OPINION: New Chinese edicts on production of electric vehicles could play out in favour of WA lithium producers.
OPINION: New Chinese edicts on production of electric vehicles could play out in favour of WA lithium producers.
After a period on life support, the Western Australian government’s dream of hosting a world-class lithium mining and processing industry to supply electric vehicle battery makers is slowly reawakening.
Developments on multiple fronts demonstrate that the problems of the past two years – lithium projects closing and investment drying up – are starting to fade, even as sales of EVs struggle to develop traction during the COVID-19 economic slowdown.
The most important change, which will be felt in WA some time next year, occurred at the National People’s Congress in China late last month when Premier Li Keqiang laid out a plan to restart a drive to replace petrol and diesel vehicles with EVs.
In his address, Li promised more EV charging stations across the country, plus a new round of financial incentives for car buyers, and the encouragement of local authorities to accelerate a switch in buses and trucks.
Before the Li speech, China’s interest in EVs had been fading, as had demand for batteries and lithium.
However, with cleaning up the environment in major cities still seen as a national priority, the focus is returning to the role of EVs. This includes an upgrade to 25 per cent for EVs as a proportion of all new vehicles sold by 2025 (up from 20 per cent).
Hitting that expanded target will not be easy at a time of low oil prices, which have made conventional cars more competitive; but there are indications a renewed EV push after the COVID-19 lockdown is starting to have an effect.
China’s biggest EV battery maker, Contemporary Amperex Technology Ltd (CATL), has taken a big step towards solving the problem of short battery life, announcing development of a battery that will last 16 years and handle 2 million kilometres of travel.
Longer-life batteries and more charging stations will help overcome two major EV drawbacks: the high cost of replacing battery packs that in some cases last only a few years, and range anxiety, or not knowing whether it’s safe to head off on a long journey in an EV.
A couple of other recent EV developments will have an effect on WA’s lithium industry.
• An increased focus by vehicle makers on producing electric delivery vans, because they generally operate on a known route of predictable distance and operate from a base with extensive charging facilities. Morgan Stanley this month circulated a research note on the importance of delivery vans to the overall case for EVs, noting that Ford and General Motors were on the verge of entering the electric van sector.
• Increasing pressure from governments around the world on vehicle pollution emission standards, which is a selling point for EVs and looks likely to become more important over the next few years. Morgan Stanley said there was an increasing preference among car buyers for ‘sustainable mobility’, which meant there could be consumer pull as well as regulatory push for EVs.
The flow-through effect of these international developments will be felt in WA, where interest in lithium mining and processing has faded, along with the price of the material whether sold as upgraded ore (spodumene) or a near-finished product, such as lithium carbonate or lithium hydroxide.
Lithium mines in WA have been forced to cut production because of the global slowdown in EV sales. Three plants, once seen as leading the way in processing, have been mothballed or are being built at a slower pace than originally planned.
A sign the lithium business is improving could be the planned sale of a 51 per cent stake in the world’s biggest lithium mine at Greenbushes in WA’s South West by Chinese owner Tianqi Lithium, with less interest in the exit of heavily indebted Tianqi and more in the buyer.
US company Albemarle is said to be interested in building on its existing Greenbushes stake, while local industrial group Wesfarmers is possibly interested in making a faster start in lithium than it currently faces, with plans for its own mine and process plant stalled.
On the financial side of lithium, it seems producers and customers are starting to see through depressed trading conditions caused by a combination of slower-than-forecast demand and overproduction of raw material.
London-based research firm Benchmark Mineral Intelligence reckons the lithium market is slowly recovering, but a significant increase in the price will not occur until after 2022 when demand for EVs is expected to cause a shortfall in lithium supply.
A hint of what might be to come can be seen on the stock market, where lithium miners have been star performers over the past month.
Pilbara Minerals, which collapsed from $1.20 two years ago to 14 cents in mid-March, is back up to 36 cents. Albemarle has risen from $US77 a share to $US84m, and SQM, Chile’s lithium champion (and Wesfarmers’ partner), is up from $US24 on the New York Stock Exchange to $US29.
