Extract C: Should governments intervene in critical mineral markets?

A closer look at the global lithium market provides several reasons why lithium prices might not continue to rise indefinitely. Mining companies across Australia, South America, and Africa have responded to high market prices by heavily investing in new extraction capacity. However, lithium mining and refining projects typically take between three to seven years to become fully operational, meaning global supply is projected to rise only in the medium term. Furthermore, battery manufacturers in major importing nations are beginning to substitute lithium with cheaper alternative technologies, such as sodium-ion or solid-state batteries.

Nevertheless, unpredictable price volatility continues to pose extreme challenges for manufacturers and green-technology developers. Severe water scarcity in South America's "Lithium Triangle"—where lithium is extracted from brine using water-intensive evaporation ponds—and geopolitical tensions add to production and trade uncertainty. For instance, supply disruptions due to political instability or environmental regulations in key producing regions have previously sent global prices soaring. These disruptions are likely to have a lingering adverse impact on future supply contracts.

While governments of major lithium-exporting nations sometimes impose export taxes or resource nationalism policies to retain more value domestically, what can the government of a heavily reliant lithium-importing nation do? One option is to rely entirely on free market forces to clear the market. Alternatively, a government can actively intervene. For example, it could subsidise the cost of imported lithium, establish a strategic national stockpile (buffer stock), or impose legally enforced maximum price controls on domestic sales of battery-grade minerals.