Chilean President Gabriel Boric oversaw the signing of a $233 million lithium deal on Tuesday with Chinese mining giant Tsingshan Holding Group, the latest investment that solidifies China’s dominance of the fiercely contested EV battery metal supply chain.
In just the past few months alone, Chinese firms have moved quickly to lock up similar mining and processing deals in Morocco, Nigeria, Bolivia, and Zimbabwe, among other countries.
Henry Sanderson, executive editor at Benchmark Mineral Intelligence, joins Eric & Geraud to discuss these latest deals and what the implications are for G7 countries that are looking to build alternate non-Chinese supply chains for critical resources.
Show Notes:
- Center for Strategic and International Studies: A Window of Opportunity to Build Critical Mineral Security in Africa by Gracelin Baskaran
- Atlantic Council: How the US can build better strategic partnerships in Africa to secure critical minerals by Nii Simmonds and Shirley Martey Hargis
- Carnegie Endowment for International Peace: What a U.S.-DRC-Zambia Electric Vehicle Batteries Deal Reveals About the New U.S. Approach Toward Africa by Folashadé Soulé
About Henry Sanderson:
Henry Sanderson is the executive editor for Benchmark Mineral Intelligence, a leading provider of data and analysis for the lithium-ion battery supply chain. Prior to joining Benchmark, Henry covered commodities and mining for the Financial Times in London for the last six years and has written widely about the resource implications of our move towards clean energy. He was also a reporter in China for Bloomberg, where he co-authored an academic book about China’s state capitalism and its largest overseas lender, China’s Superbank (Bloomberg Press, 2013).
Transcript:
Eric Olander: Hello, and welcome to another edition of the China Global South podcast, a proud member of the Sinica Podcast Network. I’m Eric Olander in Ho Chi Minh City, Vietnam, and today, I’m joined by CGSP’s Africa Editor, Geraud Neema, joining us from the beautiful island of Mauritius. A very good afternoon to you, Geraud.
Geraud Neema: Good afternoon to you, Eric.
Eric: And Geraud, there is a lot going on out here in Asia, specifically up north, a little bit in Beijing where the Belt & Road Forum is underway this week. Man, that is quite a show that they’re putting on there. We’re talking more than 140 countries, leaders, representatives. I mean, it is really an impressive show. In fact, we were trying to figure out today — is there any other gathering that attracts as many heads of state as this is? And the only thing we could come up with was the UN General Assembly meetings that happen in New York every year. So, this is quite a big deal. We’ve got some shows planned on the Belt & Road Forum coming up later this week and next week as well to talk about some of the deals that are being done, and also, what does this year’s gathering say about the future of the Belt & Road Initiative.
Today, though, we’re going to take a different tack, and we’re not going to talk about the war in the Middle East, we’re not going to talk about the showdown in the South China Sea. In fact, we’re not going to talk about the border conflict between India and China. We’ve talked a lot about those in detail on our site and in previous episodes. We’re going to come back to one of our favorite topics, and one that has really fallen off the radar but is still critically important in the China Global South and in the great power relationships. And that is all of those metals and minerals that go into electric vehicle batteries. This is one of the most contentious parts of the U.S.-China competition and the European China competition and the South Korean China competition and the Japanese China competition. You can get a theme there going. And a lot is happening.
And over the past couple of weeks, we’ve been starting to see, out of the think tanks in Washington, a lot more rhetoric about this competition. Let me just read you a couple things, Geraud, and I want to get your take on some of this. Nii Simmonds and Shirley Martey Hargis, both non-resident fellows at The Atlantic Council, they wrote in a piece that came out last week that China currently dominates about 90% of the global market for critical minerals. That’s a fact that makes a lot of people in Washington very, very uncomfortable. And they made the case that Chinese companies are bad for the global south, bad for Africa specifically, and they said because of China’s environmental record, its human rights violations, debt burdens. Now a lot of people will contest those issues, but that really highlights a lot of the narrative coming out of think tanks in Washington.
Also, I want to bring your attention to the Center for Strategic and International Studies. Over there, Gracelin Baskaran, who’s the Research Director and Senior Fellow with the Energy Security and Climate Change Program, she said, and this is a quote, “There is evidence that some African countries are moving away from a mining sector dominated by Chinese firms.” So, Geraud, you just spent a lot of time in the Democratic Republic of the Congo, you were in Kinshasa for a few weeks, you were talking to various people. What did you hear? And does this rhetoric align with what you’re hearing in the Congo?
Geraud: So, thank you Eric for the question. And as you say, I was in Kinshasa for quite some time. And it was a really interesting trip because I had also just to talk with the different stakeholders in the mining industry in the DRC. But I have to tell you, the feeling right now in Kinshasa is more politically dominated by the upcoming election. Few people, if not nobody, is talking about mining sector right now. Everybody’s talking about political negotiation, election coming, postponing election or not, what’s going to happen or not. But still, you have some, in certain circle, of course, in the mining sector amongst certain specialists, you have the feeling that yes, there is a need of a certain shift, there is a need of a certain change in the mining sector in the DRC where people are pushing more and more for value-added presence of DRC in the supply chain of those critical miners.
A few days after I left in Kinshasa, Gecamines has launched is new industry that was going to produce germanium. They’re aiming to produce 30% of the world germanium. And mind you, germanium is now, China has put not a ban, but a restriction on germanium export to the U.S. and to Europe. So, now having the DRC moving to germanium space kind of gave a space to Europe and the U.S. to be kind of happy about what’s going to happen there. So, we have that feeling in the mining sector, especially among Gecamines leaders, where there is that push for new actors coming into the ground. There is that need of reshuffling the mining industry. But when I say reshuffling, I didn’t get the feeling that they want to get rid of the Chinese. That’s not the feeling I get. I get the feeling that they want more actors, they’re opening those to different people to come into the sector.
But if among those people they’re opening doors to, they still have more Chinese coming in, they won’t close their door to the Chinese. The Chinese are still very much welcome. But yes, they would like to see much more European, more Americans coming, but they won’t turn away China because European might be worried about what’s happening with China in DRC. But you also see now Saudi Arabia coming into the fold into the business of critical miners in DRC, where you see Saudi companies trying to move into Katanga, also moving into the east part of the DRC. So, I think the next five 10 coming years will be kind of interesting in the mining sector in the DRC with new players coming into the game.
Eric: And the name ‘Gecamines’ that Geraud referred to, you’re going to hear probably quite a bit in our discussion. That’s the Congolese state-owned mining company that is at the center of all of these different deals and cobalt, lithium, germanium, a lot of the different minerals and metals that come out of the DRC. So, here’s what we’re going to do today, since there is so much for us to get through, we thought we would do what Cobus and I call in our other shows a lightning round, where we’re just going to go through a whole bunch of different topics and get some expert views on that. And that’s why we’re thrilled to have back on the show, Henry Sanderson, who’s the Executive Editor of Benchmark Mineral Intelligence and the author of the excellent book, Volt Rush: The Winners and Losers in the Race to Go Green. Henry, thank you so much for taking the time to join us, and welcome back to the show.
Henry Sanderson: Thanks for having me back.
Eric: Well, we’re going to start on this question of prices because really this is an interesting time in the battery metal space. Let me just start with cobalt right now. There is a glut of cobalt on the market, and that is being fueled in part by the very soft demand for electric vehicles in the U.S. and China. It’s also not helped by the fact that Indonesia is now becoming a major cobalt supplier because cobalt is a derivative of nickel, and it’s mining a whole bunch of nickel and then spinning off a lot of cobalt from this. So, get this, the price of cobalt early last year was $60,000 per metric ton, and now it’s plunged 46% to $32,000. So that’s a major drop. Also, there’s been a similar story in the lithium market where prices have fallen in China by 37% since July.
Talk to us right now about this question of the pricing of these battery metals. Are you seeing it elsewhere in the sector or is it really concentrated mostly in the cobalt and lithium space?
Henry: Yeah, prices have been quite weak across all of the battery metals — lithium, you mentioned; cobalt especially, nickel as well. This year we’ve had a bit of a slowdown in China, a lot of macroeconomic concern in China. And then we’ve just had more suppliers. You mentioned more cobalt coming out of Indonesia, more lithium supply coming on, nickel, etc. So, I think everyone’s looking to Chinese market and trying to work out also… the battery cell producers, battery producers have inventories that they need to work through and when will they start to restock? Cobalt prices have ticked up in recent weeks, so downstream EV demand growth, the growth of EV demand has been weaker compared to previous years. So that’s really what’s causing some of this weakness. But of course, medium term, long-term, the trends still remain intact and EV sales obviously are still growing. So, I think it’s a temporary sign of weakness.
But I do think you are right in cobalt, we’re seeing Indonesia really come out to the fore as a cobalt supply. And that’s because you have these high-pressure acid leach plants that China’s managed to build incredibly cheaply and they process nickel and cobalt. So, that’s going to be huge for the market this decade.
Eric: Now, Geraud, let me get your take on this, on the impact of prices, and there’s a geopolitical side to all of this. So before we get to the politics, let me just kind of explain why this pricing thing is so important. So, the auto manufacturers, they’re going to love this. I mean, they love the fact that the price of battery metals is plunging in part because think about this — Tesla 2023 Model S, the cost of the battery accounts for $12,000 out of the $88,000 sticker price. For the Volkswagen ID.4, the battery accounts for 24% of the $37,000 hatchback. And for the Ford Mustang Mach-E, that’s a really a fantastic car by the way, 16% of the sticker price is attributable to the battery. So, the prices of these battery metals come down, they can then get competitive with Tesla in also lowering the prices.
But Geraud, there’s another side to this. So the battery makers and the automakers, they love it. But then you have this question of how the United States and Europe, Japan and South Korea want to break away from Chinese dependencies in the battery metal supply chain. So, they want their private sector companies to go into places like the Congo, but they’re not going to go when cobalt is half the price of what it was. It just doesn’t make economic sense. So, these low prices tend to benefit the Chinese who have state-owned enterprises that aren’t anywhere near as profit-sensitive. Talk to us about how prices impact the geopolitics of this battery metal competition.
Geraud: So, the price changes are kind of impacting the geopolitics of all of it in a way that when you are facing the Chinese companies, especially the state-owned companies in the DRC that are more focusing to securing the resources for security and strategic purposes, you kind of have a different landscape when you compare now with private companies coming from the West — from Europe and the United States, from Australia — that are much more profit-driven. In that context, when you’re profit-driven with low prices and everything, you’re kind of like, it’s going to be really hard for you to do business in the countries like the DRC where the political environment, the economic, the infrastructure environment take the cost a bit higher in terms of producing cobalt.
In that context, when the prices go low, you’re kind of worried as a company to see how I’m going to move forward in that direction. You being a Chinese company, you don’t really mind that much. You’re not really worried because in a way you know why you are there. You are there for much more strategic purposes than for a profit-driven operation into the DRC. But there’s also another impact for the Congolese revenue because lower price of cobalt, low price of corporate and everything else, it means low revenue for the Congolese government. Because let’s face it, the export of natural resources accounts for more than 85% of the DRC revenues. And when you know that cobalt has been one of the driving force behind the export of natural resources, mining resources from the DRC, when those prices go low, the congress government is kind of worried about what’s going to happen next.
So, it’s a very tricky context where the low price makes winner and losers. And the losers in that situation will be, on one side, you’re going to have private companies from the West that are still interested in coming to the market in the D R C, even though the context is very difficult. Then another loser is going to be the communist government because low revenue. But the other winner is going to be these Chinese state-owned companies. You also have the private companies that’s kind of, being private companies, they’re somehow, in a certain extent, profit-driven. But in the larger spectrum, when you take all the Chinese stakeholders in the DRC, the state-owned companies that are driven, the Chinese pushing the DRC, are going to be the winners of that slow prices. It’s going to allow them to stockpile more cobalt for them.
Eric: And Henry, what’s your take on this in terms of, are you guys at Benchmark seeing any movement in private sector interest from the U.S., Europe or the Japanese and Koreans in terms of going into these mining markets as a way to kind of dislodge the Chinese from their dominance? Or are you seeing what Geraud is also kind of pointing out that when the prices are low, that’s a real barrier for private sector companies to get into the market?
Henry: I think this point is exactly right. We’re facing a really difficult time for the West because these lower prices make it much more difficult to raise financing for new projects. Our investor is going to back a Western startup to compete in a market where China is almost 100% of that market and the price is so low that it’s very difficult to make a profit. Even the Chinese companies aren’t making much money. So, it makes incredibly challenging for new projects. And I think this is the issue, right? Which is if you look at cobalt, China Moly, CMOC, is going to rapidly increase production of cobalt at its Kisanfu Mine even though prices are low, right? So, often what we see is Chinese companies just still seem to expand, invest, and produce even at times of lower prices.
And the result of this is it kills the competition. And I think then you see it kills the Chinese competition. A lot of Chinese companies go under, and eventually you have winners emerge. But it’s no doubt that it’s an incredibly challenging time. Now, saying that, we do have the Inflation Reduction Act, we do have subsidies, and a lot of political backing for investments in these countries, but I’m still cautious whether actual private companies are going to invest at this moment in time. At this moment in the cycle, that’s yet to be seen. But certainly, the political will is there, some of the subsidies are there. So, I think that’s the real challenge that I’m looking at because at the end of the day, the Western companies, they have to raise money from the equity markets or from banks and investors.
There’s not so much of the easy capital that the Chinese companies have. They need just to demonstrate that they can make a return, and this becomes harder and lower prices.
Geraud: I’m going to stay on the cobalt topic and, Henry, I’d like to have your take on, since we’re talking about cobalt, I’d like to have your take on how cobalt is perceived right now. I know last year, the two years prior, it was kind of rough on cobalt because all the child labor thing and everything in the DRC and elsewhere. On your perspective, do you see a shift into like less violent attack against the cobalt, people are becoming more welcoming to the cobalt despite all the books and the stories that have been reported about that? Or you see that the narrative about the child labor, the impact somehow, and the low prices right now are just making cobalt not the mining to go to?
Henry: Yeah, so it’s an interesting question. I mean, obviously, the concerns around child labor and sourcing are highly prevalent. I mean, as this supply chain gets built out in the U.S. and Europe, obviously people are trying to make it a more sustainable supply chain. I think the issue with cobalt is that people are moving to higher nickel chemistries, obviously, especially in the U.S., and they’re paying more attention to nickel. And the concern really with nickel is Indonesia’s not a free trade agreement country with the U.S. So, how often the U.S. automakers are going to meet the requirements of the IRA and also source enough nickel and cobalt. And what people are also waiting for is the regulations on how the U.S. is going to define foreign entities of concern, which obviously would include Chinese companies, and at what stage of the supply chain.
For instance, if you are taking cobalt hydroxide from the DRC and you’re processing it in an FDA country, how are these rules going to be put into practice? That’s a huge issue for the market. So, it is not that cobalt’s on the back burner or anything. It’s just, I think, nickel is a huge issue, and lithium as well, whereas the cobalt market looks quite well supplied at the moment, and obviously you have the Indonesian production coming on as well. I also think what’s interesting is, as you said, the DRC government is making more efforts to tackle this issue and I think launching… I mean, more launching artisanal mining processing facilities, etc. So, it’d be interesting to see how that develops. But yeah, I’d love to hear your thoughts on that.
Geraud: That’s very interesting that you mentioned of American companies trying to source the cobalt from the DRC. One of them, it’s really interesting. Evolution Energy is a battery maker in the U.S. I think it’s going to open its processing plant in Arizona in 2026. They signed a five-year agreement with the KAZAK Group, which was the second producer of cobalt in DRC last year. ERG Africa, they signed a five-year contract to supply them with cobalt straight from the DRC. When I saw that, I just realized that how much now Americans are trying to source the cobalt from the DRC, in the same time trying to stay away as much as possible from any cobalt coming from artisanal mining and coming from Chinese mining. That’s why they signed with the ERG Africa. So in the prospect of the artisanal mining, we also see there is a huge movement coming up on that regard.
DRC is now trying as much as possible to take the control of artisanal production. We have the ECG Enterprise, Congolese du Cobalt that’s already been launched, but for some political reason, it’s been in the back burner now. But in Kinshasa, you see now people are pushing for that to go back to really take control of the artisanal mining production. So, we hope that in the coming years … no, coming month, I hope, that we’re going to see much more order being put in that artisan mining in the cobalt in the DRC.
Eric: So, a couple things I want to clarify for listeners who may be a little bit new to this topic, and there are some buzzwords that are flying around that I want to make sure everybody understands. So, the IRA that Henry was talking about, not the Irish Republican Army, but instead the Inflation Reduction Act, and that has a lot of the legal stipulations of trying to, again, separate the Chinese from the critical mineral supply chain. One of the reasons we’re talking a lot about the Congo in specific related to cobalt is because about 70% of the world’s supply of cobalt comes from the Congo. Indonesia is the same for nickel. And then when we’re going to talk about lithium, that’s something called the lithium triangle — Argentina, Bolivia, and Chile. And so we have some announcements coming out of Chile. So, I just want to put that out there as to kind of clarify things.
Now, at the same time as we’ve been talking about the U.S. trying to separate itself from the cobalt supply chain, I do want to bring your attention to some comments from Jose Fernandez who is the U.S. Under Secretary of State for economic growth in the environment. One of the major proponents of the IRA, and again separating the U.S. from the cobalt supply chain that the Chinese dominate, we’re starting to hear a slightly more sober rhetoric coming out of Fernandez and his colleagues at the State Department. Headline over at Bloomberg says, U.S. says it can’t cut China out of critical mineral supply chain. And Henry, that’s where I want to pick up our conversation. We know what it says in the IRA, we know what the politicians in the think tank people in Washington want, but is it actually possible and in the short term, and let’s define the short term as the next decade, for the United States to build a parallel supply chain that does not touch the Chinese, whether it’s in any of the critical minerals that they’ve stipulated in the IRA? Is that even possible?
Henry: No, I don’t think so. I think it’s not even desirable either. I think the issue with the Inflation Reduction Act is obviously a landmark piece of climate legislation and it’s really changed the game in attracting so much investment to the U.S. But a lot of the investment has been in battery factories, in EV production, which is only going to increase U.S. reliance on Chinese minerals, Chinese supply chain. I think people are unaware how dominant China is in some niches of the supply chain, which means that unless you build the entire supply chain in the U.S. or friendly countries, you’re still going to rely on China. For instance, the anode in the battery, the batteries are made up of cathodes and anodes, but the anode, China’s almost 100%. Or if you look at what’s called pCAM, which is the precursor material that goes into cathodes, China is hugely dominant in that.
So, basically, what the U.S. is finding, and reading these statements that you say they’re walking slightly back on their ambitions to reduce reliance on China. But that raises the question on, well, you’re going to spend a trillion dollars perhaps in the Inflation Reduction Act, but from the geopolitical angle, what are you actually going to achieve? Are you going to spend a trillion but find that you’ve only achieved a slight de-risking from China, and is that politically sellable as an achievement? I think the Inflation Reduction Act is great in that it provides jobs, it provides economic development, and a lot of investments going to Republican states. So, it wins over people in those states onto the side of clean energy. So, there are huge advantages, but I think on the angle of China, I think it’s just such a big task to, to completely cut reliance on China that I think overselling it risks some disillusionment further down the line.
That said, there is a sweet spot where we can compete with China, which is, can we innovate on the processing side and also use green energy to really not undercut, but be cost competitive with the Chinese? And I think that’s an area where we should focus, and we need to make automakers and others potentially pay a premium for greener products or we need to institute things like Europe’s carbon border adjustment, try to level the playing field. That I think is a good route for the West. But no, we can’t cut China out of this supply chain overnight. And also, I said it’s not desirable because we need costs to come down, right? We need electric vehicle costs to come down, clean energy technologies to come down. In many ways, the real enemy is fossil fuels, right? Not necessarily China in this field, in this sphere.
Eric: Well, not in the United States, it’s not the real enemy. A lot of Americans are still very big on fossil fuels. In fact, there was a discussion going on in the U.S. as well by a number of lawmakers who were saying, “You know what, maybe we should just skip the whole EV generation and go to a wait for another technology that we can own and that doesn’t involve the Chinese.” Who knows when that will happen? But there’s growing impatience in the United States with EVs. The sales of internal combustion engine cars are moving at twice the pace of electric cars. Right now, an electric car sits on the lot of a dealer for a hundred days. An ICE car, which is an internal combustion engine car, it’s at about 50 days. So, it’s an interesting kind of dynamic in all of this, the geopolitics.
But Geraud, I want to bring up a point that Henry made in terms of, it’s not even in the U.S. interest to get the Chinese out of the supply chain. And you’ve mentioned this before because mining is an incredibly dirty business. It is oftentimes a violent business. It’s corrupt, it’s environmentally destructive. And right now, the Chinese are taking a lot of the heat for the difficulties at the bottom end of the supply chain. Then we also have the refining of it. So, there’s two parts to this process. One is the extraction of the stuff out of the ground, and then you got to turn it into something and refine it and process it. That, too, is an incredibly dirty business. And so bringing that to the United States is probably never going to happen because the American and European environmental regulations are just too strict against it. So this is going to go to countries like Indonesia to do it. So again, maybe it’s not even in the interest of these G7 countries to take over this part of the business because it is so dirty, gross, and violent at the end of the day.
Geraud: Yes, that’s true. It’s not really in their short-term or midterm interest on taking that business. That’s why despite everything, I say despite the political rhetoric behind decoupling from China, cutting China out of the supply chain, they kind of know the limitation. They do know that the first reason why China became so predominant in the sector is because China, at the beginning of all that, was ready to take all the environmental risk to building, refining, processing plant of lithium, cobalt, nickel back home. That’s why China, over the years, took the heat of that. And later on, now China itself moved up on this environmental issue, started now outsourcing into country like Indonesia. And maybe, I’m saying maybe we might see something similar into the DRC. But the reality is processing, refining of cobalt or any critical minors is a very dirty business.
And I’m going to get back to the comment that Henry made before just to show how much it’s going really to be difficult to decouple from China, to really cut China out of the supply chain. The U.S., as you know, the U.S. has been trying also to rely on friendly countries to help them decouple from China to help them build parallel supply chain, and to use the IRA as that tool to keep Chinese away. But the interesting thing is that it’s when you see those friendly countries, a country like Korea, South Korea partnering up with Chinese company to open up a lithium plant or any kind of critical manual plant in Korea or in Morocco because they do have a free trade agreement with the United States and with European countries to allow them through those agreements to get access to the U.S. market. You do realize how much it’s going to become really, really difficult, even for the U.S., to rely on those friendly countries because even those friendly countries, they somehow still want to do business with Chinese companies.
So, just to tell you how the distance there is between what the political say and what the private sector, the industry is feeling about all this decoupling and cutting China out of the supply chain. That’s why I do believe that at the end, they’re still going to let China get the heat into coming to do the “dirty business” in a very risky country, in very risky places, and themselves finding a way to work with them down the supply chain and to move forward into the supply chain.
Eric: Well, let’s talk a little bit about lithium right now. A number of deals are taking place. One that just took place at the Belt & Road Forum in Beijing this week, China’s Tsingshan Holding Group will invest $233 million to set up a plant in Chile to produce lithium iron phosphate. Lithium iron phosphate, those are LFP, that’s part of the technology that Henry’s referring to that doesn’t involve cobalt. Those batteries are not quite as powerful, but again, they are cheaper and don’t use cobalt. Also in Nigeria, Chinese mining giant Ganfeng Lithium broke ground on a new $250 million lithium facility that will be able to process 4.5 million tons a year when it is done. And on top of that, back in July, Chinese mining giant Zhejiang Huayou Cobalt opened Africa’s first lithium refinery in Zimbabwe that will process 450,000 tons a year when it is fully operational.
One of the misleading things that we’re seeing coming out of the D.C. think tanks, by the way, is that the Chinese are not investing in upstream processing, which, as we are seeing with these deals here, just not true. So some of those folks in D.C. are misled that China’s only in the extractive business in Africa, and increasingly now in Chile as well. Not all good news for the Chinese, though. The Mexican government enacted a sweeping lithium nationalization plan, very similar to what the Indonesians did, and Namibia and Zimbabwe as well, where they want to block the export of raw minerals because they want the processing to happen locally. The Mexican government tried to cancel nine lithium mining contracts for Ganfeng Lithium. Apparently, that’s now in dispute and may not happen. What is going on in the lithium market, Henry? As we’re seeing a lot of movement in the processing, particularly in South America, a lot of big deals being done in Argentina as well, what are the key trends in lithium?
Henry: Yeah, it’s interesting the points you made. I think, over the next few years, the shortage over the last few years has been actually in the mind raw material, getting this stuff out the ground. I think in the next few years, and maybe the shortage of the processing and producing the actual battery-grade product, that could be an issue, especially if you want to reduce reliance on China, as I said. That can be a challenge. So, I think that’s another issue for the West, which is yes, on the mining side, there’s obviously Australia, the biggest producer. But we need to build the processing to produce the battery quality lithium, which is not easy. At the same time, a lot of new projects are facing higher interest rates, higher costs, etc.
And we always see delays anyway in lithium projects. But we do have direct lithium extraction, which is a newish technology that could increase the yield of the lithium that you’re extracting, so make it more accessible and economically to process lithium in low concentration brines in the U.S. and elsewhere. So everyone’s sort of waiting to see how that’s going to develop and when the first sort of big commercial project is going to come on stream because that could really unlock a lot more lithium supply in Western jurisdictions. But the Tsingshan news you mentioned is interesting because I think it points to the fact that a lot of these countries want more value add in their country, which is what we talked about already. But often it’s the Chinese that have the experience and the technology, are the only ones who can provide this value add.
So that’s why in Chile, we’ve seen BYD and now Tsingshan come in to offer to invest in processing or cathode. We’ve seen the same in Argentina. And I think in DRC, and Geraud, I mean, it’d be great to hear your thoughts, but I think also there, Chinese are interested in doing that. So, the question of what the west can offer the global south or the developing countries is tricky, right? Because We don’t necessarily have the processing expertise and technology to give them what they want, which is getting more value from their raw materials. So that I think is interesting unless we do joint ventures with Chinese companies in these countries. And we’ve seen that with ERAMET of France doing a JV with Tsingshan in Argentina on lithium. So yeah, that’s how I see it.
Geraud: Yes, that’s going to be kind of tough for the countries like the DRC or Zimbabwe to get the same treatment that the Chinese are providing in a country like Chile or Argentina because, as we all know, the infrastructure gap deficit in many of this country, like in the DRC and Zimbabwe, are so huge for the Chinese company to be, for now at least, to be willing to invest massive amount in terms of lithium refineries in those countries. That have been the main complaints, though, over the last year when the Zimbabwean put in place that measure of forbidding the export of rural lithium. The Chinese Zhejiang Huayou Cobalt say, “We are willing to do so, but you just don’t have the basic infrastructure that’s required for us to build that.” But when you see the same company building the refineries in Argentina, in Chile, and Bolivia, you kind of now understand that it’s not that there is a lack of political will of doing so.
There is just the infrastructure and economic situation that hinders the ability to do the same thing in a country like DRC, Zimbabwe, Namibia or Tanzania. So, the question will be, for those African countries in the global south, when and how will they be ready to create a condition for the Chinese to build those refineries at home. But I wanted to have your take on something, still on lithium, I wanted to have your take on the current resources, nationalism that we see in many country in the global south that are trying to get much more control of the critical mineral production refineries. And we see that in Mexico, when the Mexico try, at least for now, they try to cancel nine Chinese lithium projects, how the market is reacting to that. What are the feeling of the industry about all that trend of the governments trying to get much more control of those critical mineral production in the country?
Henry: Yeah, it’s a good question. I think it just adds further uncertainty into the market. But as we said, at the moment, the market looks well supplied with lithium, cobalt and nickel in the sort of short term. So, I think it’s less of a concern. I think, for China is an issue, right? Because China’s got to feed this massive processing industry that they’ve built with raw materials. And if they’re increasingly being cut out of countries that are friendly with the U.S., then they have to go to Africa, to Mexico, to other places to secure these raw materials. But as I said, like what’s the price of doing that? Do they need to build processing as well? And in which case that obviously disadvantages the industry back at home.
And also what’s the risk, right? And I think yes, these risks are increasing, right? We saw what happened in Gabon. And Gabon’s obviously a big manganese producer. I think manganese we haven’t talked about, but that’s another of importance because if we have these LFMP batteries, which is you add manganese to lithium-ion phosphate and you can increase the energy density. So that’s going to be huge. So yes, all these risks are rising across the supply chain. All of this, I think, does point to yes, we need to de-risk from China, or purely for a sort of supply security point of view, that’s, I think, not just a geopolitical issue, but just to secure the functioning of these supply chains. Because We also have climate change risk which is also posing a threat to areas with hydropower, etc. So, all these risks are going to come much more to the fore in the coming years so I think that that does mean we should try and diversify these supply chains.
Eric: I think there’s a heightened sensitivity about this in Europe, more than the U.S. in particular, because of what happened with Germany and its overreliance on Russian energy. And so, this idea of replacing Russian energy with new energy from China is seen as potentially very dangerous. And that may be part of the reason why the European Union decided to launch an investigation into whether or not the Chinese are subsidizing their EVs, specifically their battery production. Is that a topic of discussion over at Benchmark in terms of whether or not this could be a consequential investigation, and could the Chinese be shut out of the European market? And I guess the real most important question is, and I’m not sure if you know this or not, but are the Chinese subsidizing their battery manufacturers to give them an unfair advantage in places like Europe?
Henry: Yeah, it’s interesting because everyone subsidizes the clean energy industry, and that’s the way to get it off the ground, right? So, of course, China’s subsidized it, but so has Europe, and so now is the U.S. So, it seems strange to turn around and say China’s the only one doing it. I think in essence, a lot of European automakers have been too slow to move to electric vehicles, so should they now be protected by anti-subsidy investigation? I think that’s a question. And is Tesla exports from China going to be included or not? It becomes a bit more complicated. If you look about it, Chinese brands do face an uphill battle in Europe in terms of no one knows who on earth BYD is. They have to do marketing, they have to build their brands as well.
It’s not just as simple as them having lower-cost vehicles. But I think, so if evidence is found, the EU can impose provisional import tariffs, but let’s see. Europe, I think, is divided, especially between France and Germany. They’re divided in how to deal with China. The French government’s in favor of promoting its domestic industry and pushing for Chinese investments in France. And the German government is more concerned. So, what I also think is they’re doing this at a time where, as I say, China has such dominance in the battery supply chain. I mean, do we really want to go down this route? They could retaliate.
Eric: Yeah, it’s dangerous. Those sanctions swing both ways, right? By the way.
Henry: Yeah. But do we want to go down this route when we have so little of this battery supply chain at the moment and we’re essentially relying on Chinese companies? I’m not sure how it’s going to play out, but I just question the benefits of doing it really. And at the end of the day, again, we need lower-price EVs, the European automakers have, have been slow. So, we need to make this energy transition quickly, so we also have to bear that in mind.
Eric: Well, if this is a topic that you’re interested in, you’re definitely going to want to check out Henry’s book, Volt Rush: The Winners and Losers in the Race to Go Green. Don’t worry, Henry is a journalist. I think you were formerly at The Financial Times, is that correct?
Henry: Yes, that’s right.
Eric: So, he writes like a human being and not like an academic. And I think that makes the book very, very readable. And so, nothing against our friends, the academics. Cobus is not here, so I don’t mean to diss on academics, but I sometimes find their writing a little tedious. So, this book, though, was very easy to read. It felt like reading just a long newspaper article, but it really gave you a fantastic overview of the issue. Henry, thank you so much again for joining us on the show and helping enlighten us on all that’s going on in this incredibly important, yet very complex sector. If people want to follow what you’re reading and writing, are you still active on that social media platform known as X?
Henry: Well, now I actually have been using X a little less. And yeah, LinkedIn I mainly use these days, so yeah, feel free to connect with me on LinkedIn.
Eric: Okay. I’ll put Henry’s LinkedIn link in the profile as well as his moribund X link as well. And so thank you so much, Henry. We really appreciate it.
Henry: Well, thanks a lot. I really enjoyed it. Thanks for your time.
Eric: Geraud, always a treat to talk to Henry. And again, these conversations that we’re having today are conversations that are not had a lot in places like Washington, Brussels, London, Berlin, Tokyo, and Seoul, because I don’t think there’s a sober assessment of the situation. I mean, you saw from these think tank pieces that I quoted from at the top, and I’m going to put links to those in the show notes so you guys can all look at them, how, in many ways, these people are delusional about the prospect of segregating China from the critical mineral supply chain. It’s just never going to happen. You have this amazing data set on our site at chinaglobalsouth.com/cobalt. It’s also in French at projetafriquechine/cobalt, and you have shown, empirically, that the supply chain is so messed up in terms of how much Chinese companies are intertwined with Western companies.
That the example I use it’s like trying to separate a smoothie. Once it’s a smoothie, you can’t undo that. And separating the supply chain is absolutely impossible, but that hasn’t sunk into the folks in Washington.
Geraud: So yeah, that’s the idea to decouple from China. I think it’s so deeply rooted in a certain ideology rather than in a very economic and strategic view of the situation. And that’s why I think the private sector, the U.S. private sector, even the West private sector in general, are kind of dialing down all the ambition, the political circle do have about that because the industry does know really how deep China presence runs into the supply chain. Just like Henry said during the show when he was saying that people don’t realize that there are certain segment of the supply chain where China dominates at 100% of the supply chain. So, decoupling, it’s not just about extracting and refining — it’s also different spaces of the supply chain in terms of transforming, in terms of building the precursor or different element that comes into that supply chain where China has absolute dominance into that space.
So, when you hear people from Washington, from Brussel, from London talking about decoupling, decoupling, decoupling, like guys, you are not really in touch with the reality of it. They’re repeating a broken disc, “We are going to decouple, we’re going to decouple,” but the reality on the ground is far, way far more complex and difficult from them.
Eric: Yeah. So, the key problem for the Western governments, and we’re including Japan and Korea in that as well, is that the politicians can say one thing. In fact, the politicians can say anything that they want.
Geraud: Exactly.
Eric: And we saw this, Japanese ministers are wandering around Zambia and the DRC now, saying the same things and signing these…
Geraud: MOUs.
Eric: These MOUs and… God. Okay. And we’ll get to MOUs in a second. But I want to give everybody a very clear warning here that don’t believe what the politicians are saying, look at what the companies are doing. And what you’re going to see is that LG Chem, the South Korean conglomerate signed a refining deal in Morocco. What you’re going to see is that Ford and the Chinese battery maker, CATL are in a deal, Tesla is in with Zhejiang Huayou Cobalt in a nickel deal in Indonesia. And the list goes on and on. Ivanhoe, the Canadian Mining Company is intertwined with Chinese firms in the DRC.
Geraud: Eramet, the French with the Ganfeng in Bolivian lithium. So yeah.
Eric: There you go. Over and over and over again, because at the end of the day, there is nothing that Joe Biden can do to tell Ford not to do something. That’s just not the way the system is set up. Okay? So, who cares what these politicians are saying? Because, at the end of the day, the companies are not going to act in the national security interests of the country, they’re going to act in what’s in the interest of their shareholders and their board.
Geraud: Exactly.
Eric: Period.
Geraud: No, it’s simple as that.
Eric: End of story. I mean, I just don’t know what else to say. And so all this gobbledygook stuff coming out of the think tanks about the need to decouple and separate and blah, blah, blah, doesn’t matter because Ford is not on board. Tesla’s not on board. LG Chem is not on board. That’s the bottom line.
Geraud: The Koreans say, “No, there’s no way you can ban China out of the lithium industry in Korea.” They’ve been attracting billions of, billions of dollars from Chinese investment in Lithium in Korea. And they opened their doors knowing exactly that China wants to invest there because it’s a proxy for them to get into the U.S. market and going through the IRA that the U.S. has put in place. So you see that mechanism, you see that dynamic happening between the Western private sector and the Chinese private and public sector in those critical mineral sector. You do realize that when people are talking about decoupling from China, you kind of wonder, are you guys aware of what’s happening or you just decide to repeat what you know, what you decide to put it on the table? Are you talking to, to specialists in the industry? Are you talking to the private sectors in your companies?
Are you talking to them to say, “Guys, can we actually do that? Do we have the means to really succeed in to doing that? If we don’t, we need to find a way to reshuffle our approach and maybe to find a way…” I know people in D.C. won’t be happy about it, but maybe we need to find a way to work with China again.
Eric: Ugh, Geraud, [French 0:45:07]. No, it’s never going to happen. Okay, listen, we’re running out of time, but I want to get to two very other quick issues. So, some news kind of cross the email inbox today, acting special coordinator for the Partnership for Global Infrastructure Investment, just for those of you keeping track at home, we should have a drinking game, every time we talk about a U.S. kind of acronym that’s meant to challenge China, B3W, PGII, it’s just there’s so many of them. This is the latest one, PGII. The State Department’s point person on this is Helaina Matza, and she apparently is right now, from October 16th through the 26th, doing a road show in Angola, Zambia, the Democratic Republic of the Congo, and Belgium, in order to talk about the development of the Lobito Corridor and the Zambia Lobito Greenfield Railway.
So, the Americans are still serious about this Lobito Corridor. I said that the Lobito Corridor is, basically, in my view, dead on arrival now in part because the Zambians and the Congolese and the Mozambicans have some very different plans. In the space of the past two months, there’ve been a number of announcements on new supply chains out of the copper cobalt belt in the southern DRC and in Zambia to ports now on the east coast of Africa, not the west coast of Africa, where the Lobito Corridor is. Geraud, you’ve been following the supply chain routes. Talk to us about these new announcements that have come out of Zambia and the DRC and Tanzania and Mozambique.
Geraud: Yes, there is that need, that trend into the DRC to open new routes where they can export the mining out of the DRC. So, what I think people kind of miss from Washington, or I mean in Western Capital, is to see that DRC and those countries are not ideologically driven. They’re not in the mindset that we are going to push for Lobito Corridor just to please someone. They’re going to go for the option that’s cheaper for them, that allow them to make more money, and that allows them to export the natural resources much easily and faster. In that regard, all the options coming from the east coast, Indian oceans and into Beira Port or Dar es Salaam are the option they’re going to put on the table. So for the Lobito Corridor, the question will be how much and how many companies are really willing to export through that route? As long as-
Eric: So far we know they’ve done some early signups.
Geraud: Yes, they’ve done some early signups. Yeah.
Eric: One. Only one which is Ivanhoe.
Geraud: Yes, Ivanhoe is very interesting because Ivanhoe mines is quite close to the railway DRC that’s going to allow it to get to the Lobito much easier, much faster. But Ivanhoe, if Ivanhoe is exporting to China at the end, you kind of wonder if Ivanhoe is not going to take that route that’s building between DRC, Tanzania, to DRC, Zambia and Tanzania to get straight to Dar es Salaam Port and to export from there. So, you have those reality that you have to integrate. So, Ivanhoe, using Lobito, will be where Ivanhoe is going to send is cobalt. Is it going to send to Europe or to the U.S.? If there’s no market there, it becomes quite difficult for them to, guys, to export it. But of course, having access to the ocean quite faster is still a plus-one. They still go to Lobito and go down to Cape Town and go east to China. But if there is a quick way to go to China from the east, they’re going to take that route.
Eric: So, this is a very important point. And the reason why I don’t think Lobito is going to happen anytime soon is because refurbishing a railway is vastly more expensive and more complex than refurbishing roads. And so, the two routes to Mozambique, Beira in Mozambique, and also to Dar es Salaam, the port there in Tanzania are trucking routes.
Geraud: But let’s fix something for Lobito routes. For Lobito, the biggest part of the Lobito corridor is the Benguela Railway. The Benguela Railway has already been refurbished by China for $1.8 billion. So that railway, it’s already done. The only part of the Lobito Corridor, the problematic part is the railway part inside DRC and inside Zambia. Those two portion is going to need at least $200 million to refurbish in a way that they can connect them to the Benguela Railway.
Eric: Yeah, that’s still a lot of money to get into there, and especially, now if you’re an investor and you say, “Okay, Helaina Matza, you’re trying to persuade me to invest in building a railway when there is two new truck routes, plus there’s the existing route to the Port of Durban.” So, there’s going to be a lot of competition for these transport routes. And so something to keep an eye on that. Also, this is something that’s totally unrelated to our conversation today, but speaks to the American ambitions to circumvent the Belt & Road Initiative is the India Middle East Corridor, which again, I also think is dead on arrival, in part because of now the war in the Middle East.
This is a transport route that goes through Israel. I mean, you’re not going to send stuff through Israel. Again, I think these are ideologically driven initiatives, and I think they run into problems when they meet up against the reality. And again, as we talked about with the mining, these are going to be private sector-led. These are not going to be financed by the U.S. government. So, this is going to be a very difficult sell right now in these very volatile times to get people to invest. Very quickly now, because we are over our time, it is the month of October, the month of November comes, and guess what happens, Geraud, in the month of December?
Geraud: New Year, Christmas.
Eric: No, it is the anniversary, the one-year anniversary of the Zambia, DRC United States Government Memorandum of Understanding to do-
Geraud: You got me there.
Eric: So, that was one year ago in December where Secretary Anthony Blinken did all this fanfare to talk about how the United States is going to, help these countries move up the value chain. They’re going to do battery processing in Zambia and the DRC. Lots of fanfare. In fact, there was just a new paper written about this from our good friend, Folashadé Soulé, who I have enormous respect for. But I thought the paper was short on one key fact that if this thing doesn’t move out of an MOU stage, which the MOU is worth as much as the toilet paper you buy at the store, then there’s no there, there. This is just empty, vapid promises. It’s taken them 10 months, so far, to do anything, and nothing’s happened. Meantime, one of the things that we’re tracking is we have this new energy tracker, which we’re going to launch at the end of the year, which maps out in Africa, all of the new energy projects that China has done in the past two or three years, I think it is, we’re going back two years, and we’re at like 70 projects.
It’s unbelievable. And so one of the attributes of China’s infrastructure engagement in Africa is their ability to execute quickly and to go from deal to shovel in the ground. And sometimes about a year, year and a half. We’re nowhere near getting a shovel in the ground on this project. And we haven’t moved out of the M O U stage. Two Congolese ministers, by the way, went to go see Jose Fernandez, the Under Secretary of State I mentioned earlier at the State Department, pleading with him to do something and a move on this. Nothing’s happened. To me, and I’d like to get your take on this, this MOU should be a litmus test as to whether or not the United States is actually serious about any of this stuff.
Geraud: Definitely, yes. Definitely, the Congolese and the Zambian, they’re looking at it, you remember we spoke about it a few months back when it was signed. We say the Congolese and Zambian are going to look at it to say, “We want to see you becoming more serious about that.” As long as you’re going to stay into the MOU stage, if we don’t move to a very concrete binding agreement, they’re just going to look at you, they’re going to be nice with you, they’re going to sign with you, but they will never turn away from any Chinese new project coming online. And so this is where the U.S. has a huge problem, the ability to transform the MOU into real agreement. And I think the U.S. is caught up in so many agenda into the DRC, the political agenda, the mining agenda, that somehow that MOU is just lost in so many agenda that the U.S. has into the DRC that at the end, you really don’t have someone who says, “Beyond all this agenda, I want this MOU to become in agreement and to move forward.” And this is the problem.
Eric: But here’s the fundamental problem. And again, we go back to it what we talked about on the mining side as well. So, Anthony Blinken, who’s a politician, right?
Geraud: Yeah.
Eric: He signs this deal and says, “We’re going to build upstream capability in the supply chain.” Everybody in the State Department goes, “Yeah, suck it China. Here we go.” And then they turn around and they go to Wall Street and they go to the mining companies, they say, “Hey, we got this idea. How about you want to invest in the DRC?” And they’re like, “Mm, no, pass, hard pass, sorry.” And I bet it’s because they haven’t been able to line up any of their private sector companies to be able to do this deal. That’s why it’s stuck. And they can’t do anything about it.
Geraud: Exactly. That’s why for now they’re relying on Trafigura, for instance, the Swiss Trafigura, the commodity traders to try to move some pieces around into the DRC to take much more space into that. We’re still going to see how it’s going to move forward, but they’re going to have really hard time as long as they don’t have the private sector on board. As long as they’re not ready to take the risk of coming into investing in the DRC in the context of DRC, it’s going to be hard for them to move the needle in any direction at all.
Eric: You mean the same Trafigura that does an enormous amount of business with the Chinese? Right?
Geraud: Exactly. The same Trafigura.
Eric: Okay, there we go. Here we go again with the smoothie, right? You can’t undo the smoothie, and Trafigura is literally the smoothie right there. So, as you guys can see, this is an incredibly hot topic. We were bouncing around the idea, Geraud and I, of starting a new twice-monthly newsletter, a paid subscription because we feel that this kind of information is so juicy and good that it’s worth paying for. We haven’t thought about the details yet, but we’re going to start something probably next year to do a twice-monthly China Battery Metals newsletter to keep everybody up to date.
We also do this coverage every day in our regular China Global South Daily Brief. If that’s something that interests you and you love the conversation that Geraud is having and all the great things that he’s doing, you’re going to want to sign up for a subscription at the China Global South. Go to chinaglobalsouth.com/subscribe. You’ll get 30 days free to see all the great work that the team is doing. We’ve got, again, just an amazing group of editors, analysts, and journalists in Asia, Africa, and the Middle East who are putting this thing together. There is nothing like it out there really. There is nothing like it out there. I am just so proud of the work that everybody’s doing. And the quality of research that Geraud and his team are doing on things like this cobalt data project.
For the first time, Geraud mapped out the entire Congolese cobalt supply chain — never been done before on an interactive map. And you can see it on our site. That’s the kind of work that we’re doing, and it needs your support if we’re going to survive because this stuff does not come cheap, and it’s really important. And Geraud likes to eat. So, we want to make sure that we all have salaries. And that comes from your support. And that’s how we stay independent as well.
Geraud: Yeah.
Eric: We don’t take any money from governments, we don’t take any money from companies. We take it from our subscribers and that’s what keeps us independent. So we hope that you’ll give it a try — chinaglobalsouth.com/subscribe. And very quickly, Geraud, you do a whole other part of your job, Français, in French. Tell everybody about Projet Afrique Chine and where they can find you.
Geraud: Yeah. So this is what we do in French, I’m going to say in French, so [French 0:57:24] francophone, the China Global South. [French 0:57:29] Français, visit projetafriquechine.com [French 0:57:39]. I know Eric, you’re lost, but…
Eric: No, no, [French 0:57:42]. If other people, if you did not understand what Geraud just said there…
Geraud: So, basically, I just said that we cover the same topics and very interesting topic about China in Africa in French, in projetafriquechine.com. You’re going to find our cover. We have a twice-weekly newsletter. I’m going to resume it this week so you can receive all the stories that we cover every Tuesday and every Friday. So, subscribe and come to our channel. We’re going to appreciate your feedback. We also have a YouTube show that we’re going to also resume this week where we talk about China in Africa. It’s like a five, six-minute show. Take the time to visit our YouTube channel. You’re going to find it. And something new is also coming on YouTube. I’m going to let Eric talk about it. So yes, this is the big news that we’re making this week as well.
Eric: Okay, so we’re making the plunge. I got to be honest with you, I’m a little scared of this one, but we’re making the plunge this week to start a weekly YouTube show called The Roundtable where we’re going to get the China Global South editors, Geraud in Mauritius, me and Vietnam, Njenga in Nairobi, Antonia in Jakarta’s going to join us from time to time. Jony up in Jerusalem is going to take part as well. And Cobus, who’s right now in Berlin, we got a bunch of folks who are just doing amazing stuff, and we’re going to do a show on YouTube now. And so we’re going to start tomorrow on Wednesdays. We’re all, I’ll be honest with you, a little terrified about doing it. none of us are kind of YouTubers that way. We’re podcasters.
Geraud: It’s going to be our first time. So, guys, don’t be hard on us. Please.
Eric: Be nice. Come on, be nice. Don’t hate. But anyway, so we’re going to do that, and that’s going to go out this week as well. So, we’d love to get your feedback on that. Okay. Lots of exciting things going on. We’ll leave it there. For Geraud Neema in Mauritius, I’m Eric Olander in Ho Chi Minh City, until next week, thank you so much for listening.
Outro: The discussion continues online, follow the China Global South Project on Twitter @ChinaGSProject and share your thoughts on today’s show, or head over to our website at chinaglobalsouth.com where you can subscribe to receive full access to more than 5,000 articles and podcasts. Once again, that’s chinaglobalsouth.com.
