Fitch Solutions Country Risk & Industry Research recently released a report that suggests that the U.S.-China tensions and resulting geopolitical risks may threaten the international lithium supply chain. The report presents the point of view of analysts on the future of the lithium market and what it may look like.
In the report, analysts note that the progressively tense relationship between China, the leading manufacturer of batteries and a major lithium processing player, and the West, a growing battery manufacturer, are the primary issues that threaten the resilience of supply chains. They add that on the supply front, the lithium market is concentrated in China, Chile and Australia both geographically and in the ownership and production perspective; the report also notes that the manufacture of batteries as well as chemical processing is dominated by China.
In the report, the research firm notes that the increasing efforts to localize chains of supply may prompt governments to enter into long-term supply agreements or expand the local supply of raw materials. This may lead to various changes in the entire electric vehicle battery manufacturing landscape, especially as more developed markets work to decrease their dependence on China. The analysts add that the rivalry between those countries may also disrupt trade flows and demand amid rising tension.
The report also states that the lithium sector is currently experiencing resource nationalism and increasing government intervention, which may continue to rise, either in an attempt to control the sector, increase local production or secure this sought-after metal. The market researchers believe that government intervention in this particular sector may manifest in different ways, including growing official support for the production of battery materials by developing industry frameworks. Asset nationalization may also be seen as well as higher taxes on lithium projects.
Some analysts argue that nationalism may be a risk given the intense external and fiscal imbalances that were brought about by the coronavirus pandemic, which affected many emerging markets.
Fitch Solutions also expects that the consumption of lithium will grow significantly and may, in the future, surpass supply developments. The firm asserts that demand will increase, driven by strong government support in major economies to promote large-scale systems for storing energy and the use of electric vehicles. It also predicts that in lithium ion batteries, the use of the metal in batteries, which have different cathode chemistries, will cushion demand from changing preferences for cathode chemistries and technological advances.
For companies such as First Energy Metals Ltd. (CSE: FE) (OTCQB: FEMFF) that are operating lithium exploration and development projects, these geopolitical jitters could be a real concern once they reach the level of affecting supply chains.
NOTE TO INVESTORS: The latest news and updates relating to First Energy Metals Ltd. (CSE: FE) (OTCQB: FEMFF) are available in the company’s newsroom at https://ibn.fm/FEMFF
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