Opinion: Decoupling from China is a lot harder than it sounds

François-Philippe Champagne, Minister of Innovation, Science and Industry, speaks on June 13 during a government announcement about the future of the mining sector in Saskatoon, Sask.Heywood Yu/The Globe and Mail

François-Philippe Champagne is clearly undeterred by a challenge. The Federal Industry Minister, an eternal optimist, has in recent years sought to position Canada as a player in the high-stakes electric battery and vehicle market amid fierce global competition and efforts to decouple from China .

His efforts have not gone unnoticed beyond Canada’s borders.

Canada came second in BloombergNEF’s latest global ranking of lithium-ion battery supply chains, up from fifth in 2021, trailing only China on the company’s annual scorecard of where individual countries are in the race to the primacy of the battery.

Lest recognition go to Mr. Champagne’s head, or make Canadians think this country is really kicking ass, the BloombergNEF analysis combines a series of qualitative and quantitative measures. Canada scores well on environmental, social and governance (ESG) and resource availability. But most of the latter remain in the ground. And most of what is extracted is processed elsewhere. “A lack of meaning [battery] production capacity of cells and components means that most of the value of these resources is realized outside the country,” BloombegNEF noted.

Mr. Champagne has made it his mission to change that, helping Canada get commitments from major battery component manufacturers and automakers to invest billions of dollars here. The latest came last week when Brazilian mining giant Vale SA announced a deal to supply General Motors GM-N with battery-grade nickel sulfate from a proposed plant in Bécancour Que.

The city of 14,000 on the St. Lawrence River aims to become a hub for battery component manufacturing, boosted by government incentives and access to cheap, clean, and abundant hydropower. Germany’s BASF and South Korea’s POSCO have also announced plans to build battery component facilities there.

The problem is that most of these investments won’t be commissioned until mid-decade or later. And their total capacity will likely amount to a drop in the ocean as global demand for lithium-ion batteries soars exponentially as governments seek to halt the sale of gasoline-powered vehicles by 2040. the recent US Inflation Reduction Act will help attract additional investment to this continent. But not enough to come close to ending global dependence on China for battery components.

While global auto giant Stellantis NV STLA-N and South Korea’s LG Energy Solution have announced plans to jointly invest $5.1 billion in an EV battery plant in Windsor, Ontario, expected to open in 2025, the batteries will likely to be composed of critical minerals and components refined or produced in China. It would take the equivalent of a Marshall Plan to realize an entire North American battery supply chain in the coming decades.

Benchmark Mineral Intelligence, which tracks critical mineral prices and capacity, recently estimated that China controls 91 percent of anode production and 78 percent of cathode production. The global share of cathode-active material will rise to 87 percent by 2030.

In contrast, Benchmark predicts that North America will meet only 3.5 percent and 3.4 percent of its domestic demand for cathodes and anodes from local suppliers by 2030, respectively. an analyst at Benchmark, said of efforts to boost critical mineral extraction. “But ultimately, if you don’t have the midstream production steps, those materials will have to be exported elsewhere and then imported back into the region as cathode and anode. Every step of the supply chain must be present to make sense as a localized supply chain.”

Hence the daunting challenge faced by Mr. Champagne, who recently called for an economic “decoupling” from China and ordered Chinese state-owned companies to divest their stakes in three Canadian-based critical minerals companies on national security grounds. Ottawa has so far authorized China’s Sinomine Resource Group to take ownership of this country’s only operational lithium mine in Manitoba. Production from the mine is shipped to China for processing and use in that country’s EV industry.

Benchmark notes that major non-Chinese lithium producers, including US-based Albermarle and Livent, continue to invest in Chinese plants to produce lithium hydroxide and lithium carbonate, complicating North American efforts to reduce dependence on that province.

“They may not really want a decoupling because much of their downstream demand is in China, where it looks set to remain for the next decade,” Benchmark analyst Daisy Jennings-Gray said in a report released Tuesday. “It’s easier and more affordable to get operations up and running in China, and it’s helpful to have regional hubs to meet demand in different areas and meet the needs of different customers.”

All this makes Mr. Champagne’s job a lot harder than he makes it sound.

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