Report finds battery-making debate overcharged

A new report has cast doubt on Western Australia's suitability as a lithium battery-making hub, claiming low labour productivity, distance from major markets and difficulties sourcing the necessary material as barriers to any potential development.

The report, which was authored by Australian Venture Consultants and backed by organisations including the Chamber of Minerals and Energy of WA and the Chamber of Commerce and Industry of WA, finds that 36 battery giga-factories are in the construction pipeline globally in the next five years.

That will take the number of factories with output in excess of 1 gigawatt hour to about 60.

But none of those is currently planned for WA, despite a range of projects to produce and refine key battery mineral, lithium.

Total capacity will increase from 30GWh in 2016 to be 172GWh in 2020.

The focus of government and industry should be to present a clear, achievable narrative about the potential for battery minerals, the report said, recognising the state’s competitive advantage lies in mining and chemicals processing.

That contrasts with the claims of previous reports that called for government action to help establish an extensive processing industry.

Existing manufacturers in East Asia have a big advantage from being first movers, the AVC report said, with appropriately skilled workforces, intellectual property and relevant industrial ecosystems.

Importantly, the capital cost of brownfields expansions for those operations would be much lower than new facilities in WA.

Although much has been made about WA having easy access to all of the potential minerals and reagents that would be used in making batteries, the report founds that may not be a cost-effective approach.

“While WA may host resources of most of the mineral products used to manufacture lithium-ion batteries, it does not produce all those minerals,” the report said.

“In most cases where WA does not produce specific minerals, the absence of production is because that production would not be cost competitive in the global marketplace.

“In all cases … WA does not host the downstream industry that can competitively convert that production to the inputs for battery manufacture.

“Many of the inputs such as manganese sulphate are commodity products that are readily available from multiple sources on the global market.”

Some of the reagents used in the industrial process may already be accessible in Kwinana, but will likely not be produced in large enough quantities to support mass battery production.

“There is a tendency for some commentators to be critical … (of a supposed) ‘digit-and-ship-it’ mentality in the WA resources industry,” the report said.

“Such criticism is somewhat void of economic and commercial reality associated with international markets when operating in an open economy, and fails to recognise the very significant technical, environmental and social credentials of the WA resources industry.”

Labour productivity and distance from market were two other major issues.

“The main driver of disadvantage (in manufacturing competitiveness) is overall Australian manufacturing labour productivity, which is between 60 and 65 per cent of the international benchmark,” the report said.

“Australia’s productivity adjusted labour costs for high skill jobs in manufacturing is more competitive than the productivity of its lower-skilled labour productivity, however, even in elaborate manufacturing, Australia struggles to be sustainably competitive.”

In contrast to the argument that it is cheaper to produce batteries closer to source material to reduce freight costs, the report said that would create a logistical challenge.

“Due to the scale of their population and industry, an emerging middle class and carbon reduction policies, East Asia a very large,if not the single largest, market for lithium-ion battery products," it said.

“There are substantial logistics and inventory cost advantages in locating downstream production processes in close proximity to end-user markets.”

The report wasn’t all bad news, however, finding there was plenty of scope for early-stage-value adding projects such as the five lithium hydroxide processing plants in WA either in planning or construction.

Recommendations for supporting the industry included a lower royalty rate for processed concentrates, reconsidering the federal government’s recent cap on research and development grant rebates, and building on trade relationships or creating new trade agreements to optimise supply and encourage foreign investment.

CME chief executive officer Paul Everingham said it was important to understand the reality of WA’s competitive advantage to ensure there was sustainable value derived from the opportunity.

“WA is positioned to capitalise on opportunities for lithium hydroxide and nickel sulphate production, and potentially cobalt sulphate production,” he said.

“This would establish the state as a major large-scale source of high-quality technical grade material for the battery supply chain.

“Current and planned investment in domestic processing capacity will also see our minerals converted into chemicals, which is a big step for WA.”