In a factory beside a paddy field on the outskirts of a small city in central China, one of the core components of the modern global economy is being produced.
Inside a warren of cement and steel pipes, rock — mined in Australia — is heated to 1,000C in a giant coal-fired boiler. It is then leached with acid, dried and purified into a fine white powder that carries the charge inside a battery that enables an electric car to drive. The product, lithium carbonate, sells for more than $11,500 a tonne and global demand is expected to double by 2023, according to Volkswagen.
“This all used to be countryside,” a young staff member says in the company electric car, a black Tesla Model S, as it approaches the factory gates.
The city of Xinyu supplied lithium to China’s nuclear weapons industry in the 1960s, part of Mao Zedong’s push to place industry deep into the rural heartland of the country in case of a nuclear attack. Now the city supplies Tesla, BMW and VW, making it a vital node on the global electric car supply chain — the 21st-century equivalent of the refineries, pipelines and ships that supported the age of oil-based transport which batteries could eventually replace.
In the space of a few years Chinese companies have become some of the world’s largest producers of lithium, a lightweight metal that is a key raw material for batteries. They have bought up mines from Australia to South America and are building plants in China to make lithium chemicals and batteries.
The latest example of China’s ability to channel prodigious amounts of capital to fast growing industries, the country produced over 60 per cent of the world’s lithium in April, compared with less than 1 per cent from the US, according to Benchmark Mineral Intelligence.
China’s dominance in the electric car supply chain has triggered growing concerns in a trade-war obsessed Washington and Brussels, with both fearing that they could be squeezed out of the next generation of industry. At the beginning of May two US senators, Lisa Murkowski and Joe Manchin, proposed a bipartisan bill designed to boost US production of critical minerals such as lithium. And the European Investment Bank has pledged €350m to back Swedish battery start-up Northvolt, which aims to build a battery factory in Sweden and source raw minerals such as lithium from Europe.
At a time when western governments are watching Chinese industrial policy for signs of unfair advantage, one of the interesting features of its new prominence in lithium is that it has not been achieved by the state-owned companies. Instead, it is the product of a group of entrepreneurs who “jumped into the sea”, as the Chinese call the launch of a private business — sensing an opportunity in batteries for mobile phones and then electric cars. Revenues for Ganfeng Lithium and its larger Shenzhen-listed rival Tianqi Lithium have risen from around $100m a year to over $1bn in a decade, joining the ranks of the largest producers.
“The Wild West nature of Chinese capitalism has allowed companies to grow that quickly,” says Sam Jaffe, managing director of Cairn Energy Research Advisors, who analyses the battery market. “The government gives signals that a land rush is starting and then you have these entrepreneurs that get in their stagecoaches and gallop as fast as they can to get to the land. Some of them win [but] a lot of them lose.”
For most of the 20th century the US was the largest producer of lithium, but the Kings Mountain mine in North Carolina shut in the 1980s after competition from Chile. After that the market was dominated by a cosy oligopoly known as the Big Three: SQM of Chile, which was controlled by the son-in-law of the country’s former dictator Augusto Pinochet, and US producers Albemarle and FMC. In 2015, Albemarle acquired rival US producer Rockwood and last year FMC split off its lithium business into a separate entity, New York-listed Livent.
Founded in 2000 by Li Liangbin, who previously worked for a state-owned lithium plant, Ganfeng began life as a customer of SQM, helping to purchase the lithium extracted from the Atacama Desert in Chile. In his office in Shanghai, vice-chairman Wang Xiaoshen remembers that in 2004 Mr Li offered a 15 per cent stake in Ganfeng to SQM, in order to secure lithium supplies.
“At that time SQM hired Deloitte to do due diligence and after that [SQM] quit. It said ‘no thank you’. Ganfeng at that time was a very small company,” recalls Mr Wang, who had worked for the country’s first lithium plant in the far western city of Urumqi, in Xinjiang.
Instead, Ganfeng became a competitor: listing on the Shenzhen Stock Exchange in 2010 and starting to secure supplies of lithium around the world. In September 2015 it bought a stake in the Mount Marion mine in Western Australia, eventually building this into a 50 per cent stake. It also has a 9 per cent stake in another Australian miner Pilbara Minerals, which owns one of the largest hard rock deposits of lithium, the Pilgangoora project that came with a 10-year supply agreement for its lithium. This week Ganfeng said it would buy a 30 per cent stake in London-listed Bacanora Minerals, which is developing a lithium project in northern Mexico.
Ganfeng agreed a 10-year supply deal with VW last month. The carmaker aims to launch more than 70 electric car models over the next 10 years — a target of 22m electric vehicles by 2028.
“Lithium will in the near future be one of the most sought-after raw materials on earth,” VW said.
But it is in Argentina where Ganfeng’s most ambitious project is taking shape, one that could turn it into a truly global company. In 2018 Ganfeng bought a 38 per cent stake held in the Cauchari-Olaroz project from SQM. Then in April it agreed to boost its stake in the project to 50 per cent, paying $160m in a deal that is set to close in June.
Situated in one of Argentina’s poorest areas, in the far north-west Jujuy province, the project will extract lithium from brine beneath the desert by evaporating it in the fierce desert sun. It aims to begin production in the second half of 2020, with a target of 25,000 tonnes a year of lithium carbonate.
“If you look at the long term the demand is coming,” Ganfeng’s Mr Wang says. “This year traditional [carmakers] have launched their EV models. So that will generate demand for sure.”
In the same area as Cauchari is a solar power plant being built by a Chinese construction company and backed by Import-Export Bank of China. With 1.2m solar panels it will be the largest solar plant in South America. It will help provide the energy to pump the brine from beneath the desert. Ganfeng teams on the ground will have to overcome myriad difficulties, including finding translators who understand lithium as well as Chinese. Only one other lithium company operates in the area, Australia-listed Orocobre.
“In this little puna [plateau] at 4,000 metres we’re going to have over 1,000 workers between the solar project and Cauchari and Orocobre,” says John Kanellitsas, a former investment banker who is executive vice-chairman of New York-listed Lithium Americas, which is developing the project in Argentina with Ganfeng.
Across the Andes in Chile, Ganfeng’s rival Tianqi has been expanding its presence, led by Vivian Wu, a 45-year-old former English teacher who previously worked for Nokia. Last year Tianqi spent $4.1bn for a 24 per cent stake in SQM, gaining three seats on its board.
The deal was fiercely opposed by the company’s largest shareholder Julio Ponce Lerou, Pinochet’s former son-in-law, who lost control over the company last year. He said it would give Tianqi sensitive information about a rival. Mr Ponce Lerou filed a lawsuit to block the deal, but it was dismissed in October by Chile’s antitrust court.
Tianqi’s founder Jiang Weiping got his first big break after he managed to buy a state-owned lithium plant in Sichuan in 2004 for Rmb11m ($1.6m at today’s exchange rate). Mr Jiang had been supplying the plant with lithium from Australia. The local government suggested he take it over to resolve their debts, as it was close to bankruptcy, according to Ms Wu. Today the plant produces around 17,000 tonnes a year of lithium.
Mr Jiang’s second break came in 2012 when he won a bidding battle against Rockwood for control of the world’s largest lithium facility, the Greenbushes mine, which had been in operation since the days of Australia’s gold rush in 1888. It was like “a snake eating an elephant”, according to one Tianqi employee.
To win the deal Tianqi started to buy up shares of the Canadian-listed company that owned the mine, Talison Lithium. Then, once it had breached the 10 per cent threshold for disclosure, Mr Jiang offered a price for Talison that was a 15 per cent premium to Rockwood’s offer, backed by financing from China’s sovereign wealth fund.
Tianqi had faced the risk of losing its key supplier if it had not bought Greenbushes, according to Ms Wu, who joined Tianqi in 2009. “We knew it was something we had have to grow in a sustainable way.”
Tianqi’s deal for SQM has surprised analysts and investors, however, since it does not give the company a majority stake or control over SQM and has left the company heavily in debt. Tianqi cannot appoint any of its own employees as directors, as part of an agreement with Chile’s antitrust regulators.
But Joe Lowry, a lithium consultant who worked for FMC in Asia in the early 2000s, argues that Tianqi is waiting for the day when Mr Ponce Lerou may be willing to sell. That could give Tianqi a stronger foothold in one of the lowest cost lithium producers, just as sales of electric cars become mainstream.
Chinese companies will become the “stewards of the overall lithium market”, according to Mr Jaffe. “Their goal is not to be Chinese players but to be global players.”
The rapid spending by Chinese companies has prompted some of the Big Three producers into action. In November Albemarle agreed to pay $1.15bn for a 50 per cent share in the Wodgina lithium project in Western Australia.
Paul Graves, a former Goldman Sachs banker who runs Livent, told the FT in March that he was also keen to acquire more lithium resources in Argentina and Australia. Livent is one of the key suppliers of lithium hydroxide, the type used by Tesla, from its Salar del Hombre Muerto project in Argentina.
“If you look at the money that’s gone into lithium over the past few years, it is well over 50 per cent Chinese,” Mr Lowry says. “But that was open to everybody, this wasn’t a rigged game. The Big Three as a collective group were too set in their ways. China is investing ahead of the curve.”
In Xinyu, Ganfeng has plans to move up the value chain into battery production. At another plant nearby, robots silently assemble sheets of battery materials to be made into lithium-iron phosphate batteries, the technology used by China’s electric buses, which are part of the world’s largest fleet.
And a 40-minute drive away in Yichun workers handle highly reactive rectangles of solid lithium metal using gloves inserted into an airtight container full of argon. Ganfeng is the world’s largest producer of pure lithium metal, a product that is set to play a key role in solid-state batteries. These next-generation batteries promise to store significantly more energy for the same weight than current batteries, helping cars to drive as far as their petrol-powered counterparts on one charge.
Ganfeng is currently testing solid electrolyte batteries for the drone industry but aims to make its own solid-state lithium metal batteries for electric cars.
Mr Wang, who has just returned from a meeting with Argentine president Mauricio Macri, says he is still keen on more lithium acquisitions. “But we don’t want to spend too much money too early,” he adds.
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