major Latin American governments, however, are increasingly under pressure to favour state ownership and domestic value-addition - particularly affecting the development and production of the world's largest lithium deposits in Chile, Bolivia, and Argentina.
Written with contributions from our Batteries Raw Materials Service, Chemicals team, Country Risk team, and Global Trade Atlas.
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