Australia Tries to Break Its Dependence on China for Lithium Mining

Deep in rural Western Australia, Pilbara Minerals’ vast processing plant looms above the red dirt, quivering as tons of a lithium ore slurry move through its pipes.

The plant turns the ore from a nearby quarry into spodumene, a greenish crystalline powder that is about 6 percent lithium and sells for about $5,700 a ton. From there, the spodumene is shipped to China, where it is further refined so it can be used in the batteries that power goods like cellphones and electric cars.

Australia mines about 53 percent of the world’s supply of lithium, and virtually all of it is sold to China. But now the Australian government wants to break the world’s dependence on China for processing the minerals driving the green revolution.

Pilbara Minerals, the country’s largest independent lithium miner, is among the companies exploring a new model for producing battery chemicals — done 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 underway are daunting. China has an enormous head start, with years of experience and hundreds of lithium refining plants, and a steadily tightening grip on the world’s battery-making facilities. Australia’s more rigorous workplace standards will also make it harder to compete with China on price, analysts said, even as some in Australia have argued that they will result in a more trustworthy, premium product.

“Consumers will vote using their feet, and they will buy electric vehicles, or even solar panels at home, based on the costs,” said Marina Zhang, a researcher at the Australia-China Relations Institute at the University of Technology Sydney.

Pilbara Minerals is working with the Australian tech company Calix on a project to refine spodumene to a lithium phosphate salt — a key step in readying the material used in batteries. The companies are expected to make a final decision by the end of the year whether to invest up to 70 million Australian dollars, or around $47 million, to build a demonstration plant.

Dale Henderson, the chief executive of Pilbara Minerals, and other proponents have argued that refining lithium at home would create jobs, reduce the impact of shipping — 94 percent of shipped spodumene is thrown out as waste — and secure supply chains for battery chemicals amid rising geopolitical tensions.

Refining lithium would also allow Australia to tap into the Inflation Reduction Act, the Biden administration policy enacted last year. The law aims to cut into 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 the Group of 7 summit last weekend, President Biden and Prime Minister Anthony Albanese of Australia jointly announced projects intended to strengthen the supply chain for “critical minerals” used in clean energy.

The Australian government has already put hundreds of millions of dollars toward supporting the lithium refining industry, betting that customers will seek out lithium supply from a country that is more environmentally friendly and has a strong rule of law.

“If you have more of the supply chain in a country which has very strong governance, and a very, very safe and trustworthy business environment, then consumers can have more confidence in the products that they buy,” said Allison Britt, a director at Geoscience Australia, a government agency.

A government report last year forecast that 20 percent of global lithium refining could take place in Australia by 2027, up from less than 1 percent. In some cases, top officials have set even loftier goals.

“I want to make sure that we use the lithium and nickel and other products that we have to make batteries here,” Mr. Albanese, the prime minister, said in a speech. “That’s part of the vision of protecting our national economy going forward.”

But Australia would have to make significant strides to get closer to China in refining.

So far, Australia has just two facilities to produce battery-grade lithium hydroxide, used to make cathodes, with a third under construction. All have suffered from major construction delays related to labor shortages, as well as cost overruns.

The largest facility, co-owned by the American chemical maker Albemarle and the Australian miner Mineral Resources, is being expanded with the goal of becoming “one of the world’s largest lithium production facilities,” according to a statement from Albemarle. Last year it produced its first battery-grade lithium hydroxide — more than a year behind schedule.

A big challenge facing Australia is cost. The investment needed to establish a lithium hydroxide plant is roughly two-and-a-half times higher in Australia than in China, said John Stover, a portfolio manager at Tribeca Investment Partners, citing data from the bank UBS.

“Historically, Australia has shipped unprocessed ore to other countries to process,” he said. “That change in mind-set, I think, is going to be tricky.”

Chris Ellison, the owner of Mineral Resources, said the government must make it easier for foreign companies to invest in Australian lithium refining through incentives like funding and tax breaks.

“They are being offered grants to build in Europe, the U.S. and places like Vietnam from the American government,” he said in a presentation to investors in February. “We need the Australian government to come to the party on that.”

The Australian government must also weigh acute geopolitical concerns. Lithium is instrumental to the country’s relationship 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 it would be a very, very big issue,” Dr. Bell said.

Yet Australia has hinted that it might be comfortable doing just that.

Speaking last month, Madeleine King, Australia’s resources minister, said the country had an important role to play in pushing back against the “concentration” of critical minerals industries in China, which she said led to “fragility, volatility and unreliability.” The government has also indicated that it might limit foreign ownership of critical mineral resources.

In 2020, previously cordial relations between Australia and China took a turn after Scott Morrison, then the prime minister, 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.

There have been signs in recent months that the tensions are cooling. China announced last week that it would lift its suspension of Australian timber imports after ending an unofficial embargo on Australian coal.

But the relationship remains volatile. Australia “needs to have a little bit more of a say over the destiny of its resources,” said Ross Gregory, a partner at New Electric Partners, an advisory firm.

Despite the barriers, Australia’s control of the raw material gives it a chance to assert influence further down the supply chain, said Joe Lowry, the founder of the advisory firm Global Lithium.

“The guy with the rock wins,” Mr. Lowry said. “And Australia’s got the rock.”