Lithium price war, Australian miners may not have the last laugh

  On May 14 this year, in Santiago, the capital of Chile, a proposal to expand the “nationalization” of Chile’s minerals was put before members of the Chilean Constituent Assembly.
  The proposal, if passed, would give the Chilean government exclusive mining rights for lithium, rare metals and hydrocarbons. With the votes cast out one by one, the proposal was finally rejected, and the dangling hearts of many foreign mining companies finally came to fruition.
  As the world’s second-largest producer of lithium ore, even a small move by Chile on lithium can arouse the continuous attention of the industry. But in the lithium industry, there are far more parties involved than just Chile.
  Since the beginning of this year, Australia’s major lithium mines have been operating at full capacity, continuing to expand production, and continue to consolidate their position as the world’s No. 1 lithium mine supply side. In June this year, Australian lithium miner Pilbara ended its third lithium concentrate auction this year ahead of schedule – the transaction price of US$7,017/ton was a significant increase compared to the US$5,955/ton auctioned in May.
  The continuously high lithium price has made the new energy vehicle companies that mainly focus on lithium batteries miserable. In April of this year, Tesla CEO Elon Musk released harsh words, intending to enter the lithium mining industry; before that, many new energy vehicle companies in China also announced price increases.
  Crazy lithium prices are reminiscent of the oil crisis that ran through the 1970s. In November 1979, international crude oil rose to a record high of US$40.75 per barrel; nine months ago, the price of crude oil was only US$20.8 per barrel; in the early 1970s, the price of oil per barrel was only US$1.2.

  The price of lithium, which was once highly anticipated, seems to be following in the footsteps of oil.

  In that decade, the successive oil crises caused global inflation, and countries around the world began to seek alternative energy sources for oil. The research on lithium batteries also came into being in this context.
  Ironically, more than 40 years later, the price of oil is still high, and the price of lithium, which was once highly anticipated, seems to be following in the footsteps of oil. Behind the high price of lithium, major lithium mining countries such as Australia and the three South American countries, as well as domestic lithium mining companies in China, are competing for their own interests.
  The lithium ore market is bustling. Participants firmly believe that this mineral resource, which has become “white oil”, will affect the fate of themselves and even the entire country behind them for a long time to come.
From industrial MSG to white oil

  In 1967, the British “The Times” published a piece of news that surprised Europe and the world: a huge mushroom cloud rose in the Gobi Desert, and China’s hydrogen bomb test was declared a success.

2019 Nobel Laureates in Chemistry Akira Yoshino (left), John B. Goodenough (middle), M. Stanley Whittingham (right)

The Salar de Uyuni, known as the “Mirror of the Sky”

  The “explosives” used in this hydrogen bomb that the Chinese are proud of are lithium hydride and lithium deuteride. At that time, lithium was used in many industrial fields such as metallurgy. Because of its wide applicability, people gave lithium an interesting nickname “industrial monosodium glutamate”.
  This nickname vividly interprets the status of “lithium”: it is like monosodium glutamate, as long as you add a little bit, the finished product can be qualitatively changed; like monosodium glutamate, the price is affordable.
  In the 1970s and 1980s, with the continuous efforts of Whittingham, Goodenough and Akira Yoshino, a safe, stable and commercial lithium battery was born. When the three of them worked hard in their respective laboratories, I wonder if they would have thought that decades later, it was their invention that pushed the cheap “industrial MSG” lithium step by step to the throne of “white oil” .
  In 2019, the three won the Nobel Prize in Chemistry for their achievements in the field of lithium batteries. At this time, the world is still on the eve of the dark battle of lithium batteries.
  In 2021, the market demand for lithium-ion batteries is strong, with global lithium consumption of 93,000 tons, a 33% increase from the previous year. Lithium-ion new energy vehicles, which have been in the air for a long time, keep the price of lithium rising. A “war” around “lithium” has quietly started in the country with large lithium ore resources.
  Southwest Bolivia, in the middle of the Andes Mountains, 40,000 years ago, a giant lake gradually dried up and slowly evolved into a salt marsh. Today, countless tourists from all over the world come here every year. After the rain, the salt marsh covered by water is like a mirror, reflecting the scenery of the sky. The world has also given this fairyland-like salt marsh a mythical name – the mirror of the sky.
  It is a pity that the scenery that symbolizes purity cannot purify human greed. On the Salar de Uyuni, known as the “mirror of the sky”, many lithium ore factories are constantly being mined – under the vast “mirror”, there are hidden Nearly half of the world’s lithium ore resources.
  Bolivia, which is fed up with European and American capital, is naturally reluctant to beg for food. They hope to turn lithium ore into a driving force for economic development.
  Argentina and Chile also share similar ideas with Bolivia. The 2021 USGS report shows that the total global proven lithium resources are about 86 million tons, of which 58% are concentrated in Bolivia, Argentina and Chile. These three countries are also known as the “South American Lithium Triangle”.
  Together they benefit, and if they divide, they hurt. With the soaring price of lithium, the intention of the “Lithium Triangle” to form a “Lithium Mine OPEC” has been brought up again, causing heated discussions again.
The Ambition of the Three South American Countries

  In the 1960s, a number of oil-producing countries, mainly in the Gulf region, established the Organization of Petroleum Exporting Countries (OPEC) to safeguard the interests of all countries in the organization by unifying and coordinating oil policies among member states.
  Its successful experience has provided experience for countless resource-oriented developing countries. As early as 2011, Argentina extended an olive branch to Bolivia and Chile, and put forward the initial idea of ​​establishing a “lithium OPEC”.

  Under the vast “mirror”, there are nearly half of the world’s lithium ore resources.

  The dream is very full, but the reality is very skinny. In the following 9 years, “Lithium Ore OPEC” has not made further action. It was not until the end of 2020 that the “Lithium Triangle” established the “Lithium Resources Alliance”, which mainly serves academic exchanges.

  There are many reasons for the difficult production of “Lithium OPEC”. The first is the different policy policies of the three. In the “Lithium Triangle”, Bolivia has the strictest restrictions on lithium mining: in 2008, two major Japanese consortiums, Mitsubishi and Sumitomo, sought a lithium mining license from Bolivian President Morales, but was rejected.
  Morales, who is familiar with history, told the Japanese that he would not let the country repeat the tragedy of the Inca Empire. In the 15th century, just because of the silver mines of the Inca Empire, the Spaniards destroyed this ancient civilization and took this land. became their mines for 3 centuries.
  Out of natural distrust of pro-European capital, Morales nationalized all of Bolivia’s major lithium mining companies during his tenure. This move obviously annoyed the mining giants who were rejected by him. With the help of the United States, in 2019, Morales failed to escape the fate of being ousted in a coup. The turbulent situation once again cast a shadow over the cooperation of the “Lithium Triangle”.
  The exact opposite of Bolivia’s policy is Chile. President Piñera, who took office in 2018, strongly advocated the privatization of lithium mines and sneered at “lithium mine OPEC”. The turning point occurred in December 2021, when Boric, a self-proclaimed reformer, was successfully elected as the new president of Chile.
  Nationalization of lithium mines is an important part of his policy. As a pillar industry in China, mining-driven related industries contribute more than 30% to Chile’s GDP, and mineral exports account for 52% of total exports. “Lithium OPEC” has been put on the agenda again.
  With the skyrocketing metal prices in recent years, Chilean private mining companies with resource monopoly advantages have made a lot of money. The mine owners also formed a staunch alliance, determined to oppose Borridge’s reforms.
  Constrained by this, Borridge’s road to change is extremely difficult. He also had to compromise after a proposal to nationalize the lithium mine was rejected by the Constituent Assembly. The Chilean Mining Minister said that the government plans to establish a state-owned lithium enterprise by the end of this year, “with the state-owned lithium enterprise as the main shareholder, but open to private capital investment”; the category of mining royalties does not include lithium for the time being.
  What’s more serious is that in this dark battle over lithium mines, Boric’s opponents are not only from China. In August last year, Australian lithium miner Pilbara launched the world’s first lithium concentrate auction platform, and the first auction transaction price was almost double the price it sold lithium concentrate in a contract mode. This not only pushes up the price of lithium mines from the side, but also makes the vested interests of lithium mines more reluctant to give up their own profits.
  Seeing that lithium prices will continue to rise, Mexico, which is usually not closely related to the “lithium triangle”, has also come to the door this year and wants to join the “lithium mine OPEC”. But this is not good news for the “Lithium Triangle”: after all, the participation of more countries brings more power to speak, but also means that more benefits need to be distributed.
  Taking a step back, even if the Lithium Triangle, including Mexico, really constitutes the “Lithium Mine OPEC”, its influence may still be difficult to compare with OPEC. Of the four companies that account for 90% of global lithium production capacity, two are from the United States, one is from Australia, and only one is from Chile.
  In terms of production capacity, the gap in strength between the “lithium triangle” and OPEC is visible to the naked eye. After all, the latter controls nearly 40% of the world’s oil production and nearly 50% of the international oil trade volume, which can appear in the global oil market. When there is a change, the oil price is regulated by increasing/decreasing production. This also means that there is still a long way to go for the “Lithium Triangle” to rebuild the order of benefit distribution in the global lithium industry, from minerals to mining to finished products.
The end enterprise pays the bill

  The fire at the city gate has affected Chiyu. In the current round of lithium prices, the most affected are undoubtedly the enterprises related to new energy vehicles, and many related industries have been affected. According to reports, some companies that produce lithium batteries for consumer electronics have been on holiday and stopped production one after another. Among them, first are companies that make batteries for electronic cigarettes and earphones, and then some mobile phone battery companies.

On August 6, 2018, the Bald Hill lithium mine site in Australia

  In addition, some pharmaceutical companies have also suffered from rising lithium prices – as early as 1970, the application of lithium in mania has been approved by the US Food and Drug Administration, and it was later classified as mania Prophylactic pharmaceutical preparations for depression.
  For companies with bargaining power, raising prices is a temporary solution to the crisis, but it is by no means a long-term solution. In February this year, Weilai, Xiaopeng and Ideal invested in Xinwangda, a listed lithium battery company, and CATL also went to Africa and Australia to invest in lithium mining projects. Whether it is a new energy vehicle company or a lithium battery manufacturer, all efforts are made to extend their tentacles to the upstream, and through continuous upward deployment, to reduce the impact of rising raw material costs on enterprises.
  Equally anxious is Tesla, whose CEO Elon Musk said on social media: “Tesla may have to go directly to large-scale mining and refining operations unless cost pressures ease.” In his view, lithium The skyrocketing price is unreasonable: “Lithium is available in many places on earth, but the speed of mining and refining lithium is too slow.”
  Some people are happy and some are worried. Data from the Australian Bureau of Statistics shows that in the first quarter of this year, the profits of the Australian mining industry increased by 14.7%, accounting for more than half of all corporate profits; driven by the mining industry, Australia’s GDP in the first quarter increased by 0.8% month-on-month and 3.3% year-on-year. That was 3% higher than many economists had expected.
  With such dazzling achievements in Australia, it is no wonder that Australian mining companies represented by the Pilbara are constantly trying to push up lithium prices in order to earn immediate benefits. However, if you take a longer view, it is difficult to say who is the real winner in this unfinished lithium mine war.
  As Musk said, lithium mines are not scarce. Today’s crazy lithium prices, to a large extent, are nothing more than irrational prosperity created by downstream companies paying for the emotional worry of a temporary shortage of lithium.
  The upstream and downstream are symbiotic rather than competitive. When the high lithium price seriously hurts the downstream, which in turn restricts the market’s desire to consume, this injury will eventually backfire on the upstream. In the last wave of lithium mining rising cycle, Western Australia poured into a large number of lithium mining companies in a short period of time (2016-2018). But lithium prices soon halved due to factors such as overcapacity, which eventually led to a major industry reshuffle and economic turmoil in the region.
  Now, the scene of soaring lithium prices and capital influx has reappeared. Whether a similar ending will still occur in this land, we do not know for the time being. After all, when the wind comes, a pig can fly, only when the tide recedes. People will find out who is swimming naked.

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