Albemarle, the world’s largest lithium producer, argues that building a self-sustaining supply chain for critical minerals in North America and Europe is economically unviable, making it difficult to reduce dependence on China.
Kent Masters, Chief Executive of the U.S.-based company, told the Financial Times (FT) that low lithium prices and high operational costs have made shifting the supply chain westward unprofitable. Lithium is a crucial material for the electric vehicle (EV) industry.
“We’ve been trying to move west, but the prices we’re seeing in the market don’t really allow us to do that,” Masters explained. He added that the United States is “absolutely” at risk of losing its competitive edge against China in the lithium race.
Falling lithium prices and rising challenges
Lithium prices have plunged more than 80% since early last year due to a global slowdown in electric vehicle sales and unfavorable macroeconomic conditions. This decline has reduced demand for lithium while supply continues to grow. “At current price levels, there is no incentive for new entrants,” said Adam Megginson, an analyst at Benchmark Mineral Intelligence.
This market downturn is undermining Western efforts to create a local supply chain for energy-transition metals and reduce reliance on China, which dominates global refining capacity and mining operations.
Earlier this month, Albemarle reported a $1.1 billion quarterly loss due to low lithium prices and announced a 6-7% workforce reduction as part of its cost-cutting measures. Additionally, the company halted plans to build a $1.3 billion refinery in South Carolina and partially scaled back its Kemerton, Australia expansion.
Despite these setbacks, Albemarle remains a key player, operating the only active lithium mine in the U.S. (located in Nevada) and seeking approval for another mine in North Carolina. However, Masters emphasized that the mine’s development hinges on future economic conditions: “Once we get the permits, we will have to decide whether to do it or not.”
In 2024, Albemarle plans to allocate $800-$900 million for capital expenditures, half of this year’s spending.
The broader industry is also scaling back. Piedmont Lithium shelved plans for an $800 million refinery in Tennessee, and International Battery Metals suspended operations at its Utah plant just two months after commencing production.
China’s growing dominance
Industry experts warn that the gap between China and the West is widening. “China accounted for 65% of the world’s lithium refining capacity last year and is expected to produce more than half of the global supply by 2040,” said Oliver Montique, a trade and supply chain analyst at Eurasia Group.
Some progress is being made. Last month, Rio Tinto acquired Arcadium Lithium for a record $6.7 billion, marking a significant step for Western producers.
However, according to Macquarie, global mine supply is expected to grow by 24% in 2023 and 21% in 2024, with lithium prices unlikely to recover before 2027.
Although the U.S. Inflation Reduction Act (IRA) offers tax incentives to promote non-Chinese sourcing and boost domestic production, Albemarle claims the legislation has not accelerated the development of a comprehensive minerals supply chain.
Rich Nolan, President of the National Mining Association, has called for a “more aggressive and holistic approach” to strengthening domestic production. This includes measures such as stockpiling, buyback barriers, and upfront market commitments.
In addition to low prices, lithium producers face significant challenges, including lengthy permitting processes, labor shortages, and political instability. Analysts warn that potential policy changes, such as efforts by former President Donald Trump to roll back the IRA and eliminate the “electric vehicle mandate”, could further suppress EV adoption and reduce demand for lithium.
