As India lays the foundation for a green future, it is acutely aware of the stranglehold China has over lithium and cobalt, key components in commercial batteries. To secure end-to-end supply chains, India is actively exploring mining options both at home and abroad.
The demand for Battery Energy Storage Systems (BESS) for electric vehicles (EVs), grid stabilisers, and industrial as well as retail power walls, is set to surge. This comes off the back of renewables gaining a greater share of the generation stack and EV deployment taking centre stage in the future auto landscape.
Currently, the largest foreign investors in Indian battery manufacturing are Suzuki, Toshiba, Denso, Magnis Energy, Neometals, and Samsung, which have bet billions on the future of BESS. Indian players like Tata, Mahindra and Adani are also in the fray, expecting to deploy more capital in this space in the coming years. Importantly, a rise in import duties on finished batteries coupled with a $1.3 billion production linked incentive scheme specific to BESS manufacturing will help the country set up multiple gigafactories by 2022.
With a decoupling in manufacturing lines from China in play, firms are keen to have a clean break from China’s monopoly over input materials. According to the International Energy Agency’s World Energy Outlook 2020, global battery production is set to rise 20-fold by 2040 and India will count for approximately 35% of total deployment from the current levels which are under 3%. By 2030, India would account for ca. 30% of global battery capacity. During the three years between 2016-19, imports of li-ion batteries doubled annually with the total value standing at $3.3 billion.
Without a concerted effort to indigenise supply, the import bill could rival that of its crude oil imports within this decade, weighing on the country’s fiscal deficit. To achieve sustainability and stability in end-to-end value chains, India will have to invest in upstream lithium and cobalt projects.
Independence in access to raw materials is cornerstone in India’s self-reliance ambitions under the “Aatminbhar Bharat” scheme. In this context, there are four key developments which are noteworthy. First, India’s $1.1 billion “Deep Ocean Mission” launched in 2018 is focused on the extracting critical metals and rare earths through seabed mining in the Indian Ocean. Sea trials for a ship-based Integrated Mining System (IMS) are set for 2021-22. Second, the Chabahar port and the Zahedan rail line that connects the southeast Iran to mineral-rich Afghanistan has received special attention in recent months.
The project has been slow to take off, and efforts are on to develop the supply chain routes into a region that hosts $2 trillion of untapped resources useful in BESS manufacturing. The major risk here remains the geopolitical uncertainty and extensive lead time for mine development.
Third, the government has tasked the newly formed “Khanij Bidesh India Ltd.” (KABIL), a joint venture between the National Aluminium Company Ltd. (NALCO), Mineral Exploration Corporation Ltd. (MECL) and Hindustan Copper Ltd. (HCL), to identify lithium and cobalt production assets in Chile, Argentina, and Bolivia. Fourth, there is a drive to explore potential lithium mines domestically.
This month, the Atomic Minerals Directorate for Exploration and Research (AMD) announced that according to preliminary surveys, inferred resources of 1,600 tonnes of lithium had been discovered in the Mandya district of the state of Karnataka. Exploration is also being conducted in Rajasthan, Chhattisgarh, and Orissa to expand the scope of local production. While still at a nascent stage, this effort is hoped to diversify the country’s supply of critical metals.
A combination of deft diplomacy and creative financing will be required to see KABIL through to its logical conclusion, which is the acquisition of twelve reliable production assets that can feed India’s burgeoning demand for lithium and cobalt.
Policy stability remains key to drive public sector miners to achieve their targets in overseas production. Considering the deals are government-to-government (G2G), strengthening diplomatic ties remains of foremost priority. The relationship with Argentina, the world’s third largest producer of lithium, has been steadily built over the years and in July of 2020, KABIL and Argentinian miner Jujuy Energia y Mineria Sociedad del Estado (JEMSE) signed an agreement to jointly develop resources in the Jujuy province. High concentration brine deposits make the region’s mining economics attractive and nearly 45,000 hectares remain to be exploited. Deepening bilateral trade against this tie-up will involve offshoring the manufacturing of batteries used in the Argentinian market, to India.
Lithium trade with Australia is also expected to pick up with closer bilateral ties against the backdrop of a schism developing Australia and China. As a leading exporter of several key metals and minerals, Australia aims to diversify its customer base. In this context, India stands out as a high growth market for lithium, cobalt, tantalum, zircon, antimony and rare earths. The agreement signed between the two countries in June of 2020 is set to further expand India’s metals and mining footprint globally as it fast tracks the process of procurement of BESS raw materials.
As India builds out its renewable energy capacity, a green ecosystem will be complete only if the EV story plays out. The country has made giant strides towards its Paris climate goals, being the only country in the G10 on track to achieve them.
To curb urban pollution, the entire value chain must be sustainable. Sustainability goes beyond environmental impact, and input commodity independence will play a pivotal role. The lithium and cobalt markets are in their early stages of growth, but as the world is awash with cash, competition has grown to acquire quality upstream assets. A combination of deep-sea mining, equity ownership in JV production projects, and expansion of local mining will support India’s efforts to build itself up as a global manufacturing powerhouse for li-ion batteries. Importantly, it will help the country become a trusted supplier of finished BESS products, meeting both domestic and international requirements.
Surya Kanegaonkar is a commodities professional with ten years of experience in research and trading for a hedge fund, utility and miner.