The US Inflation Reduction Act (IRA) is accelerating global efforts to develop critical mineral supply chains outside of China, but the scale of the challenge should not be underestimated and some goals may remain beyond reach for years to come.
The signing of the IRA in August quickly gave rise to new investments in the US solar industry, as manufacturers of photovoltaic (PV) components seek to qualify for the tax credit available to those that can source input materials from North America or explore "friend-shoring" options with certain other countries.
First Solar — the largest solar PV equipment producer in the US — plans to scale up its manufacturing capacity by 4.4GW/yr and has expanded its multi-year supply agreement with Canada-based 5N Plus for compound semiconductor materials by 2024. Meanwhile, Mission Solar Energy, a US subsidiary of South Korean polysilicon producer OCI, is expanding the capacity of its Texas module plant to 1GW from 210MW. OCI plans to use the IRA as an opportunity to expand its downstream solar business in the US, including module production and PV power generation. And US firm Hemlock Semiconductor and Norway-based REC Silicon are planning to increase their solar-grade polysilicon production to supply US equipment manufacturers.
The electric vehicle (EV) battery industry has also seen a wave of announcements in response to the IRA. Not all of them have been confined to North America, such as South Korea's LG Energy Solutions (LGES), which signed a six-year lithium carbonate contract with US lithium producer Compass Minerals in an effort to secure a resilient battery material supply chain that shields LGES from any IRA fallout as it goes on to sell its finished products internationally.
The act is not without controversy, with both the EU and China saying it violates World Trade Organization rules. And the messages surrounding it are mixed as US companies need to maintain relationships with their traditional suppliers until other options emerge — the US solar industry is simultaneously trying to wrest supply chains away from China while also opposing a tariff-dodging investigation into four Chinese solar companies and warning that new duties on solar imports could "create new uncertainty" and deter investment.
Furthermore, the flurry of company announcements since August belies the scale and complexity of the IRA's ambition. A solar panel is much more than polysilicon or cadmium-telluride, and an EV is much more than just a battery. The list of metals and minerals needed to manufacture these items is extensive, and some supply chains are more difficult to reconfigure than others, particularly when we consider the growing volumes needed in the coming years to support the dual megatrends of decarbonisation and digitalisation, on top of traditional industry.
One glaring problem is the historic lack of investment in metal supply and processing outside of China — an issue that spans right across the nonferrous spectrum from batteries to rare earths, copper to indium. Major supply deficits loom in the coming years as multiple end-use industries target ambitious growth without a secure sense of where the metals will come from.
This, in combination with the IRA and the EU's critical minerals policy, this year has triggered a change in how major end-users — such as original equipment manufacturers, automakers and battery manufacturers — interact with mining and exploration companies beyond China. Australian mine developers are being inundated with requests for offtake agreements and offers of funding, often before they even start production. But several market participants warn that such early-stage agreements should be viewed with caution — the terms might be tricky and these deals can sometimes deter other investors from getting involved in a project, making it more difficult to get the mine going in the first place.
Questions are also being asked about how critical minerals should be priced if they do not originate from or pass through China, given that price mechanisms for the most critical minerals are historically China-centric. Key battery chemicals such as manganese sulphate and nickel sulphate are attracting growing attention as market participants seek more transparency and reliable ways to value it outside of China. As yet, most new pricing mechanisms are in their infancy and the growth of healthy spot trade flows will be key to their evolution.
The IRA indeed has thrown down the gauntlet, but it will take a concerted global effort from companies and regulators to deliver the major changes needed to meet the act's ambitions.
