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China maintains stranglehold on lithium refining

Share of U.S. lithium battery metal supply by source location, 2023
Data: BloombergNEF; Note: Free-trade nations include individual countries with active FTAs; Chart: Axios Visuals

China controls the bulk of lithium refining, and that will pose a challenge to battery companies and car makers hoping to qualify for lucrative new tax credits.

Why it matters: There are a number of countries with lithium reserves, but processing the mined material still relies on China.

State of play: Most of the lithium that's used in electric vehicle batteries and similar electronics flows through Chinese-controlled processing plants.

What's happening: Batteries that incorporate such refined materials are prohibited from qualifying for lucrative new tax credits included in 2022's Inflation Reduction Act.

  • Batteries that use materials from "foreign entities of concern," a list that includes China, can't receive the tax credits, under a rule the Biden administration proposed in December.
  • The rule next year will expand beyond batteries to encompass raw materials such as lithium.

Between the lines: Some minerals and metals are concentrated in one particular region. But not lithium: countries as far afield as Australia, Chile and Zimbabwe were among the top producers in 2021.

  • Companies in the U.S. are looking to develop domestic reserves, too. Of course, they'll need places to refine the lithium once they extract it.

What we're watching: Minerals giant Albermarle last year said it would spend $1.3 billion to open a refinery in South Carolina, though it has since put those plans on hold, citing a decline in lithium prices due to slowing growth in EV demand.

Bottom line: You can't move a mine, but you can choose where to build a refinery.

  • If lithium doesn't have to be mined in China, it doesn't need to be processed by Chinese-owned companies, either.
  • Then again, as the latest development from Albermarle shows, building a refinery isn't exactly cheap or easy.
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