Is moving production chains closer to home really feasible?

Looking beyond the COVID-19 crisis, some analysts suggest limiting exposure to China and moving production chains to other regions to have a more strategic supply chain structure.

According to Benchmark Mineral Intelligence data, while lithium production, for example, is concentrated in South America and Australia, more than 50% of chemical processing and refining is located in China, and only 1% in South America. 

Cathode and anode production is concentrated in South Korea, Japan and China. Megafactory cell capacity is also dominated by China over US and Europe. 

According to Chris Berry, energy metals strategist at New York-based consultancy House Mountain Partners, moving production chains closer to home will be driven by wider use of technology to mitigate cost inflation, which will make intellectual property a crucial subject.

“Coronavirus effects are still unfolding. This next war will be waged with different tools and thus requires a different playbook and approach,” he said at the EV Festival seminar. 

Building a resilient lithium supply chain will need a partnership model that can mitigate risk and increase the use of artificial intelligence, the internet of things and 3D printing within a model that leverages technology to build localization and resilience. 

Strange bedfellows 

Capital investment from nontraditional sources like insurance companies, pension funds or Silicon Valley will also spur public-private partnerships in the industry. 

In February, Bill Gates’ Breakthrough Energy Ventures fund led a US$20mn investment in lithium firm Lilac Solutions, which is commercializing faster and cheaper technology to extract lithium from brine. 

Political will

Within the mining industry, efficiency is the goal but capital and political will are also necessary. 

Dante Arrigoni, president of Chile’s metallurgical association Asimet, said the manufacturing and employment loss because of Asia’s low-cost production could be reverted with the implementation of public policies to facilitate and speed up investment. 

Carlos Vicens, CFO of Toronto-based Neo Lithium, said South America could start to bring production chains closer to home by 2030. 

“We currently have the mining knowledge in the region. Maybe, beyond 2025, we could bring supply chains closer. But I bet on starting in 2030,” he told BNamericas. 

Meanwhile, in South America the lithium market remains uncertain but dynamic and potential M&As involving miners with EV-battery raw material projects could be seen in the mid-term, analysts say.

Photo credit: Chile's mining ministry