Deep in rural Western Australia, Pilbara Minerals’ massive processing plant looms over the red soil and trembles as tons of lithium ore slurry pour through its pipes.
The plant converts ore from a nearby quarry into spodumene, a greenish crystalline powder containing about 6 percent lithium and selling for about US$5,700 per tonne. From there, the spodumene is shipped to China, where it’s further refined so it can be used in batteries that power goods like cell phones and electric cars.
Australia mines about 53 percent of the world’s lithium reserves, and virtually all of it is sold to China. But now the Australian government wants to break the world’s reliance on China to process the minerals that are fueling the green revolution.
Pilbara Minerals, the country’s largest independent lithium miner, is among companies exploring a new model for making battery chemicals closer to where the lithium is mined and sold to allies like the United States and South Korea .
The challenges of getting such an industry off the ground are daunting. China has a huge lead, with years of experience and hundreds of lithium refining plants, and is gaining a grip on the world’s battery manufacturing plants. Australia’s stricter workplace standards will also make it harder to compete with China on price, analysts say, although some in Australia have argued it will result in a more trusted premium product.
“Consumers will vote with their feet and buy electric vehicles or even solar panels for the home, depending on the cost,” said Marina Zhang, a researcher at the Australia-China Relations Institute at the University of Technology Sydney.
Pilbara Minerals is working with Australian technology company Calix on a project to upgrade spodumene into a lithium phosphate salt – a key step in preparing the material used in batteries. The companies are expected to make a final decision by the end of the year on whether to invest up to A$70 million or around $47 million. to build a demonstration plant.
Pilbara Minerals chief executive Dale Henderson and other advocates have argued that refining lithium domestically would create jobs, reduce the impact of shipping — 94 percent of spodumene shipped is discarded as waste — and battery chemical supply chains in the face of the Surge would back up geopolitical tensions.
Refining lithium would also allow Australia to take advantage of the Inflation Reduction Act, the Biden government’s policy enacted last year. The law aims to curb China’s green energy dominance by offering loans or subsidies to companies in countries like Australia that have free trade agreements with the United States.
At last weekend’s Group of 7 summit, President Biden and Australian Prime Minister Anthony Albanese jointly announced projects designed to strengthen the supply chain of “critical minerals” for clean energy.
The Australian government has already poured hundreds of millions of dollars into supporting the lithium refining industry, betting that customers will seek lithium supplies from a country that is greener and has a strong rule of law.
“When you have a larger part of the supply chain in a country that has very strong governance and a very, very safe and trusted business environment, consumers can have more confidence in the products they buy,” said Allison Britt, director at Geoscience Australia, a government agency.
A government report last year predicted that by 2027, 20 percent of the world’s lithium refining could take place in Australia, instead of less than 1 percent. In some cases, top officials have set even higher goals.
“I want to make sure we use the lithium and nickel and other products that we need to make batteries here,” Prime Minister Albanese said in a speech. “This is part of the vision to continue to protect our economy in the future.”
But Australia would need to make significant strides to get closer to China in refining.
To date, there are only two plants in Australia producing battery-grade lithium hydroxide, which is used to make cathodes, and a third is under construction. They all suffered from significant construction delays due to labor shortages and cost overruns.
The largest facility, co-owned by American chemical producer Albemarle and Australian mining company Mineral Resources, is being expanded with the aim of becoming “one of the world’s largest lithium production facilities,” Albemarle said in a statement. Last year, the company produced its first battery-grade lithium hydroxide — more than a year behind schedule.
A major challenge for Australia is cost. The investment required to set up a lithium hydroxide plant is about two and a half times higher in Australia than in China, said John Stover, portfolio manager at Tribeca Investment Partners, citing UBS data.
“Historically, Australia has shipped unprocessed ore to other countries for processing,” he said. “This change in mindset is going to be difficult, I think.”
Chris Ellison, owner of Mineral Resources, said the government needs to make it easier for foreign companies to invest in Australia’s lithium refinery through incentives such as financing and tax breaks.
“The American government is offering them grants to build in Europe, the US and places like Vietnam,” he said in a presentation to investors in February. “We need the Australian government to get involved in this.”
The Australian government must also weigh acute geopolitical concerns. Lithium is vital to the country’s relations with China, said Corey Lee Bell of the Australia-China Relations Institute at the University of Technology Sydney.
“If we were to cut that supply, I think that would be a very, very big problem,” said Dr. Bell.
But Australia has hinted that it might be convenient to do just that.
Madeleine King, Australia’s resource minister, said in her speech last month that the country must play an important role in tackling the “concentration” of critical minerals industries in China, which she says is leading to “fragility, volatility and unreliability”. The government has also indicated that it may restrict foreign ownership of critical mineral resources.
In 2020, previously friendly relations between Australia and China took a turn after then-Prime Minister Scott Morrison ordered an inquiry 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.
In recent months there have been signs that tensions are easing. China announced last week that it would lift the suspension of Australian timber imports after lifting an unofficial embargo on Australian coal.
But the relationship remains volatile. Australia “needs to have a little more say over the fate of its resources,” said Ross Gregory, a partner at New Electric Partners, a consulting firm.
Despite the obstacles, Australia’s control of the commodity gives an opportunity to make an impact further down the supply chain, said Joe Lowry, founder of consultancy Global Lithium.
“The guy with the rock wins,” said Mr. Lowry. “And Australia has it all.”