by Kevin Killough
During a visit to Portugal, a senior U.S. official claimed that China is flooding the market in lithium as a “predatory” tactic to drive down global prices and beat back competition. If prices are low, the theory goes, it’s hard to attract investors and make mine development in the West economically attractive.
Reuters reported Jose Fernandez, undersecretary for economic growth, energy and the environment at the U.S. Department of State said at a briefing earlier this month that China was looking at the U.S. Inflation Reduction Act, which provides government funding for the development of critical minerals and domestic manufacturing, and responding to the competition it may create.
“They engage in predatory pricing… (they) lower the price until competition disappears. That is what is happening,” Fernandez said. It’s not the first time the communist country has been accused of such practices.
David Hammond, a mineral economist with decades of experience as a mining consultant, told Just the News that China does flood the market, but he said the reasons have less to do with short-term impacts on competition and more with long-term control of electric vehicle manufacturing.
Value added
As the West fights to achieve net zero by 2050, a prospect some experts say isn’t feasible, there’s a growing interest in critical minerals, including cobalt, rare earths and lithium. These minerals are used in wind turbines, solar panels and electric vehicles.
China currently controls about 60% of the global production of critical-mineral supply chains as well as 85% of the processing capacity, which takes raw ore and extracts the valuable minerals from it. The country holds less than 7% of the world’s lithium reserves, yet it controls 80% of global lithium chemical production.
China has threatened to ban exports of rare earths and graphite in response to foreign tech controls and investigations that threaten its industries. Should the U.S. derive a growing share of its transportation and electricity from products dependent on supply chains from China, the country would have enormous leverage over the U.S., creating a national security issue. The Biden-Harris administration has sought to develop domestic supply chains and green manufacturing in hopes of breaking China’s dominance of these supply chains.
Hammond said China isn’t likely flooding markets to eliminate competition from mineral developers. Doing so, he said, would be a short-sighted strategy. “They have to keep the price low forever, because if you make one company go out of business, there could be another that comes in right after that and takes over the project. Then, they’ve got to lower the price again,” Hammond said.
Hammond continued, saying that China isn’t so interested in being resource suppliers. They want to control the intermediate product, such as EV batteries, the production of which China already dominates.
“Because there’s value added. There’s more value if you sell the car than if you sell the lithium,” Hammond said.
Chinese electric vehicles have become a formidable competitor against U.S. EV manufacturers, such as Tesla. China heavily subsidizes automakers, which automakers say creates an uneven playing field in the competitive EV market. It’s why former President Donald Trump is campaigning on a promise to increase tariffs on Chinese-made vehicles. The European Union has also passed new tariffs on Chinese EVs for the same reason.
Over the past 20 years, Chinese mining companies, Hammond said, have been increasingly buying stock or forming joint ventures with Western mining companies. Their strategy has also included building and operating new mines across the world.
China will often negotiate with countries to build the mine at China’s cost, Hammond explained, and Chinese companies operate it. They will share a portion of the profits with the foreign nation. China populates the mines with their own workers and provides those workers with their food, shelter and medical needs.
“So they will build a Chinese camp to build the mine. The workers and managers will all live there, and they will have nothing to do with the local economy,” Hammond said. And they usually operate without consideration of labor laws or environmental regulation, he added. So Western companies often provide benefits to the communities where the mines are located, in terms of things like funding for schools.
“Chinese don’t do that. They’re there for the resource period,” Hammond said.
The other benefit to flooding the market to drive down prices is that China makes these investments appear less valuable when they swoop in to develop the property. That means the Chinese investors can negotiate a lower price with the sellers, giving them the resources to supply their own manufacturing operations.
Not so wild West
Developing mineral supply chains in the West is a much more difficult process.
With regard to mineral development, it can take decades to develop a mine. The Resolution Copper Mine in Arizona, for example, would increase U.S. copper production from about 1 million metric tons annually to roughly 1.5 million metric tons annually. That would supply 25% of the current copper demand in the U.S. The mine has been in development for 30 years. Besides the challenges of exploration to find an economically viable mineral deposit, the permitting process is lengthy and full of legal challenges.
The Department of Energy is dropping over $2 billion in loans to support the development of Nevada’s Thacker Pass lithium projects, and General Motors has invested $625 million in the company developing the mine.
Initial construction started in March 2023 after a lengthy and complex court case brought by ranchers and indigenous communities. Environmental groups who advocate for an energy transition also fight these mines. The Center for Biological Diversity has been among the most vocal opponents of the Thacker Pass project.
Hammond said there are still technological challenges that could defeat the project. The process used to extract lithium at Thacker Pass hasn’t been demonstrated at a commercial scale. “I still have my doubts they will be successful. If they are unsuccessful at the first big lithium project in Nevada, Thacker pass, that will cause a loss to General Motors and to the US taxpayer of well over a billion dollars,” Hammond said.
Whatever the strategy behind China’s manipulation of global mineral prices, they are well positioned to be a major player on the world mining stage. The West will have a hard time competing with — much less dislodging — China from its position.
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Kevin Killough is a reporter for Just the News.
