China has found a way to profiteer from the West’s "green agenda"

МОСКВА, 23 января 2022, Институт РУССТРАТ. The victorious march of "green energy" across the planet has slowed down due to a sharp rise in the price of the most important resource that ensures the rejection of CO2 emissions - lithium. In particular, batteries for electric cars that replace cars with an internal combustion engine are made from it. Having shown an annual growth of more than 500%, the price of lithium carbonate has jeopardised not only the lithium-ion battery market, but also related industries - from household appliances to solar panels. In a normal situation, the market would have "solved" everything. But "green energy", including the transition to electric motors, is not an economic, but a political and even ideological issue today, at least in the West. The environmental "agenda" dictates its own rules of the game: it is believed that in order to combat global warming, humanity is obliged to abandon hydrocarbon fuels at any cost. And since transport accounted for 23% of all greenhouse emissions on Earth until recently, the production of the same electric cars will only grow, despite price imbalances. In the end, citizens of countries that have taken a course to "save the climate" will pay for everything. They fully compensate producers for their costs: either directly - through the purchase of super-expensive products, or indirectly - in the form of taxes, which will go to benefits and subsidies for "green" companies. At the level of states, China will be the global winner. China today accounts for almost 75% of the world's lithium-ion battery production capacity, and this share will grow in the coming years. The strategic goal of China is full control over the production chains when creating modern batteries, including not only lithium, but also cobalt, nickel and manganese. "We need more lithium!" If to open the catalog of portable electronics: smartphones, smart watches, laptops, etc, then the choice of "batteries" for them will be small. It will be either lithium-ion or lithium-polymer. Having appeared in 1991, this type of batteries has supplanted all other options in 30 years due to its consumer qualities: low weight, high capacity, low self-discharge, recharging at any time, and in the case of lithium polymer - also the ability to take a flexible form. These advantages of Li-ion and Li-poly have covered almost all their disadvantages: fire hazard, the impossibility of extinguishing by conventional means, rapid discharge at subzero temperatures and even - that's really ironic! - non-environmental friendliness in production and disposal. With the exception, perhaps, of one serious flaw - the rapid ageing of such a battery even in case of non-use. This, we note, is one of the reasons that smartphone manufacturers have stopped making batteries removable. It is implied that it is pointless to store them, and after a few years the phone itself will become obsolete and will be replaced with a new one - with a fresh battery. Approximately the same approach is observed in automotive marketing: it has long dictated to consumers the fashion to change the vehicle every three to four years. In addition, the processing of used lithium until recently came out to be more expensive than the extraction of new, so the reuse of metal withdrawn from batteries is not common. All this predetermined the growth in demand for lithium, more than two-thirds of the world's production of which today goes to the production of batteries (for comparison: in 2010 - about 25%). Electric cars have become a key source of demand for lithium-ion batteries on the planet, even in 2018 they overtook portable equipment in terms of power consumption per year. Moreover, compared with phones, the number of which in the world has reached the logical limit, the niche of "battery-powered cars" is still extremely small, which promises them enormous growth prospects. And the dynamics are evident here, even despite the coronavirus pandemic. In 2020, 3.24 million electric and hybrid cars were sold worldwide, compared with 2.26 million a year earlier. And in the first half of 2021, 2.65 million electric cars have already found their owners. And although their total number on the roads, about 11 million units, still looks scanty against the background of 1.2 billion cars with internal combustion engines (ICE), in 8 years, according to forecasts, 100 million electric cars will travel around the planet, and by 2040 - 400 million. By this time, the accumulator, it is believed, will finally take over the ICE, having learned to compete with it in two main “nominations" - the power reserve and the speed of "refuelling". But it will happen even faster if humanity tightens the strategy of "no more than 2°C of global warming by 2100", put forward in the framework of the Paris Agreement and confirmed at the recent UN Climate Conference in Glasgow (COP26). China switches to electric cars The demand for lithium is thus logical. Nevertheless, the prices of this metal, extracted in two ways - from ore in quarries and from brine in salt marshes - and traded most often in the form of Li2CO3 carbonate, are completely inadequate even for the rapidly growing market of electric vehicles. Having fallen more than four times in 2017-2020, in 2021 they suddenly showed phenomenal growth. Today, lithium carbonate costs a record 327,500 yuan ($51,650) per ton in China. What is the reason for the 35% monthly and 506% annual increase in the price, albeit for an important, but far from the rarest resource on the planet, extracted in a dozen countries of the world? Perhaps the key factor was the misalignment between the widespread reduction in lithium production at the beginning of the COVID-19 pandemic and the underestimated recovery of global demand for electric vehicles already in 2021, primarily in China. Recall that in 2020, production fell in all major supplier countries (Australia, Chile, Argentina, Brazil), with the exception of China itself. A number of enterprises, in particular in Australia and Canada, stopped working altogether, and many refused to expand their production facilities. As a result, almost all mining companies have depleted lithium reserves in the warehouse by now. At the same time, as if not noticing the coronavirus, sales of electric cars in China have been experiencing rapid growth in recent months, moving from the premium sector of the market to the mass one. About a quarter of them in 2021 were for miniature models of chargeable cars priced at 30,000-60,000 yuan (360,000-720,000 rubles). Even a sharp reduction on the last day of last year of China’s state subsidy for the purchase of an electric car could not prevent this boom. This bias between low production of lithium and high demand for it has not been eliminated so far, as a result of which there is a banal shortage of raw materials on the market. Some manufacturers are unable to fulfil their obligations even under long-term contracts, which has a bad effect on the overall situation. Under the control of the Celestial Empire But there is another reason for the record price increase for lithium carbonate, and it is also "Chinese". The fact is that Beijing has been trying to get its hands on the global supply chains of this metal in recent years, starting with mining companies and ending with manufacturers of ready-made batteries for a variety of needs. Back in 2013, the Chinese Sichuan Tianqi Lithium Industries (now simply Tianqi Lithium) gained control of the Australian Talison Lithium - co-owner of the world's largest lithium mine deposit Greenbushes in the southwest of the Green Continent. And in 2018, after buying a stake in the second largest lithium producer in the world, Sociedad Química y Minera (Chile), a company from Sichuan province, according to some reports, took over 46% of the total planetary production of this metal. However, not Tianqi, but another Chinese giant, Jiangxi Ganfeng Lithium, is today the top manufacturer of lithium and batteries from it in terms of capitalisation. It owns shares in deposits all over the world and it also supplies products under firm contracts to world leaders in the electric car industry, starting with Tesla and Volkswagen. These and other steps taken, including within the framework of the "One Belt, One Road" strategy, allowed China to secure for itself almost all lithium production in the world, starting with Australia (a record 40,000 tons per year). And where possible, to directly control the process by entering into the capital of mining companies, as happened in Chile, with its largest recoverable lithium reserves on the planet (9.2 million tons). In addition to these investments, China is gradually establishing control over the industrial circulation of three more metals that are critical in the production of advanced versions of lithium batteries - cobalt, nickel and manganese (LiNixMnyCozO2 or Li-NMC). In particular, 80% of all cobalt mined in the world goes to the production of batteries, while about 70% of the corresponding processing capacities are concentrated in China. Separately, it should be noted that Chinese investors are greatly helped by the indifferent attitude of Beijing to the development of democracy in mining countries. A striking example is the Democratic Republic of the Congo (until 1997, Zaire), which today accounts for almost three-quarters of the world's cobalt production and whose depths contain more than half of the total planetary reserves of this metal. While Western business is thinking about the level of ESG of Congolese companies (Environmental, Social, Governance - three indicators of so-called sustainable development), the Chinese are already making money with them. Having established a dominant position in the global lithium and battery market, the Celestial Empire kills three birds with one stone. It expands political and economic expansion into third-world countries, strangles competitors/manufacturers of "cars of the future", who are forced to buy raw materials at exorbitant prices, and at the same time cashes in on the irrational craving of the West for "carbon neutrality", allowing it not to think about how metals are extracted and batteries are disposed of.