Breaking Bad – Are we looking at OPEC style battery mineral cartelisation

Back in September 1960, a pivotal moment in the history of oil production unfolded as five oil-producing nations united in Baghdad to establish The Organization of the Petroleum Exporting Countries (OPEC). Their primary motivation stemmed from frustration with the overpowering influence of seven major oil companies on their countries’ oil supplies, leading to a strong push for asserting national sovereignty over natural resources. Nevertheless, the effectiveness of this cartel has faced criticism, with political scientist Jeff Colgan contending that since the 1980s, OPEC has largely fallen short of achieving its intended objectives. Despite its early aspirations, OPEC’s journey has been marked by challenges and complexities that continue to shape the dynamics of global oil markets. Cut to 2022, in the pursuit of a sustainable and greener future, the world is witnessing a transformative shift towards renewable energy sources. As electric vehicles (EVs) gain traction, the demand for battery minerals is set to soar. A crucial component in this paradigm shift, the global EV market is projected to surge at an impressive CAGR of 22% from 2021 to 2025. Among the key battery minerals, lithium stands at the forefront, with its demand anticipated to skyrocket a staggering 42 times by 2040, compared to the levels seen in 2020. However, as the race for battery minerals intensifies, concerns regarding cartelisation in the industry loom large, shaping a landscape where strategic partnerships and responsible sourcing are more critical than ever before.

Emergence of Cartels

The surge in demand for battery minerals has not gone unnoticed by countries rich in these valuable resources. Recognizing the growth opportunities in the battery markets, some nations, such as Argentina, Bolivia, and Chile, which collectively account for 58% of the world’s identified lithium, are engaged in discussions with other producers, envisioning the formation of a global lithium cartel. Similarly, Indonesia, responsible for 38% of global nickel production, is actively developing a proposal to present a cartel initiative to major nickel and cobalt producers. The driving force behind these efforts is the shared objective of gaining greater control over the prices of battery raw materials and the overall supply chain. As the possibility of a cartel takes shape, its potential implications on the global battery industry and the pursuit of sustainable energy solutions come into focus, stirring discussions on the future of battery markets and international collaborations.

Managing the Game

The potential formation of battery material cartels carries far-reaching implications, deeply impacting various aspects of the production and supply dynamics. If materialized, these cartels are expected to wield influence over production rates, pricing structures, purchase negotiations, and supply consistency. Collaborating within the cartel framework would enable producers to adopt superior international production practices, bolstering their productive capabilities. Moreover, through shared technology and knowledge, member companies could enhance supply rates and drive down production costs. However, this concentration of power within the battery mineral producing and processing countries may come at a cost, as it could diminish the negotiation power of buyers, leading to reduced competition and price-fixing agreements that may restrict new entrants in the market. Additionally, cartelisation introduces heightened risks linked to external factors, such as geopolitical relations of trading countries, potentially impacting trade and the overall EV supply chain. Striking a delicate balance between the advantages and challenges posed by these potential cartels will be pivotal in shaping the future of the battery material industry and its contribution to sustainable energy endeavors.

Can it be a reality?

However appealing the idea of an OPEC-like cartel for the energy transition metals may seem, translating it into reality presents numerous challenges. Unlike OPEC’s oil resources, the mining operations responsible for major nickel production, such as those in Indonesia, are predominantly controlled by various private companies or Chinese entities. Furthermore, China’s remarkable standing as the world’s leading EV producer and its control over 58% of global lithium processing capacity, despite having a mere 6% of global identified lithium resources, hold significant implications in the potential formation of a cartel. In this context, any such coalition would inevitably rely on China as a primary customer, endowing the nation with a crucial role in shaping the dynamics and outcomes of such an agreement. These intricate factors underscore the delicate interplay of power and cooperation among nations as they navigate the complex domain of energy transition metals. Moreover, the key players in the nickel market encompass a diverse group of countries with distinct political and market conditions, making it unlikely for them to find common ground and shared interests in forming a cartel. Indonesia stands out as a significant producer of nickel, but the list of nickel-producing countries also includes Russia, Canada, Australia, and the United States, albeit with varying resource capacities and outputs. Thus, the complexities of the global nickel industry and its divergent players make the establishment of a unified cartel a daunting task, raising questions about its feasibility and the practicality of replicating an OPEC-like model in this domain.

Way forward

Category managers in the battery industry play a critical role in mitigating risks and ensuring a resilient supply chain. By being aware of L2 and L3 suppliers and identifying potential risks, they can make informed decisions to safeguard the procurement process. Strategic partnerships with well-suited battery manufacturers can offer significant advantages, while large organizations can strategically plan and negotiate bulk purchases to optimize their supply chain efficiency. Smaller companies, on the other hand, can explore the option of group buying with other buyers to enhance their collective purchasing power. Moreover, diversifying the supplier base emerges as a key strategy for reducing dependency on any single supplier, enhancing flexibility, and fortifying against disruptions. As the battery industry continues to evolve, proactive procurement practices and strategic partnerships will be paramount in shaping a sustainable and resilient future for the electric mobility revolution. By embracing these approaches, businesses can confidently navigate the complex landscape and ensure the uninterrupted flow of battery materials, ultimately propelling the industry toward a greener and more electrifying tomorrow.

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