Lithium Alliance: An Australian and US Nexus

Lithium Alliance: An Australian and US Nexus

Lithium Alliance

An Australian and US Nexus

Australia is economically renowned for its contribution of raw materials to the global market. In particular, the mineral lithium has become an international talking point culminating from the surge in electric vehicles, as it is the main catalyst used in rechargeable batteries including car batteries. Opportunities to expand into the US have arisen in light of geopolitical tensions rising between the US and China. James Calaway, Chairman of Lithium developer Ioneer, is at the forefront for the push to expand into the exposed market.  Calaway thinks there is an “unusual amount of interest” within Australian and US governments towards supply chains for battery technology, creating the opportunity for expansion.

Economic conditions

Australia has a well-established trade footprint with the US, advocated by the Australia-United States Free Trade Agreement (AUSFTA). Trade between the economic powers is valued at $65 billion, however Ioneer aims to aggrandize by developing a major lithium mine in Southern Nevada. With tensions rising between the US and China, the idea of forming strategic battery mineral supply chains are “ gaining currency certainly in the united states and also getting currency in Australia” stated Calaway. China is using the market shift from reliance on fossil fuels to electrification to boost its economic dominance above that of the USA.

Geographically, Australia has one of the world’s largest sources of lithium, giving the country plenty of leverage in the US-China trade wars. Expansion of existing mines, construction of new mines and new lithium refineries becoming operative are set to improve “lithium exports from $500 million to $1.5 billion and increase 168,000 tonnes by 2024” according to the Department of Industry, Innovation and Science.

Not a one man job

As stated before, trade in and out of the US has been made more accessible due to the AUSFTA agreement. However, for Ioneer to comfortably establish themselves in the US is a different battle, Calaway believes that talks to “encourage domestic investment (from the US government) in value-added materials and development shouldn’t be off the table.” Government intervention is being called upon by lithium producers and other coinciding critical metals providers such as BlueScope Steel (ASX: BSL). The government ‘interference’ will help these companies compete against Asian producers who already have their respective state’s support.

Appreciative of the conditions, Trump and the US government are pushing for the development of a national electric vehicle supply chain policy. Calaway states that “Intervention could include the creation of the kind of tax credits that have been used to spur the renewable energy industry; faster permit-processing; lowering capital costs; R&D support and the provision of critical physical infrastructure.” This abutment will help Ioneer and other companies to capitalise on the Trump Government’s plans to establish and grow its electric vehicle footprint.

The potential benefits of lithium development in the USA will struggle to be achieved unless there is Government support. Calaway questions whether there are “prudent, thoughtful ways to create financial incentives that support developments”, especially with competition like Elon Musk’s Gigafactory being in a nearby 350 km radius.  

Potential Results

Calaway’s firm perspective that there should be support from the government is backed by alleged expectations that the total value of lithium production will double. In one year, lithium’s value is tipped to increase by $14.5 Billion underpinned by a steady and secure supply of the material which is seen as “the absolute linchpin for hundreds of billions of dollars of investment to be made.”

Accredited to the environment of the economy, demand for lithium is expected to increase 10 fold in the US alone in the next decade. Again lead by China’s movement away from fossil fuel reliance, critical materials including lithium’s demand is set to “surge five, ten or fifteen-fold rapidly,” he said. The outpouring of demand is rationalised by China with two main reasons, realisation that the petroleum age is coming to an end and not being as richly endowed with the critical battery making materials as Australia.

The expansion of the Nevada mining project will cause a skyrocket of production in lithium within the US. Current production figures of 4000-5000 tonnes per year are forecasted to increase to 20,000-22,000 tonnes by 2021, highlighting the dominance that can be secured by the US government in future battery production. Conversely, if this opportunity is forgone, the risks of becoming “completely dependent on batteries, battery materials, and potentially ultimately the actual cars and other things themselves not being developed by us” is increased, stated by Calaway. If this was to occur, the economic race between the US and China will surely tip in favour of the latter, as the US would turn to China’s manufactured products to meet the demand.

By Louis Cai

Click here for a one month free trial to our Lotus Blue Portal.

KOSEC does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information provided. KOSEC is intended to provide general information only. Please be aware that investing involves the risk of capital loss. This message is confidential and may be privileged. It is intended only for the use of the addressee named above. If you are not the intended recipient, any unauthorised dissemination, distribution or copying is illegal. We do not guarantee the security or completeness of information hereby transmitted and are not liable in either respect or in respect of any delay. Nothing in this message is intended as an offer or solicitation for the purchase or sale of any financial instrument. Any market prices or data, unless specifically verified and identified as such, are not warranted as to completeness or accuracy. Kodari Securities Pty Ltd (KOSEC) is a Corporate Authorised Representative (No. 399 556) of Longhou Capital Markets (AFSL No. 292464) which is regulated by the Australian Securities and Investment Commission (ASIC). KOSEC wishes to disclose that KOSEC and its staff may hold stock they recommend in their own portfolios and that any decision to purchase recommended stock should be done so after the purchaser has made their own inquires as to the suitability to their own requirements. Click here to view our FSG.
Rate this post

div#stuning-header .dfd-stuning-header-bg-container {background-image: url(https://www.kosec.com.au/wp-content/uploads/2019/01/Dashboard-Blue.png);background-size: cover;background-position: center bottom;background-attachment: initial;background-repeat: no-repeat;}#stuning-header div.page-title-inner {min-height: 335px;}
X