battery criticals

A confluence of factors — pandemic-induced supply chain shocks, increasing resource nationalism in various parts of the world, and Russia’s invasion of Ukraine extending into its second month — has completely altered the Post-Cold War geopolitical landscape and mineral resource security calculus.

Responding to the resulting growing pressures on critical mineral supply chains and skyrocketing demand scenarios, U.S. President Joe Biden invoked the Defense Production Act (DPA) earlier today to encourage domestic production of the metals and minerals deemed critical for electric vehicle and large capacity batteries.

In Presidential Determination No. 2022-1, President Biden determines, pursuant to section 303(a)(5) of the Act, that:

-       “sustainable and responsible domestic mining, beneficiation, and value-added processing of strategic and critical materials for the production of large-capacity batteries for the automotive, e-mobility, and stationary storage sectors are essential to the national defense;

-       without Presidential action under section 303 of the Act, United States industry cannot reasonably be expected to provide the capability for these needed industrial resources, materials, or critical technology items in a timely manner; and

-       purchases, purchase commitments, or other action pursuant to section 303 of the Act are the most cost-effective, expedient, and practical alternative method for meeting the need.”

The Presidential Determination instructs the Secretary of Defense to “create, maintain, protect, expand, or restore sustainable and responsible domestic production capabilities of such strategic and critical materials by supporting feasibility studies for mature mining, beneficiation, and value-added processing projects; by-product and co-product production at existing mining, mine waste reclamation, and other industrial facilities; mining, beneficiation, and value-added processing modernization to increase productivity, environmental sustainability, and workforce safety; and any other such activities authorized under section 303(a)(1) of the Act.”

Acknowledging that “action to expand the domestic production capabilities for such strategic and critical materials is necessary to avert an industrial resource or critical technology item shortfall that would severely impair the national defense capability” the Presidential Determination further waives “the requirements of section 303(a)(1)–(a)(6) of the Act for the purpose of expanding the sustainable and responsible domestic mining, beneficiation, and value-added processing of strategic and critical materials necessary for the production of large-capacity batteries for the automotive, e-mobility, and stationary storage sectors.”

According to a White House fact sheet released only hours before the Presidential Determination was made public, the President “is also reviewing potential further uses of DPA – in addition to minerals and materials – to secure safer, cleaner, and more resilient energy for America.”

Earlier this month, U.S. Senators Lisa Murkowski (R-AK), Joe Manchin (D-WV), James Risch (R-ID), and Bill Cassidy (R-LA) had sent a letter to President Biden urging  him to take congressional and Administration efforts to bolster mineral supply chains one step further and to “invoke the Defense Production Act (DPA) to accelerate domestic production of lithium-ion battery materials, in particular graphite, manganese, cobalt, nickel, and lithium.”

“Allowing our foreign mineral dependence to persist is a growing threat to U.S. national security, and we need to take every step to address it. The 100-day report acknowledges the ‘powerful tool’ the DPA has been to expand production of supplies needed to combat COVID-19, as well as the potential the DPA could have to ‘support investment in other critical sectors and enable industry and government to collaborate more effectively,’” the Senators said in their letter, adding that  “[t]he time is now to grow, support, and encourage investment in the domestic production of graphite, manganese, cobalt, lithium, nickel, and other critical minerals to ensure we support our national security, and to fulfill our need for lithium-ion batteries – both for consumers and for the Department of Defense.”

It seems President Biden was ready to take that step.

According to Bloomberg News, the addition of metals and minerals like lithium, nickel, graphite, cobalt and manganese to the list of items covered by the 1950 Defense Production Act affords mining companies access to $750 million under the Act’s Title III fund.

The National Mining Association’s President and Chief Executive Rich Nolan welcomed the move, stating that “[t]he minerals supply chain that will drive the electrification of our transportation sector and the energy transition is not only at risk from a perilous and growing import dependence, but the approaching minerals demand wave is set to strain every sector of the economy and requires an urgency in action from government and industry never before seen.”

Nolan told the Washington Post in anticipation of the Presidential Determination that the United States needs new mines and mineral processing plants: “What we need is policy to ensure we can produce them and build the secure, reliable supply chains we know we must have.” 

Watch the press conference announcing the Presidential Determination here.
And for the full text of Presidential Determination No. 2022-1 click here.

ARPN will be back with additional analysis as we work through the DPA action.

In recent months, industry news has been dominated by headlines like “carmakers face raw material bottleneck.”

And while, rightfully, against the backdrop of the accelerating green energy transition and EV revolution, much of the coverage focuses primarily on supply chain challenges arising for the battery criticals Lithium, Cobalt, Nickel, Graphite and Manganese, it’s not just the battery materials that are giving automakers headaches these days.

A case in point is luxury carmaker Ferrari’s recent announcement that “soaring commodity prices would begin affecting the prices of its new supercars.”

While the company has reportedly seen “better-than-expected fourth-quarter earnings as shipments jumped during the pandemic” according to ZeroHedge.com, prices for its supercars, currently ranging between $200k and $400k would likely see increases as there is “some pressure on the energy on the aluminum cost (…),” with aluminum being a material on which Ferrari relies heavily in the construction of its frames, engines, transmissions, body, suspension, paneling and rims.

However, aluminum is not just a key component for luxury supercars – its light weight, corrosion resistance and its recyclability make it a material of choice in the lightweighting revolution (ARPN followers may recall the Light Rider) and the overall green energy transition.

But, as the Ferrari announcement indicates, trouble is on the horizon. As ZeroHedge.com outlines, “rocketing power prices across [Europe] shuttered four aluminum smelters which curtailed about half a million tons of annual capacity. European aluminum prices have surged more than 350% since the pandemic low in early 2020 to about 450 euros per ton.”

The “winter of discontent for Europe’s aluminium smelters,” as Reuters columnist Andy Home described the recent struggle of aluminum smelters in the region, will likely widen the already existing regional supply deficit as Europe, even before the closures, was already a net importer of primary aluminum.

As Home notes, “[t]the United States is also a net importer of primary aluminium and is now facing increased competition from Europe for spare metals. And both are in competition with China, which is importing significant volumes after a run of power-related curtailments across its huge smelter network.”

Home invokes what he calls the “aluminium  paradox”:

“It’s a metal that is core to the energy transition, but can only be produced in virgin form using very large amounts of energy, which is increasingly at a premium due to decarbonization.”

Not far from this is the “inherent irony” or “paradox of the green revolution” Home invoked elsewhere, referring to the paradox that “public opinion is firmly in favour of decarbonisation but not the mines and smelters needed to get there.”

It’s time for a reckoning, we clearly can’t have our cake and eat it, too.  Achieving global (and domestic) decarbonization goals while at the same time strengthening our supply chains and reducing our over-reliance on critical minerals from China will require a comprehensive “all of the above” approach across the entire value chain. But, as ARPN’s Daniel McGroarty has pointed out on several occasions, “we don’t have the luxury of time” anymore.  The reckoning needs to happen at Ferrari supercar speeds.