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Catch-22: Commbank mining doyen Vivek Dhar says China will be critical to The West achieving a fast energy transition

Commbank’s mining and metals expert Vivek Dhar says the West will need China to achieve a cheap and fast energy … Read More
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This article was originally published by Stockhead

  • Commbank mining and commodities expert Vivek Dhar says Chinese battery supply is essential to speed up the pace of the energy transition
  • What role can subsidies play in Australia’s critical minerals strategy
  • Why Australia needs to lower costs to be competitive in critical minerals refining

One of Australia’s top metals and mining experts says attempts to bypass China in the EV revolution will likely stunt the world’s transition to low carbon transport.

Commbank mining doyen Vivek Dhar told the crowd at the Melbourne EV Show at the Melbourne Convention and Exhibition Centre on Friday Australia also risked losing out to other US friendly jurisdictions when it comes to US Inflation Reduction Act (IRA) support if it couldn’t establish ways to head downstream in battery and battery chemicals processing.

US automakers are keen to bankroll, partner and offtake projects that can help them tap the US$369 billion pool of tax incentives in the Biden Administration’s Act.

But Australia, called the 52nd State of the USA by ‘Mr Lithium’ Joe Lowry in a recent talk in the same city thanks to its abundance of lithium and other critical metals, could face competition from other faster movers in free-trade aligned nations.

“You can see that that downstream processing is still within Australia’s wheelhouse given it’s not as prioritised by the US or even Europe,” Dhar said.

“But we are also competing with other countries that have free trade agreements with the US. So it’s not just Australia has a free kick here.

“For instance, if South Korea does things cheaper than us, why would the US invest here over South Korea? So these are some of the big questions to ask as we move down this transition is what is Australia’s comparative advantage?”


Bypass China? Watch out


Policies like the IRA have one key aim in mind, to create Western supply chains that help car companies in the US and Europe bypass China, who they feel has garnered significant economic and political influence by dominating the chemical refining and battery production supply chains.

BYD is now the world’s largest EV manufacturer, while China’s CATL is now the dominant player in EV battery production. Even US EV giant Tesla and lithium chemical refiner Albemarle are big producers in the Chinese market.

Around 80% of the battery supply chain is domiciled in China.

Dhar said the reality of the transition to low carbon energy is China will be essential to making it happen.

“The reality of this transition is that if we want something to be quick and cheap, it is going to need China,” he said.

“And the more that the Western world tries to take that share away from China and there is a very strong need for it for insurance, but the more you do that there is going to be a trade off.

“You know this transition will be more expensive and be more delayed if we go down that route.

“So the world right now is facing two issues. One is we need a quick transition. But we also want to have security of supply and assurance that we have a supply chain insurance.”


Subsidise this

Canberra has shown its willingness to dip its toes in the water when it comes to funding critical minerals projects.

That included a $1.25 billion loan for Iluka Resources (ASX:ILU) to build a 4000tpa rare earths refinery at its Eneabba project near Geraldton, tapping a stockpile of previously worthless monazite waste to process rare earths that count as crucial components of EVs and wind turbines.

That loan was criticised from some quarters of the industry given Iluka, an ASX 100 listed mineral sands miner, was well placed to fund the project off its own balance sheet.

Miners like Mineral Resources (ASX:MIN) boss Chris Ellison, who were disappointed to see the Australian Critical Minerals Strategy earlier this year rolled out without the promise of major new incentives to develop local downstream capacity.

Dhar said Australia needed to think about its aims with potential subsidies, noting how they been used to ensure China became the lowest cost manufacturer in the EV supply chain.

“If I have to leave you with just one story of just how China did it? It was done with subsidies,” he said.

“So from 2009 to now we’re talking nearly US$100 billion in subsidies spent for China to build out its EV supply chain.

“If you look at how they built it out, from lithium in the downstream processing, to CATL and BYD, we’ve effectively seen this whole supply chain aimed to be the lowest cost in the world.

“They are looking to be the lowest cost by a margin and so for us to compete with China on the same level is going to be very, very challenging.

“So my push when I talk about subsidies is that I think subsidies can work. But what is the mandate behind the subsidies? Is Australia going to be the lowest cost producer behind subsidies or not?

“And I think that’s going to be really important when we talk about a critical mineral strategy.”


Controlling costs

Dhar says the focus should turn to lowering costs.

Australia is currently paying 2-3 times more than China to build lithium refining capacity, he noted.

We pay 67% more than South Korea and 25-50% more than South America, he notes.

“So this is the challenge for Australia if you want to go downstream, if you want it to be value add, what is our comparative advantage?

“How can we get our costs lower? This is the challenge that faces Australia when we talk about out Critical Minerals Strategy. How do we set ourselves up for the future?”

China is dominant in the EV supply chain. Pic: CBA/IEA


Massive opportunity

That is not to say there is not a massive opportunity awaiting us.

There are risks to key battery metals from technological advancements.

After seeing lower quality lithium ion batteries with iron and phosphate cathodes match more energy-dense nickel-cobalt-manganese batteries for market share in recent years, Commbank believes Chinese technological developments around sodium ion batteries could pose a threat.

Sodium Ion could snare a growing share of the battery market. Pic: CBA/BNEF

By 2030, as much as 17% of the battery market could be Na-Ion.

“The question is will China manage to push enough innovation with sodium ion to get it into the driving ranges competitive with the market today?” Dhar said.

“Right now sodium ion can achieve something like 140-150km a charge so it’s got range anxiety. It’s not there yet.

“But this is the evolution and this is a technology that we’re watching very closely.

“And I put a key point here is that if you incentivise China to think about sodium ion because lithium prices are too high, this is very much a risk we need to watch in the next five to 10 years.”

He thinks lithium supply needs to rise to avoid high prices that will encourage substitution.

Lithium demand is forecast to rise 3-3.5 times from current levels by 2030 under a scenario that would see global temperatures kept to a 2.6C rise.

In line with more aggressive policies to cap global warming to 1.8C above pre-industrial levels that would lift to five times, Commbank says.

The post Catch-22: Commbank mining doyen Vivek Dhar says China will be critical to The West achieving a fast energy transition appeared first on Stockhead.


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