US EV Policy To Boost Free Trade Agreement Nations In Battery Metal Trade

As the United States intensifies its focus on transitioning to electric vehicles (EVs), nations holding free trade agreements (FTAs) with the US are positioned for a trade boost in the battery metal sector, according to insights from analysts and industry observers at S&P Global Commodity Insights.

The US aims to achieve 67 per cent of new light-duty auto sales being electric vehicles by 2032, a substantial increase from 6.6 per cent in 2022.

According to S&P Global Commodity Insights, despite encouraging the inclusion of U.S.-sourced battery metals such as lithium, cobalt, and nickel in tax credit-eligible EVs, low domestic production levels are expected to keep the US reliant on foreign producers.

The federal law further discourages the use of materials from Chinese companies or China.

However, the Inflation Reduction Act (IRA) opens avenues for EV buyers to access credits when their cars are manufactured using materials from countries with US free trade agreements.

The US currently has comprehensive FTAs with 20 countries, along with a limited critical minerals FTA with Japan.

Efforts by the Biden administration to establish FTA-like agreements with other key players, including nickel giant Indonesia and Argentina, are underway.

Cullen Hendrix, a senior fellow at the Peterson Institute for International Economics, predicts a focus on US FTA partners that are advanced industrial or post-industrial democracies.

"The way that I think this is going to go from a more political economy kind of perspective is that while there is a notional commitment to helping develop and widen supply chains for these minerals at the mine site [and] in terms of refining capacity ... not in the US or China, I think that there is going to be a heavy emphasis on the subset of US FTA partners that are also kind of advanced industrial or post-industrial democracies," said Hendrix.

This preference aligns with the political emphasis on developing and broadening mineral supply chains outside the US and China.

Automakers are strategically turning to producers in FTA countries for mineral offtake agreements, leveraging the advantages provided by the IRA.

Albemarle's Chilean lithium operations have become an attractive option for automakers seeking IRA compliance.

Notably, Albemarle has a lithium offtake agreement with Ford.

Chile, a major global lithium producer, is positioned to expand its market share further as the US aims to increase reliance on FTA countries for critical minerals.

However, challenges persist in shifting import sources for certain materials, with cobalt being less firmly established than lithium.

US imports have seen a slight shift, with 55.8 per cent of overall lithium imports in the first three quarters of 2023 sourced from FTA countries or those engaged in prospective critical mineral trade talks.

The UK, part of ongoing trade discussions with the US, has played a role in this shift.

Cobalt, on the other hand, continues to see heavier dependence on non-FTA countries, with only 38.4 per cent of cobalt imports in the first three quarters of 2023 coming from FTA nations.

While this percentage is up 1.2 points from the same period in 2022, cobalt remains less firmly established in FTA-based sourcing compared to lithium.

Canada and Australia, both with FTAs with the US, are identified as promising sources of battery metals.

Canada recognised as a domestic source under the US Defense Production Act, is viewed optimistically, along with Australia, to contribute significantly in the coming years.

The legislative framework puts a specific timeline for reducing Chinese content from supply chains by 2025.

Hendrix suggests that the US legislation anticipates large-scale increases in mining capacity in countries like Australia and Canada to address material sourcing challenges, with the actual impact likely closer to 2027 or 2028.

As the US accelerates its EV transition, the battery metal sector is becoming a focal point, influencing global trade dynamics and reshaping strategic alliances.

The emphasis on free trade agreement nations underscores the intricate balance between policy objectives, geopolitical considerations, and the critical role of these nations in shaping the future of EV-related supply chains. (ANI)