China’s lithium dreams: the OPEC of lithium

CHINA ADVISORY - Report 27 Jul 2018 by Andrew Collier

Chinese companies are amassing significant stakes in the world’s lithium producers, many located in South America. We estimate that China has the potential to control 66 percent of global production and 90 percent of global lithium reserves. While current levels are below that – 37 percent and 45 percent respectively – near-term acquisitions could quickly increase their share.

China has already positioned itself well in navigating the bureaucracy of key players in Latin America. Although there is some political opposition in Argentina and Bolivia, the key state of Chile, which controls over 40 percent of global known reserves, has been receptive to granting China access. Tianqi’s proposed acquisition of SQM of Chile would give China a 50 percent share of the global market, with the potential to control supply and pricing. The chance that China will be the monopolist in the lithium market is low, but becoming the OPEC of lithium is a reachable goal. In the future, this could benefit firms in the sector.

The lithium industry is also a textbook example of direct state support of a domestic industry. This is evident in
1. Direct government support for the electric vehicle industry,
2. Loans to lithium companies from the policy banks, and
3. Loans by banks encouraged by government policy.

Now read on...

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