[ad_1]
Welcome to the world of China’s lithium auctions, where vast numbers of bids are placed, firms end up spending over a thousand times the opening price, and buyers promising hundreds of millions of dollars have walked without paying.
China is the biggest producer of electric vehicles and lithium is a key element in the batteries that power them. But the country holds just a fraction of the world’s identified reserves, which means it has to import over half of what it needs.
The latest sales of licenses to mine the critical mineral will take place in the southwestern province of Yunnan next month. The local government has put five-year exploration rights to two projects in the cities of Kunming and Yuxi up for grabs, underscoring Beijing’s determination to accelerate the domestic development of one of the most crucial resources for the global transition away from fossil fuels.
The auctions will be closely watched after heated competition drove up the price of two mines in neighboring Sichuan in August. A unit of Inner Mongolia Dazhong Mining Co. won the rights to the province’s Barkam mine with a winning bid of 4.2 billion yuan ($580 million), which was over 1,300 times the starting price. The auction drew more than 11,000 bids. The second mine in Jinchuan county fetched 1 billion yuan, with a subsidiary of Sichuan Energy Industry Investment Group paying nearly 1,800 times the opening price.
Sotheby’s might sniff at how the auctions were conducted. The sales in Sichuan were “hot in the sense that there are so many bids,” Daiwa Capital Markets’ analysts Dennis Ip and Leo Ho said in an email. But that’s partly explained by the low opening price and the tiny increment — just 100,000 yuan — at which the bids proceeded, which inflated their number, according to the analysts.
In addition, some firms entered the contest to ensure their future eligibility for other auctions, they said.
But even if some of the drama surrounding the auctions seems concocted, it shouldn’t mask Beijing’s serious intent when it comes to marshaling the resources necessary to feed its world-leading electric car and battery industries.
“China has put more emphasis on the exploration and development of domestic lithium resources,” said Susan Zou, an analyst at Rystad Energy. It wants to expand both mining and processing as a dual insurance policy to counter geopolitical risks and protectionist moves around the world to secure the supply of critical minerals.
There’s a growing urgency for China to defend its dominance of the supply chain. The US has stepped up efforts to build its own networks with allies like Canada and Australia. Some nations are also seeking to keep more revenue at home by adding processing plants that can raise the value of their lithium exports.
Some Chinese firms that have expanded their global footprint — snapping up resources from Argentina to Zimbabwe — have started to meet setbacks due to political tensions and resource nationalism. In recent weeks, Ganfeng Lithium Group Co’s joint venture in Mali was ordered to suspend some operations while nine of its lithium concessions were canceled by Mexico. Last year, Canada ordered three Chinese companies to divest stakes in firms listed in Toronto under tougher rules for foreign investment.
The backdrop is a roller-coaster in prices. Lithium carbonate, a refined form of the metal, has collapsed to 189,500 yuan a ton after a two-year rally took it to a record of 597,500 yuan in November. Still, it remains about four times higher than the historic low hit in 2020. Global demand, meanwhile, is expected to grow nearly five times by the end of the decade, according to BloombergNEF.
The plunge in prices may have accounted for the failure of an earlier auction in February, when a unit of Xinjiang Zhite New Materials Co won the exploration rights to a mine in the autonomous region for 6 billion yuan, but then failed to follow through with payment.
Prices probably fell too far for the project to be economical, according to Daiwa’s analysts.
And a sale in May last year for a firm with a controlling stake in another lithium mine in Sichuan initially fell through after the winner didn’t pay its 2 billion yuan bid. But the auction did attract nearly 1 million online viewers over the course of its five days.
The upcoming sales in Yunnan will require bidders to place deposits once offers reach a certain level to avoid a repeat of the failed auctions.
China is the biggest producer of electric vehicles and lithium is a key element in the batteries that power them. But the country holds just a fraction of the world’s identified reserves, which means it has to import over half of what it needs.
The latest sales of licenses to mine the critical mineral will take place in the southwestern province of Yunnan next month. The local government has put five-year exploration rights to two projects in the cities of Kunming and Yuxi up for grabs, underscoring Beijing’s determination to accelerate the domestic development of one of the most crucial resources for the global transition away from fossil fuels.
The auctions will be closely watched after heated competition drove up the price of two mines in neighboring Sichuan in August. A unit of Inner Mongolia Dazhong Mining Co. won the rights to the province’s Barkam mine with a winning bid of 4.2 billion yuan ($580 million), which was over 1,300 times the starting price. The auction drew more than 11,000 bids. The second mine in Jinchuan county fetched 1 billion yuan, with a subsidiary of Sichuan Energy Industry Investment Group paying nearly 1,800 times the opening price.
Sotheby’s might sniff at how the auctions were conducted. The sales in Sichuan were “hot in the sense that there are so many bids,” Daiwa Capital Markets’ analysts Dennis Ip and Leo Ho said in an email. But that’s partly explained by the low opening price and the tiny increment — just 100,000 yuan — at which the bids proceeded, which inflated their number, according to the analysts.
In addition, some firms entered the contest to ensure their future eligibility for other auctions, they said.
But even if some of the drama surrounding the auctions seems concocted, it shouldn’t mask Beijing’s serious intent when it comes to marshaling the resources necessary to feed its world-leading electric car and battery industries.
“China has put more emphasis on the exploration and development of domestic lithium resources,” said Susan Zou, an analyst at Rystad Energy. It wants to expand both mining and processing as a dual insurance policy to counter geopolitical risks and protectionist moves around the world to secure the supply of critical minerals.
There’s a growing urgency for China to defend its dominance of the supply chain. The US has stepped up efforts to build its own networks with allies like Canada and Australia. Some nations are also seeking to keep more revenue at home by adding processing plants that can raise the value of their lithium exports.
Some Chinese firms that have expanded their global footprint — snapping up resources from Argentina to Zimbabwe — have started to meet setbacks due to political tensions and resource nationalism. In recent weeks, Ganfeng Lithium Group Co’s joint venture in Mali was ordered to suspend some operations while nine of its lithium concessions were canceled by Mexico. Last year, Canada ordered three Chinese companies to divest stakes in firms listed in Toronto under tougher rules for foreign investment.
The backdrop is a roller-coaster in prices. Lithium carbonate, a refined form of the metal, has collapsed to 189,500 yuan a ton after a two-year rally took it to a record of 597,500 yuan in November. Still, it remains about four times higher than the historic low hit in 2020. Global demand, meanwhile, is expected to grow nearly five times by the end of the decade, according to BloombergNEF.
The plunge in prices may have accounted for the failure of an earlier auction in February, when a unit of Xinjiang Zhite New Materials Co won the exploration rights to a mine in the autonomous region for 6 billion yuan, but then failed to follow through with payment.
Prices probably fell too far for the project to be economical, according to Daiwa’s analysts.
And a sale in May last year for a firm with a controlling stake in another lithium mine in Sichuan initially fell through after the winner didn’t pay its 2 billion yuan bid. But the auction did attract nearly 1 million online viewers over the course of its five days.
The upcoming sales in Yunnan will require bidders to place deposits once offers reach a certain level to avoid a repeat of the failed auctions.
[ad_2]
