Last month Tesla founder Elon Musk complained that lithium refiners had been “minting money” and making “software-like margins”.
Close to the center of world lithium processing sits Ganfeng Lithium, a extremely worthwhile Chinese group that’s pivotal to western automakers’ goals of going electrical, but additionally weak to state affect as Beijing tightens its management over strategic sectors.
With clients together with Tesla, BMW and Volkswagen, Ganfeng’s each transfer faces mounting scrutiny. In latest weeks, the group has hit the headlines for an insider buying and selling probe launched by Beijing’s high securities regulator, its close to $1bn acquisition of lithium mines in Argentina and for a subsidiary’s participation in a three way partnership to probe for lithium in Xinjiang, a area central to accusations of Chinese human rights abuses.
The heightened consideration underlines how the world’s second-largest lithium processor by manufacturing quantity after Chilean rival SQM is strolling a superb line between protecting Beijing on its facet and establishing itself in regional electrical car provide chains within the west, analysts mentioned.
“It’s a Chinese company undergoing a global expansion,” mentioned Sam Jaffe, vice-president of battery storage options at E Source, a analysis group. “But I think the state does want to have influence over that company because they have become so important to the lithium ion battery chain.”
Ganfeng declined to touch upon the insider buying and selling investigation and mentioned it didn’t but have particular exploration plans for Xinjiang.
Founded by Li Liangbin in Jiangxi province in 2000, the group has change into one of many world’s most vital firms for overcoming a key bottleneck within the rollout of electrical vehicles: turning uncooked supplies into battery-grade lithium compounds.
In the primary quarter of this 12 months, Ganfeng’s working revenue jumped nearly eightfold to Rmb4bn ($592mn) on revenues that greater than tripled to Rmb5.4bn, leading to margins of about 75 per cent. Lithium costs have rocketed, multiplying 13 instances in two years to $67,050 per tonne of lithium carbonate in July, in line with Benchmark Minerals Intelligence, a pricing company.
Ganfeng’s roots are in chemical processing, however the group, dually listed in Hong Kong and Shenzhen, says its focus is growing mining abroad in Argentina, Mexico, Australia and Mali for uncooked supplies to refine into lithium hydroxide or lithium carbonate.
But its objective of geographical range comes amid rising geopolitical tensions, localisation of EV provide chains and improvement of home lithium processing by western nations, components that would restrict the feedstock out there for Chinese refiners.
Ganfeng’s meteoric rise to a market capitalisation of $26bn marks a exceptional achievement for Li and enterprise companion Wang Xiaoshen, who had been raised in rural poverty. The pair collectively personal simply over 1 / 4 of the group, in line with inventory alternate filings. Ganfeng declined to touch upon its possession construction.
Alex Payette, chief govt of Cercius Group, a China threat consultancy, described Li as a “relatively low-profile businessman” who has saved Beijing leaders onside. That is even if “Li and his business undoubtedly benefited” from ties to a few of president Xi Jinping’s earlier political rivals.
“Given the strategic importance of lithium in China and the sheer size of Ganfeng Lithium’s market position, the [Chinese Communist] party would have a vested interest in maintaining the status quo with Li insofar as he does not step out of bounds,” Payette mentioned.
Li Liangbin, proper, poses in the course of the ceremony for Ganfeng’s Hong Kong itemizing in 2018 © Imagine China/Oriental Image through Reuters
Industry insiders reward the founders’ imaginative and prescient. Some name Li the “rain man” for his capacity to learn the market and make counterintuitive bets, together with transport brine — from which lithium might be extracted — from Chile to China to chop prices.
“Ganfeng foresaw the mineral shortage and started investing aggressively many years ago,” says Susan Zou, battery supplies analyst at analysis firm Rystad Energy.
When lithium costs slumped in 2019, the corporate saved investing, mentioned John Kanellitsas, govt vice-chair of Lithium Americas, by which Ganfeng owns 20 per cent. “There was no wavering of their vision,” he mentioned.
Despite the seeming neutrality and affability of the founders, Ganfeng faces the spectre of affect by an more and more authoritarian Beijing.
Joe Lowry, a former provider to Ganfeng by way of US chemical group FMC and buddy of Li and Wang, mentioned, “Ganfeng keeping its independence might be an issue. It depends on how the Chinese government views its battery and electric vehicles ambitions.”
Analysts say there’s a rising threat that Beijing asks Ganfeng to prioritise Chinese EV makers if the lithium scarcity deepens in coming years. Some even recommend a big state-owned mining group comparable to Zijin Mining might be directed to take Ganfeng over.
But executives at Ganfeng’s enterprise companions argue it’d thrive even when Beijing tightens the screw. “For Ganfeng, limiting the flow of material out of China would create an opportunity as they are developing chemical processing globally, where the Chinese government doesn’t have jurisdiction,” mentioned one.
So far, the Chinese authorities’s important gripe with the lithium sector has been the chance the value rise dents the marketplace for electrical vehicles, mentioned Daisy Jennings-Gray, an analyst at Benchmark Minerals Intelligence.
Ganfeng mentioned useful resource shortages and worth spikes had been largely brought on by the “mismatch between supply and demand” and that the very best answer was “accelerating exploration and development of upstream resources”.
However, the west’s more and more hawkish view of China is already inflicting the corporate issues. Vancouver-based Lithium Americas is contemplating spinning off a Nevada challenge as an unbiased firm, probably ridding it of Chinese possession and easing its entry to US authorities help. Mexico, the place Ganfeng is growing a challenge, has moved to nationalise lithium belongings.
Such pressures look set to accentuate. The US local weather change invoice handed by Congress final week appeared to focus on Chinese teams by requiring a threshold of uncooked supplies in batteries to be extracted, processed or recycled within the US or by a free commerce settlement companion.
Lowry mentioned Ganfeng would discover it more and more tough to navigate between rising hostility in direction of Chinese firms within the west whereas assembly calls for from Beijing.
“Ganfeng is going to be treading a fine line,” he mentioned.
Additional reporting by Maiqi Ding in Beijing