Did you think resource nationalism was a product of the Trump era that would quietly fade away once he was gone?
If there’s one thing – and perhaps there is only one – that Trump managed to create a consensus about, it’s renewed suspicion of China.
The writing was on the wall economically for some time, of course, given China’s well-known and unabashed tendency to steal intellectual property. But for a long time the consensus amongst US policy makers was that that was a price worth paying since China’s economic liberalization was likely to lead to political liberalization too.
That hasn’t happened, of course. But it took the short, sharp, shock of Donald Trump to wake people up to the fact that it’s probably never going to happen either. In this digital age, surveillance and control have been rendered easier, not harder, and rising economic prosperity inside China is now seen as incidental to, rather than a precursor for, greater freedom.
So where does that leave the rest of the developed world?
Having deliberately integrated China so effectively into the global economic supply chain, the answer is: in a bit of a bind.
So much of the wider global economic growth, of the downward pressure on consumer price inflation, and of rising standards of living, have been driven by the arrival of China as a major player onto the global economic scene.
It’s now thought generally – and 80% of the companies involved in a recent survey confirm it – that supply chains have become overstretched and overly vulnerable to the type of disruption that we’ve seen during the pandemic.
This survey, conducted by Protolabs, and reported on by Reuters, found that British and European Union manufacturers want to move more of the supply chain for electric vehicle batteries closer to home.
And it’s already happening.
Aided by various government incentives new gigafactories are springing up all over Europe, with a view to bringing battery manufacturing closer to home. There’s still plenty to be done, of course. As it stands, only 6% of battery manufacturing takes place in Europe, and the reliance on China remains pretty strong.
But that’s not altogether to the bad. The desire isn’t necessarily to cut China out of the picture altogether, but rather to take some of the risk out of the current imbalances.
Thus, the beginning of this month, Nissan announced that it will invest £1bn to produce batteries near its main European production plant in Sunderland. Nissan’s partner in this venture? – the Chinese company Envision AESC.
But elsewhere, companies, and governments are proceeding independently of the Chinese. In Spain, a US$5bn electric vehicle battery production programme is being kick-started and mostly funded by European Union recovery funds. New factories are also springing up in Germany and Italy, and in the UK, where other factories are in the pipeline, rumours persist that Tesla is on its way.
All of which is highly positive for those mining and resource companies with assets close at hand. In the lithium space, there aren’t too many of these, which means they will be all the more in demand.
But there are listed companies that are in on the action too. In Europe, Savannah Resources (LON:SAV) has a major deposit in Portugal, European Metals Holdings (LON:EMH) retains an interest the Cinovec deposit in the Czech Republic, while Zinnwald Lithium (LON:ZNWD) is working up a deposit just across the border, near Dresden.
Spain is the European Union’s second largest car producer after Germany, so Savannah will be well positioned to ship its product over the Portuguese border, while European Metals and Zinnwald can target the major German hubs.
There’s significant car manufacturing in the UK too, which is where the UK-based lithium companies are likely to come into their own. In that context it comes as no surprise to learn that the British government is being extremely helpful to both companies, and that regulatory hurdles are likely to be kept to a minimum.
And, for those who are wondering if a similar dynamic is playing out across the Pond, the answer is yes. Next week Bradda Head Ltd will list on Aim, backed by £6.2mln in new money. Bradda has lithium assets in Nevada and Arizona, and is well placed to serve a local market that currently only produces 5,000 tonnes of lithium carbonate locally.
But given the economic forces currently at work – the supply-demand dynamic combined with resource nationalism - the projection is that the US will need around 210,000 tonnes of lithium carbonate by 2025 – a huge increase. It’s that kind of opportunity that Bradda Head and its European counterparts are looking to capitalize on.