Economy

Taliban takeover: Why China may not be eyeing Afghan lithium reserves

Subramani Ra Mancombu Chennai | Updated on September 14, 2021

Experts say Beijing has invested in other ‘reliable’ nations to take care of its needs

China’s support to the new Taliban regime in Afghanistan has raised suspicions that Beijing is eyeing Kabul’s mineral wealth, estimated at $1-3 trillion.

In particular, there are media reports that China could attempt to extract Afghanistan’s lithium reserves to the last pound. They pointed to how the Communist nation — the largest carmaker in the world — will need the metal as the world moves towards electric vehicles (EVs) as part of decarbonisation.

China is our most important partner: Taliban

According to a 2015 report by the Henry M Jackson School of International Studies at the University of Washington, Afghanistan has newly discovered mineral wealth that could boost its economy over the next few decades by $1-3 trillion and employ thousands of new workers. However, the challenge is the lack of skilled work in the country.

Chinese investments abroad

A 2010 US study had shown that Afghanistan could have among the world’s largest deposits of lithium.

Most of the recent reports point to this study as proof of Chinese interest in Afghanistan’s political affairs but experts tracking the developments say Beijing’s role is being misinterpreted.

The misinterpretation stems from the fact that China is the top consumer of lithium, processing nearly 90 per cent of the total lithium hydroxide available globally.

Atomic Minerals Directorate looks for lithium in Karnataka, Rajasthan

James Jeary, Editor of Lithium Market Services, CRU Group, told BusinessLine via email that Chinese producers have invested significant volumes in lithium projects outside China this year. The Ganfeng Lithium group is among the notable investors.

“Investment in lithium supply has risen rapidly this year, as the market prepares for accelerating demand growth from the mid-2020s due to increased EV uptake,” Jeary said.

Other opportunities

The CRU Lithium Market Services Editor has a different take on the Afghan situation. “Political instability in a country leads investors of all kinds to be cautious, which could hinder investment into Afghanistan’s lithium resources — particularly given that lithium resources are globally abundant, and, as such, there are numerous other opportunities,” he said.

“There is the obvious political risk of such a long-term venture in a conflict zone that’s still in the cross-hairs of its neighbours and every superpower,” said Lukas Trakimavičius of the Research and Lessons Learned Division of the NATO Energy Security Centre of Excellence.

China has much better options for foreign mineral extraction and is already using them — for example Argentina, Chile, Zambia and Congo DRC, he said.

Tough hurdles

The Henry M Jackson School report said that securing water, power supply and transportation in land-locked Afghanistan was a tough challenge.

Trakimavičius, writing in the energypost.eu website, said media reports of China hoping to strike deals with the Taliban to secure mineral rights in Afghanistan are likely an exaggeration.

He said it will take a decade or more to get a mine on stream, with costs running into billions of dollars.

Lithium, a key metal in EVs, is in the limelight as prices have almost doubled since the start of the year. Currently, it is quoted at 92,500 Chinese yuan (₹10.56 lakh) a tonne, according to the Trading Economics website.

EV growth

US multinational and financial services group Morgan Stanley has projected a 50 per cent growth in EVs this year.

Lithium-ion batteries are preferred in EVs as they are rechargeable and they make up over 50 per cent of the demand for the metal currently. The batteries are scalable and have higher energy density besides a longer life-cycle with lower maintenance.

Lithium reserves are about 80 million tonnes (mt) with Bolivia holding 21 mt, Argentina 17 mt and Chile nine mt, according to NS Energy Business. Three other major sources of the mineral are the US (6.8 mt), Australia (6.5 mt) and China (4.5 mt).

Security interests

CRU’s Jeary said that investment in, and successful extraction of Afghanistan’s lithium resources would increase lithium mine supply at a time of rapidly rising demand.

“However, CRU does not currently take any lithium supply from Afghanistan into account in its forecast,” he said.

NATO Energy Security Centre of Excellence’s Trakimavičius said China’s main reason for engaging with the Taliban is to defend its security interests and prevent the spread of instability and militant Islam to Central Asia and China itself.

China’s statement that it is “ready to develop good neighbourliness and friendly cooperation” with the new regime is in line with its earlier attempts to establish friendly relations with the Taliban. In July this year, Chinese foreign minister Wang Yi hosted senior Taliban political leader Mullah Abdul Ghani Baradar, currently the acting first deputy prime minister of Afghanistan, and his team in Beijing.

Expensive option

Trakimavičius pointed out that it is “extremely expensive” to develop mines and related facilities. Recent expansion for an already functioning mine in Congo, largely owned by China, required $2.5 billion. Development costs of a greenfield mine are much more.

“China is unlikely to pull the trigger until it is absolutely confident that a mining project is really worth the cost,” Trakimavičius said.

He also pointed out that China has been trying to develop a giant Mes Aynak copper mine in Afghanistan since 2008 but the project is yet to commence.

With China having considerable alternatives, Beijing would prefer to look at them for its investments for raw materials.

Published on September 14, 2021

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