Electric vehicles and their upstream industry will undoubtedly be one of the biggest winners in The Chinese and global economy in 2021. The rapid growth of China's electric vehicle manufacturing industry and market has led to a sharp increase in the demand and price of the main metal materials for power batteries around the world. In the case of lithium, the "white oil" of the 21st century new energy era, the price of battery-grade lithium carbonate, a major chemical used in lithium electricity, will increase more than five times in 2021.
In the context of energy transition, China's electric vehicle industry will have a huge demand for lithium, cobalt, nickel and other metal raw materials in the coming decades. Currently, China relies heavily on imports of these metal resources. For example, in 2020, China imported 80 percent of its lithium and more than 90 percent of its cobalt from abroad, with 60 percent of the lithium coming from Australia and most of the cobalt coming from the Democratic Republic of Congo.
In policy and industry, a dominant view is that China needs to work to reduce external dependence on these important metal mineral resources and enhance upstream supply security through direct investment in overseas minerals. For example, some scholars believe that the competition for these mineral resources will become a new battlefield of great power game. Another Chinese Academy of Sciences member called for the establishment of national mining companies like Cnooc, petrochina and Sinopec, which are in charge of mineral resources exploration and development and commercial activities, to cope with the complex international geopolitical situation.
In short, many fear that if China does not quickly establish its own strategic mineral supply system, including government-backed investment in overseas mining projects, the chip industry could be choked again.
This kind of "resource anxiety" exists not only in China, but also in western countries. China imports much of the raw material for metal ores and refines 35 per cent of the world's nickel and 50-70 per cent of its lithium and cobalt. These intermediate products supply not only local ev and battery companies, but also downstream companies in the US, Europe, Japan and South Korea. Chinese companies also dominate the downstream sector, which includes battery chemicals, grade and battery manufacturing, and the manufacture of electric vehicles.
As a result, there is anxiety in western countries that China will back them up.
In the recent sci-fi satire Don't Look Up, starring Leonardo dicaprio, for example, the US needs to mine a comet crashing into Earth because Of China's control of the world's vital metal resources. Although I consider the film's apparent allusion to humanity's inability to cope with climate change to be shallow in its plot, its appearance on the annual Netflix hit shows that international competition for vital metals has become a hot topic of discussion in the West.
In the era of fossil energy, it is an important part of the energy security policy of many countries to improve the capacity of independent energy supply and diversify the sources of energy import, especially oil. However, simple comparisons between oil, gas and important metal minerals can lead to a narrow view of security of supply. In Both China and the West, this "great power game" mentality is likely to undermine, rather than help, countries' resource and economic security, as well as the global energy transition.
This is firstly because the nature of these metal minerals and their role in the national economy are very different from oil and gas resources. Oil and gas cuts can lead to economic disruption and social disruption in emergencies, while shortages of certain metals have only local effects, such as delays in the manufacture of electric cars and higher prices.
Second, unlike energy products, metals are recyclable. At present, the global recovery rate of automotive lead-acid batteries has been as high as 98%, and the metal value of power batteries is higher. When the market expands and the recovery has economy of scale, the recovery rate can be very high. Take Bangpu Cycle, a subsidiary of Ningde Times, as an example. The company can reportedly recycle 120,000 tons of power batteries a year, with enough metal material to produce batteries for 200,000 electric vehicles.
We also need to recognize that the availability and availability of metal resources is in many cases an economic concept rather than a geological or physical one. When the price of metal resources rises in the international market, the detection and exploitation of metal resources will increase correspondingly, and the usually proved resource reserves will also increase. In 1970, for example, the world's proven reserves of copper were 280 million tons. Although 580 million tons of copper were mined from 1970 to 2020, the world's proven copper reserves grew to 870 million tons in 2020.
As a big country of lithium resources, Theoretically China's lithium resources can meet the needs of China's new energy vehicle industry. China imports a large number of lithium resources, mainly because China's lithium resources are mainly located in western provinces and scattered, the cost of mining and transportation is high, not as cost-effective as imports.
While China imports a large number of lithium resources, it also exports a large number of lithium hydroxide and other primary processed products to western countries. It can be imagined that if the extreme situation of limited import of lithium resources occurs, The export of processed lithium products in China will drop significantly, and so will the demand for lithium resources in China. There is therefore little point in securing a fixed supply of resources.
The technical route of electric vehicle battery is also developing rapidly. For example, low-cobalt or even cobalt-free batteries have been developed rapidly in recent years to reduce the reliance of power batteries on the precious metal. But in order to maintain battery performance, it is common to use less cobalt in a battery and more nickel. No country has a monopoly on all metals, and even in the rare-earth industry, which is now the world's most concentrated producer, several countries have been able to add capacity rapidly in times of international supply constraints. It is hardly possible to shut down a country's many industries or even its entire economy by "banning" a metal, as in chips or oil or gas.
The global industrial chains of important metal minerals and oil and gas are also very different. In the oil and gas field, national oil companies play a key role in the industrial chain. In the industrial chain of mining, processing and downstream manufacturing of important metals, the capital of various countries is highly integrated, and there is an interconnectedness between them. Take the lithium resources in Australia as an example. Most of the major lithium mines in Australia are held by the capital joint ventures of China, the United States, Australia and other countries. Chinese enterprises also hold lithium resources in other countries through investment in Australian companies. At the same time, international capital has also invested in China's lithium mines and lithium processing enterprises. These complex investment relationships make the development of many important metal mineral resources highly international.
Even in the field of oil and gas, the concept of energy security based on national game may lead to the misunderstanding of energy investment. For more than a decade in the early 2000s, China's major national oil companies invested heavily in overseas oil and gas projects with the support of the government in the face of high oil prices. However, it remains to be seen whether these investments improved China's energy security. The oil and gas produced by China's overseas equity projects are not necessarily shipped back to China, but are involved in the global oil and gas trade.
Regarding overseas mineral resources related to the electric vehicle supply chain as a part of the "great power game" and over-emphasizing geopolitical factors in policy making may not only lead to misunderstandings in investment and trade activities, but also bring a greater risk -- arousing "resource nationalism" in resource countries. For example, local people and political forces may resist foreign capital or demand higher prices for their own mineral resources, thus increasing the cost and risk of investment in these projects. This is a risk that China has seen in past overseas oil and gas investments.
It is foreseeable that the global competition for important metal mineral resources will continue and even intensify. Different enterprises will make different judgments on the investment prospects of upstream metal mineral resources based on the future changes of mineral resources and production capacity, the demand prospects of downstream products and the development of technological routes. This competition among enterprises is conducive to the efficient development and utilization of resources in the global industrial chain. However, such enterprise-led commercial competition needs to be distinguished from the so-called "great power game". The latter regards the control of global metal mineral resources as zero-sum competition between countries and requires the intervention of state power. However, the consequences of this may be artificially tight supply of mineral resources, which is not conducive to the original intention of improving the security of their own resources.
