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https://www.nytimes.com/2023/05/23/business/australia-lithium-refining.html

Deepin rural Western Australia, Pilbara Minerals’ vast processing plant looms abovethe red dirt, quivering as tons of a lithium ore slurry move through its pipes.

The plant turns the ore from a nearby quarry intospodumene, a greenish crystalline powder that is about 6 percent lithium andsells for about $5,700 a ton. From there, the spodumene is shipped to China, where it is further refined so it can be used in the batteries that power goods like cellphones and electric cars.

Australia mines about 53 percent of the world’ssupply of lithium, and virtually all of it is sold to China. But now theAustralian government wants to break the world’s dependence on China forprocessing the minerals driving the green revolution

Pilbara Minerals, the country’s largest independent lithiumminer, is among the companies exploring a new model for producing batterychemicals — done closer to where the lithium is mined and sold to allies likethe United States and South Korea.

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Thechallenges of getting such an industry underway are daunting. China has anenormous head start, with years of experience and hundreds of lithium refiningplants, and a steadily tightening grip on the world’s battery-makingfacilities. Australia’s more rigorous workplace standards will also make itharder to compete with China on price, analysts said, even as some in Australiahave argued that they will result in a more trustworthy, premium product.

“Consumers will vote using their feet, and they willbuy electric vehicles, or even solar panels at home, based on the costs,” saidMarina Zhang, a researcher at the Australia-China Relations Institute at theUniversity of Technology Sydney.

Pilbara Minerals is working with the Australian techcompany Calix on a project to refine spodumene to a lithium phosphate salt — akey step in readying the material used in batteries. The companies are expectedto make a final decision by the end of the year whether to invest up to 70million Australian dollars, or around $47 million, tobuild a demonstration plant.

Dale Henderson, the chiefexecutive of Pilbara Minerals, and other proponents have argued that refininglithium at home would create jobs, reduce the impact of shipping — 94 percentof shipped spodumene is thrown out as waste — and secure supply chains forbattery chemicals amid rising geopolitical tensions

Refininglithium would also allow Australia to tap into the Inflation Reduction Act, theBiden administration policy enacted last year. The law aims to cut into China’sgreen energy dominance by offering loans or subsidies to companies incountries, like Australia, that have free trade agreements with the UnitedStates.

At the Group of 7 summit last weekend, PresidentBiden and Prime Minister Anthony Albanese of Australia jointly announced projects intended to strengthen the supply chain for “critical minerals” used in clean energy.

The Australian government hasalready put hundreds of millions of dollars toward supporting the lithium refiningindustry, betting that customers will seek out lithium supply from a countrythat is more environmentally friendly and has a strong rule of law.

If you have more of the supply chain in a country which hasvery strong governance, and a very, very safe and trustworthy businessenvironment, then consumers can have more confidence in the products that theybuy,” said Allison Britt, a director at Geoscience Australia, a governmentagency.

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Agovernment report last year forecast that 20 percent of global lithium refining could take place in Australia by 2027, up from less than 1 percent. In some cases, top officials have set even loftier goals.

“I want to make sure that we use the lithium andnickel and other products that we have to make batteries here,” Mr. Albanese,the prime minister, said in a speech. “That’s part of the vision of protectingour national economy going forward.”

ButAustralia would have to make significant strides to get closer to China inrefining.

So far, Australia has just two facilities to producebattery-grade lithium hydroxide, used to make cathodes, with a third underconstruction. All have suffered from major construction delays related to labor shortages, as well as cost overruns.

The largest facility, co-owned by the Americanchemical maker Albemarle and the Australian miner Mineral Resources, is beingexpanded with the goal of becoming “one of the world’s largest lithiumproduction facilities,” according to a statement from Albemarle. Last year it produced its first battery-grade lithium hydroxide — more than a year behindschedule.

A big challenge facingAustralia is cost. The investment needed to establish a lithium hydroxide plantis roughly two-and-a-half times higher in Australia than in China, said JohnStover, a portfolio manager at Tribeca Investment Partners, citing data fromthe bank UBS.

Historically,Australia has shipped unprocessed ore to other countries to process,” he said.“That change in mind-set, I think, is going to be tricky.”

Chris Ellison, the owner of Mineral Resources, saidthe government must make it easier for foreign companies to invest inAustralian lithium refining through incentives like funding and tax breaks.

“They are being offered grants to build in Europe,the U.S. and places like Vietnam from the American government,” he said in apresentation to investors in February. “We need the Australian government tocome to the party on that.”

The Australian government mustalso weigh acute geopolitical concerns. Lithium is instrumental to thecountry’s relationship with China, said Corey Lee Bell, of the Australia-ChinaRelations Institute at the University of Technology Sydney.

“If wewere to cut that supply, I think it would be a very, very big issue,” Dr. Bellsaid.

Yet Australia has hinted that it might be comfortabledoing just that.

Speaking last month, Madeleine King, Australia’sresources minister, said the country had an important role to play in pushingback against the “concentration” of critical minerals industries in China,which she said led to “fragility, volatility and unreliability.” The governmenthas also indicated that it might limit foreign ownership of critical mineralresources.

In 2020, previously cordialrelations between Australia and China took a turn after Scott Morrison, thenthe prime minister, ordered an inquiry into the origins of the coronaviruspandemic. China then blocked some Australian imports, including coal and wine.Australia escalated the dispute to the World Trade Organization and revoked thestate of Victoria’s participation in China’s Belt and Road Initiative.

Therehave been signs in recent months that the tensions are cooling. China announcedlast week that it would lift its suspension of Australian timberimports after ending an unofficial embargo on Australian coal.

But the relationship remains volatile. Australia“needs to have a little bit more of a say over the destiny of its resources,”said Ross Gregory, a partner at New Electric Partners, an advisory firm.

Despite the barriers, Australia’s control of the rawmaterial gives it a chance to assert influence further down the supply chain,said Joe Lowry, the founder of the advisory firm Global Lithium.

“The guy with the rock wins,” Mr. Lowry said. “AndAustralia’s got the rock.”