Australia is poised to capture a fifth of the world's lithium hydroxide refining capacity within five years, as demand grows for battery metals that bypass China, Canberra said in a report.
China produces more than 80% of the world's lithium hydroxide, a processed form of the in-demand metal, according to the International Energy Agency. There are several companies in Australia that are building refineries that would turn locally-mined lithium ore into battery-grade chemicals.
If these plans progress on time, Australia could have 10% of the refining market, from a negligible amount currently, and 20% by 2027, the government said in a report released Tuesday. It warned that delays and technical issues could derail the timeline.
In a joint venture with Australia's IGO Ltd., the Chinese company Tianqi Lithium Corp. has opened a refinery near Perth in Western Australia. The US group Albemarle Corp. is close to opening a plant in a joint venture with Mineral Resources Ltd. Both projects have been beset with technical problems and cost blowouts.
Australian groups Liontown Resources Ltd, Mineral Resources and Wesfarmers Ltd are planning to open new lithium refineries.
Australia is the world's largest producer of the raw form of metal that is vital to the electric vehicle industry, providing less than half of global demand. Most of it is sent to China as hard rock ore, where it is refined into battery-grade lithium hydroxide.
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The report states that Asia remains the biggest market for Australian lithium, but demand is growing in Europe and the US as carmakers in Europe and the US accelerate the switch to EVs. President Joe Biden cited the Inflation Reduction Act as a driver of refining in Australia. The IRA grants tax credits on EVs but requires 50% of the materials to be produced in the US or from a country with a free trade agreement.
According to a report released on Tuesday, the IRA is likely to boost Australia's lithium sector, according to BloombergNEF. South Korean battery maker SK On Co. and Japan's Prime Planet Energy Solutions Inc. said they planned to increase investment in the country.
The government said that lithium is on track to become Australia's fifth-most valuable export commodity, surpassing beef and wheat, and on par with copper and crude oil. The battery metal exports are predicted to reach A $13.8 billion $8.9 billion this financial year, a more than tenfold increase over the past two years.
The government said that the growth in export revenue is due to surging prices, which have doubled since the beginning of the year as carmakers scramble to meet ambitious EV targets. It said that the price of lithium ore is projected to be more than quadruple this year.
The sector's earnings will be driven by increased output, with Australian lithium production expected to double over the next five years. The government forecasts that this year it will earn A $329 billion in revenue from the iron ore, coal, and liquefied natural gas, as well as the three biggest export sectors.
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