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3 Jul 2023

Wang Yan, China Dialogue

China: Partnerships between upstream and downstream players in lithium supply chain crucial to effective due diligence, leading mining industry association says

Photo credit: Shutterstock.

"White gold and its green challenges" 15 June 2023

Lithium is an essential ingredient in batteries for electric vehicles (EVs), and the global energy transition has seen prices of lithium compounds rocket. [...] The potential profits triggered a lithium mining rush, with the city of Yichun in Jiangxi province providing a typical example. Plans for Yichun to become the “lithium capital of Asia” had first been proposed in 2008, and the city was desperate to seize the opportunity brought by the sky high prices. But unregulated mining and processing of the metal caused pollution scares and environmental damage.

In February this year, the central government dispatched a cross-departmental team to Yichun to investigate and rectify these issues, with uncontrolled lithium mining and processing halted. Two months later, the Ministry of Natural Resources approved two lithium mining projects, one in Sichuan and one in Qinghai.

So the government is both cracking down on unregulated lithium production and allowing regulated production to expand. This indicates China’s lithium sector is to expand and improve. [...]

China has designated lithium a strategic mineral and plans to expand production in Qinghai, Tibet, Sichuan and Jiangxi. To ensure supplies, many Chinese firms have looked overseas, investing in lithium mines in Africa or brines in South America.

But resource and environmental concerns are on the rise. [...]

Supply chain cooperation

Lithium extraction and processing firms are at the upstream of the supply chain. Their performance on environmental and carbon issues flows all the way downstream to the final branded products. Cooperation along the supply chain is particularly important during these difficult geopolitical times. Major importers such as the US and EU have put legislation in place for procurement of certain minerals, requiring downstream buyers to bolster disclosure and due diligence to eliminate environmental and human rights risks in their supply chains.

“Currently, in the strong buyer’s market, the downstream players are putting pressure on upstream suppliers by due diligence practice. But the ultimate goal is for supply chain management – not merely for passing the audit. That’s getting things back to front,” said Sun Lihui, director of the development department at the China Chamber of Commerce of Metals, Minerals and Chemicals (CCCMC). “A more positive approach would be to build partnerships between upstream and downstream players, helping miners to improve performance while sharing costs and establishing a fair dialogue.” [...]

Currently, China has no compulsory environmental or social due diligence requirements for the lithium supply chain, but CCCMC has taken a positive first step. In May 2022, it issued a second edition of its due diligence guidance for minerals supply chains. That document suggests upstream suppliers and downstream buyers set up due diligence systems designed to prevent risks and strengthen management of environmental, ecological, climate and social risks.

“Over the last two years, we’ve seen more attention being paid to due diligence in the lithium supply chain, with some firms already taking action,” said Sun. “And mining firms don’t set up due diligence systems just to deal with audits from downstream buyers, but to improve their ability to manage the supply chain. The key is the recognition from company executives, cross-departmental cooperation, support from companies across the supply chain, and participation from all stakeholders.”