Deep in the Western Australian countryside, Pilbara Minerals’ vast processing plant looms above the red earth, shuddering as tons of lithium ore slurry move through its pipes.
The plant turns ore from a nearby quarry into spodumene, a greenish crystalline powder that contains about 6% lithium and sells for about $5,700 a ton. From there, the spodumene is shipped to China, where it is refined so it can be used in the batteries that power products like cell phones and electric cars.
Australia extracts about 53% of the world’s supply of lithium, and virtually all of it is sold to China. But now the Australian government wants to end the world’s dependence on China to process the minerals that drive the green revolution.
Pilbara Minerals, the country’s largest independent lithium miner, is among companies exploring a new model for producing battery chemicals – made closer to where lithium is mined and sold to allies like the United States and Korea. southern.
The challenges of getting such an industry up and running are daunting. China has a huge head start, with years of experience and hundreds of lithium refining plants, and an ever-tightening grip on the world’s battery manufacturing facilities. Australia’s stricter labor standards will also make it harder to compete with China on price, analysts said, even as some in Australia have argued they will result in a more reliable premium product.
“Consumers will vote using their feet and buy electric vehicles, or even solar panels at home, based on cost,” said Marina Zhang, a research fellow at the Institute of Australia-China Relations at the University of Technology, Sydney.
Pilbara Minerals is working with Australian technology company Calix on a project to refine spodumene to a lithium phosphate salt – a key step in preparing the material used in batteries. Companies are expected to make a final decision by the end of the year whether to invest up to A$70 million, or about $47 million, to build a demonstration plant.
Dale Henderson, chief executive of Pilbara Minerals, and other proponents have argued that refining lithium at home would create jobs, reduce the impact of shipping – 94% of shipped spodumene is thrown away as waste – and secure supply chains for chemicals. for batteries amid rising geopolitical tensions.
Refining lithium would also allow Australia to take advantage of the Inflation Reduction Act, the Biden administration policy enacted last year. The law aims to reduce China’s dominance of green energy by offering loans or subsidies to companies in countries like Australia that have free trade agreements with the United States.
At the Group of 7 summit last weekend, President Biden and Prime Minister Anthony Albanese of Australia jointly announced projects aimed at strengthening the supply chain of “critical minerals” used in clean energy.
The Australian government has already invested hundreds of millions of dollars in supporting the lithium refining industry, betting that customers will seek supplies of lithium from a country that is more environmentally friendly and has a strong rule of law.
“If you have more supply chain in a country with very strong governance and a very, very safe and reliable business environment, consumers can have more confidence in the products they buy,” said Allison Britt, director of Geoscience Australia, an agency governmental.
A government report last year predicted that 20% of global lithium refining could take place in Australia by 2027, up from 1%. In some cases, senior officials set even higher goals.
“I want to make sure we use the lithium, nickel and other products that we have to make batteries here,” Albanese, the prime minister, said in a speech. “This is part of the vision to protect our national economy going forward.”
But Australia would have to take significant steps to catch up with China in refining.
So far, Australia has just two facilities to produce lithium hydroxide for batteries, used to make cathodes, with a third under construction. All suffered major construction delays related to labor shortages as well as cost overruns.
The largest facility, co-owned by US chemical manufacturer Albemarle and Australian miner Mineral Resources, is being expanded with the aim of becoming “one of the largest lithium production facilities in the world,” according to a statement from Albemarle. Last year it produced its first lithium hydroxide battery – more than a year too late.
A major challenge facing Australia is cost. The investment required to establish a lithium hydroxide plant is approximately two and a half times as high in Australia as it is in China, said John Stover, portfolio manager at Tribeca Investment Partners, citing UBS bank data.
“Historically, Australia has shipped unprocessed ore to other countries to process,” he said. “That mindset shift, I think, is going to be tricky.”
Chris Ellison, owner of Mineral Resources, said the government should make it easier for foreign companies to invest in refining Australian lithium through incentives such as funding and tax breaks.
“They’re getting subsidies to build in Europe, the US and places like Vietnam from the US government,” he said in an investor presentation in February. “We need the Australian government to join this party.”
The Australian government must also weigh up acute geopolitical concerns. Lithium is central to the country’s relationship with China, said Corey Lee Bell of the Institute of Australia-China Relations at the University of Technology, Sydney.
“If we cut off that supply, I think it would be a really, really big problem,” Bell said.
However, Australia has hinted that it might feel comfortable doing just that.
Speaking last month, Madeleine King, Australia’s resource minister, said the country had an important role to play in tackling the “concentration” of critical mineral industries in China, which she said led to “fragility, volatility and unreliability”. ”. The government has also indicated that it may limit foreign ownership of critical mineral resources.
In 2020, previously cordial relations between Australia and China changed after Scott Morrison, then prime minister, ordered an investigation into the origins of the coronavirus pandemic. China then blocked some Australian imports, including coal and wine. Australia escalated the dispute to the World Trade Organization and revoked the state of Victoria’s participation in China’s Belt and Road Initiative.
There have been signs in recent months that tensions are cooling. China announced last week that it would lift its ban on Australian timber imports after ending an unofficial embargo on Australian coal.
But the relationship remains volatile. Australia “needs to have a little more say in where its resources go,” said Ross Gregory, a partner at New Electric Partners, a consultancy.
Despite the barriers, Australia’s control of the raw material gives it a chance to exert influence further down the supply chain, said Joe Lowry, founder of consulting firm Global Lithium.
“The guy with the rock wins,” Lowry said. “And Australia has the stone.”
