Welcome to the crazy world of China’s lithium mine auctions

Sotheby’s might sniff at how the auctions were conducted. The sales in Sichuan were “hot in the sense that there are so many bids,” Daiwa Capital Markets’ analysts Dennis Ip and Leo Ho said in an email. But that’s partly explained by the low opening price and the tiny increment — just 100,000 yuan — at which the bids proceeded, which inflated their number, according to the analysts.

In addition, some firms entered the contest to ensure their future eligibility for other auctions, they said.

But even if some of the drama surrounding the auctions seems concocted, it shouldn’t mask Beijing’s serious intent when it comes to marshaling the resources necessary to feed its world-leading electric car and battery industries.

“China has put more emphasis on the exploration and development of domestic lithium resources,” said Susan Zou, an analyst at Rystad Energy. It wants to expand both mining and processing as a dual insurance policy to counter geopolitical risks and protectionist moves around the world to secure the supply of critical minerals.

There’s a growing urgency for China to defend its dominance of the supply chain. The US has stepped up efforts to build its own networks with allies like Canada and Australia. Some nations are also seeking to keep more revenue at home by adding processing plants that can raise the value of their lithium exports.

Some Chinese firms that have expanded their global footprint — snapping up resources from Argentina to Zimbabwe — have started to meet setbacks due to political tensions and resource nationalism. In recent weeks, Ganfeng Lithium Group Co.’s joint venture in Mali was ordered to suspend some operations while nine of its lithium concessions were canceled by Mexico. Last year, Canada ordered three Chinese companies to divest stakes in firms listed in Toronto under tougher rules for foreign investment.

The backdrop is a roller-coaster in prices. Lithium carbonate, a refined form of the metal, has collapsed to 189,500 yuan a ton after a two-year rally took it to a record of 597,500 yuan in November. Still, it remains about four times higher than the historic low hit in 2020. Global demand, meanwhile, is expected to grow nearly five times by the end of the decade, according to BloombergNEF.

The plunge in prices may have accounted for the failure of an earlier auction in February, when a unit of Xinjiang Zhite New Materials Co. won the exploration rights to a mine in the autonomous region for 6 billion yuan, but then failed to follow through with payment.

Prices probably fell too far for the project to be economical, according to Daiwa’s analysts.

And a sale in May last year for a firm with a controlling stake in another lithium mine in Sichuan initially fell through after the winner didn’t pay its 2 billion yuan bid. But the auction did attract nearly 1 million online viewers over the course of its five days.

The upcoming sales in Yunnan will require bidders to place deposits once offers reach a certain level to avoid a repeat of the failed auctions.