A strategic reserve of lithium is envisioned as a solution to stabilize volatile prices that have hampered U.S. mining projects. In theory, this reserve would make it possible to challenge China’s almost total domination of the market for this essential metal for batteries.
The U.S. government would buy and sell lithium carbonate for its strategic reserve, modeled on the Strategic Petroleum Reserve, to keep prices at an optimal level for production and consumption, according to a proposal contained in a 10-page policy paper published by Howard Klein, a lithium analyst and partner at New York-based RK Equity.
The commodity is one of several critical minerals for which U.S. President Donald Trump’s administration is trying to build a supply chain independent of China.
Although similar ideas have been put forward before, Klein’s paper, published in early December, outlines a more detailed way to support private companies in developing a non-Chinese lithium industry without worrying about unpredictable price changes and other risks.
“There are Western projects that are not moving forward because prices are too low. If prices skyrocket, a company is not going to just say everything is fine and build, because in two years everything could collapse again,” Klein told Nikkei Asia. “They need to know that there is a stabilization mechanism that will ensure the success of the project at a basic level.”
The expert says his reserve proposal would be more than just inventory: it would shape market prices, controlling around 10% of volume. “If prices reach a high level, the strategic reserve could release supply to mitigate this volatility,” he said, adding that the cost of the initiative to the government could amount to a few billion dollars in the first year.
The United States refines little lithium and has only one mine in Nevada, controlled by Albemarle. Last year, the company suspended plans to build the country’s largest lithium refinery due to price fluctuations.
Competitive commodity prices, along with other obstacles such as obtaining licenses and the availability of skilled labor in the United States, pose a constant challenge to the advancement of mining projects, according to industry executives.
The White House has placed greater emphasis on building a secure supply chain in the United States and its allies for crucial inputs, including rare earth metals, since Beijing in October tightened export controls on elements needed for magnets used in electric vehicles and the defense industry.
The U.S. government has long accused Beijing of manipulating prices to prevent non-Chinese competitors from developing lithium projects.
China is expected to reach 32% of global lithium production by 2027. Overseas projects controlled by Chinese companies will account for another 18%, meaning Chinese entities will control 50% of global production, up from 35% just five years ago, according to Wood Mackenzie.
The House Select Committee on China, comprised of members of both parties, released a report last month accusing the country of harming U.S. industries and engaging in a “wide-ranging government effort to manipulate rare earth prices” through the purchase of lithium mines as well as upstream assets, giving it complete control over the supply chain.
However, a potential problem with a strategic reserve is that it could also encourage Chinese companies throughout the supply chain to increase production, other analysts say.
“Chinese mines in Africa could increase production and the Chinese government would feel more obliged to approve the license of the Jianxiawo lithium mine (from battery maker CATL) after it expires this year,” said YJ Lee, fund manager at Arcane Capital. “High prices supported by the US government could prompt Chinese companies to massively increase their supply,” he said. “We see some large Chinese projects at a more advanced stage of development that would be incentivized to increase production first, before Western projects can even get underway.”
As part of the “One Big Beautiful Bill” legislation initiated by Trump, $2 billion was allocated to the Secretary of Defense to increase U.S. stockpiles of critical minerals through the National Defense Stockpile Transaction Fund. The government has hinted it may take an approach similar to Klein’s proposal.
Reggie Singh, acting assistant secretary for energy and critical minerals at the State Department, said minerals could be added to defense stockpiles, “which could act countercyclically as prices fall. Maybe the stockpile could acquire some minerals. We’re at a very early stage of how that might work.”
Trump has already taken a series of steps to strengthen the country’s critical mining industry since taking office in January. The federal government signed a public-private partnership with MP Materials in July and guaranteed a minimum price for the rare earth mining company’s production.
Kevin Brunelli, a nonresident fellow at the Center for Global Energy Policy, said a strategic reserve was also considered during former President Joe Biden’s administration, but for such a proposal to work, it would have to be complemented by other policies.
“I think strategic storage can play a role,” Brunelli told Nikkei Asia. “But if we look at stimulating demand for these products, expanding processing infrastructure and supporting both capital investment and price support, then we will have more effective policies.”
Australia has proposed its own strategic lithium reserve, with an emphasis on selling its future production. Prime Minister Anthony Albanese’s government has allocated A$1.2 billion (US$795 million) to create a strategic reserve of critical minerals.
Klein’s plan, however, differs from Australia’s proposed minimum pricing and strategic storage systems.
“Ultimately, the main goal is to create a more stable pricing environment so that private players can invest in mining and chemical processing facilities,” Klein said. “This idea is better, faster, cheaper and fairer than things like minimum prices.”
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