In China, Bidding Wars for Lithium Top Out at 1,300 Times the Starting Price

When a recent auction for exploration rights at a lithium site in China’s southwestern Sichuan province closed, it had garnered more than 11,000 bids.

The auction for the Jiada Lithium Mine closed earlier this week at the equivalent of about $580 million—1,300 times higher than its starting price, according to data from the government-run Sichuan Public Resources Trading Center. Last week, an auction for the Lijiagoubei Lithium Mine, also in Sichuan, closed at more than 1,700 times the opening bid.

The frenetic bidding reflects market participants’ expectations that demand for lithium batteries will only continue to grow. In the first five months of 2023, China’s lithium-battery exports reached $26.7 billion, a 66% jump from the same period a year earlier, according to Chinese customs data.

Also driving the bidding war is a geopolitical concern—that Chinese companies’ access to lithium reserves outside the country’s borders will face pressure in the coming years, as Western suppliers answer governmental calls to give priority to companies based in friendly nations. At the same time, many U.S.-aligned countries are increasing their scrutiny of Chinese investments in reserves of critical minerals such as lithium, citing national-security concerns.

Global lithium demand is forecast to reach 1.5 million metric tons in 2028, up from 900,000 tons this year, according to Benchmark Mineral Intelligence, a pricing and research firm. China’s domestic mines account for roughly 12% of the world lithium supply, but the country refines around 55% of the world’s lithium, with most of the difference coming from imports of Australian lithium ore, according to the Paris-based International Energy Agency.

Last month, Canberra blocked the sale of an Australian lithium miner to a U.S. company whose Australian subsidiary includes a director with Chinese citizenship. In November last year, officials in Ottawa ordered three Chinese companies to sell their stakes in Canadian companies extracting critical minerals, citing national-security concerns.

As the geopolitical landscape has grown starker, Beijing has stepped up calls to ensure the country has access to the supplies it needs.

China’s Ministry of Natural Resources said earlier this year that it would boost efforts to identify and develop domestic reserves of minerals such as lithium. To do so, it pledged to encourage investment in mining exploration and to give priority to land use for extracting strategic minerals.

China is home to only 7% of the world’s known lithium resources, of which less than one-third can currently be mined in a commercially viable manner, according to the U.S. Geological Survey of 2023.

That is because China’s lithium, which is either contained in salt lakes or in one of two types of hard rock known as spodumene and lepidolite, is often scattered in different places and of inferior quality. Lithium is difficult to extract from salt lakes because of their high levels of impurities, while spodumene is most common in remote high-altitude regions. China’s lepidolite is easier to access, but processing it generates a lot of pollution and was, for a while, prohibitively expensive.

Over the past two years, the economics of lithium development have been transformed as worldwide demand for electric vehicles and energy-storage systems has skyrocketed. In 2022, battery-grade lithium prices soared by 10 times from 2021 levels. While prices have since fallen sharply this year, they still remain high enough to make exploration and development of more lithium mines economically viable.

Still, observers say China’s domestic lithium rush could result in a bust, because of an undeveloped financing landscape and many market participants’ lack of experience in the field.

Environmental concerns also loom large. Without technological breakthroughs, concerns about soil degradation and water pollution could limit production ramp-ups in the country, Goldman Sachs analysts wrote in a February research note.

One example is China’s largest spodumene mine, located in Sichuan and owned by a company called Ganzizhou Rongda Lithium. Production there began in 2010, but was halted four years later after a string of environmental accidents and local protests. The project was only allowed to resume in 2019 after extensive upgrades to environmental facilities, safety reviews and the signing of a benefit-sharing arrangement with the local government.

Beijing signaled its concern about environmental impact in February, when it sent inspectors to probe illegal mining in Yichun, a city in Jiangxi province that sits at the heart of China’s largest lepidolite region. The probe came amid a municipality-led crackdown on criminal activity and environmental degradation by lithium producers, after local authorities said in December that they had found excessive levels of the toxic metal thallium in a local river.