FT : Global container production slumps as demand for goods sinks

Global container production slumps as demand for goods sinks
Steel boxes pile up at ports after sharp fall in demand following pandemic-era boom

Global production of shipping containers has slumped dramatically as demand for goods sinks following the easing of pandemic restrictions, leaving the corrugated steel boxes to pile up at major ports.

Figures provided to the Financial Times by Drewry, a maritime research consultancy, show that production of 20-foot equivalent units — the industry’s standard size for a container— fell by 71 per cent from 1.06mn to 306,000 between the first quarter of 2022 and the same period this year.

The decline marks a sharp reversal from two years ago, when container manufacturing boomed in response to a pandemic-induced surge in demand for physical goods, which led to a shortage of the rectangular boxes.

However, demand for exports has waned since restrictions eased and economies have reopened, leaving the shipping industry with the opposite problem: a surplus of containers that threatens to overwhelm ports in China, where up to 95 per cent of the world’s boxes are produced.

AP Møller-Maersk, one of the world’s largest shipping conglomerates, has said it is halting production of dry containers until at least 2024, though it said it may resume building 20ft boxes sooner than its larger 40ft versions as the demand for the former appears to be more resilient.

Anne-Sophie Zerlang Karlsen, Maersk’s head of Asia-Pacific customer delivery, told the Financial Times the company was also seeking to sell or scrap more of its older boxes to take advantage of the glut.

The drop-off in demand has hit manufacturers hard. Profits at China International Marine Containers, one of the country’s largest producers of the boxes, plunged 91 per cent year-on-year to Rmb160mn ($23mn) in the first three months of this year.


Sales of standard containers dropped 77 per cent during the period, the Shenzhen-headquartered company said, blaming a “continuous decline in the container trade and an insufficient demand for new containers”.

COSCO Shipping Development, the container manufacturing arm of state-owned shipping group COSCO, saw profits dip 71 per cent in the first quarter of this year to Rmb398mn.

World Trade Organization economists believe export growth will stutter for the duration of this year, suggesting demand for containers will remain weak. The latest WTO forecasts, out last month, estimate a boost to trade in goods of just 1.7 per cent this year — down from 2.7 per cent growth in 2022.

Container shipping lines are already having to cope with a severe decline in profits following a record period for earnings during Covid-19 lockdowns, when supply chain disruptions — along with the boom in demand for goods — drove up the cost of shipping.

The boom left shipping groups rushing to stock up on new containers after pandemic-induced bottlenecks at many ports led to shortages of boxes in place to ship goods from Asia.

In 2021, global production reached 7.1mn standard-sized containers, more than double the output in 2020, according to Drewry.

Now demand has fallen so dramatically that port owners in the region face the fresh problem of having to find space for record volumes of unused boxes.

Stockpiles are now at record levels across the Asia-Pacific region, Karlsen said, adding that “massive amounts” of containers were expected to continue to pile up in ports the region throughout this year.

The availability of boxes at Shanghai, the world’s largest container port, has been higher this year than during the spring lockdown of 2022, according to analysis firm Container xChange.

However, Michael Fitzgerald, deputy chief financial officer at the Hong Kong-listed shipping group Orient Overseas Container Line, said earlier this month that the glut at Chinese ports had eased “over the past few weeks”.

FT : Daniel Křetínský: the Czech energy tycoon building a European media and ret

Daniel Křetínský: the Czech energy tycoon building a European media and retail empire
Billionaire investor in groups from Royal Mail to Le Monde deploys coal and gas wealth to accelerate diversification drive

The first time a young Daniel Křetínský visited Rome he stayed in a hostel 40 kilometres outside the city to save money. A few decades later, the Czech billionaire criss-crosses Europe in a private jet regularly, as one of the continent’s most prolific dealmakers.

The 47-year-old’s fortune has doubled to more than $10bn in the past year, according to estimates by Forbes and people with knowledge of his business, as the energy crisis supercharged profits at his power, gas and coal businesses.

He is now seeking to deploy the windfall to accelerate his group’s expansion into media, logistics and retail, building on a string of recent transactions in Germany, the UK and especially France.

An avowed Francophile, Křetínský has taken an interest in many of the country’s highest-profile active deals as he gradually sheds his outsider status. Since 2018, he has snapped up power plants and magazine titles such as Elle and Marianne, while building stakes in newspaper Le Monde, broadcaster TF1 and electronics retailer Fnac-Darty.

“He’s a builder, not a financier . . . he wants to build something long term that produces products and services,” said Denis Olivennes, an adviser who presides over CMI France, the French arm of Křetínský’s company Czech Media Invest. “He’s not a speculator.”

Some might question that characterisation. Křetínský built his empire by scooping up overlooked businesses on the cheap, often using external financing. Its backbone was a set of unloved, often carbon-intensive businesses that helped turn his Prague-based energy group EPH into a sprawling conglomerate with €30bn in assets and with revenues that nearly doubled to €37.1bn last year.

Křetínský has a long way to go to fulfil his ambitions outside energy. EPH generated the vast majority of his empire’s more than $40bn in revenues last year, according to people close to the business.

A football fanatic who owns AC Sparta Prague and in 2021 bought a 27 per cent stake in English Premier League club West Ham United, the former lawyer was described as sharp, strategic and detail-oriented by people who know him.

In France, Křetínský is in exclusive talks to buy publisher Editis from billionaire Vincent Bolloré’s media group Vivendi, and has floated the idea of taking over the declining IT services business of Atos in a spin-off deal — with a cheque for several hundred million euros attached to finance a turnround.

His most recent pitch in the country is to lead a more than €1bn capital injection into deeply indebted food retailer Casino, in which he is already the second-biggest shareholder. If successful, it could wrest control of the group from founder Jean-Charles Naouri, who has resisted previous deals that would have loosened his grip.

Křetínský receives advice in the country from figures including Olivennes, a media veteran with experience in retail as well as in navigating France’s halls of power, and Jean-Michel Mazalerat, who runs the French subsidiary of his energy company.

“Every time there is a big bid in France, whether it is Editis or Casino, he’s there,” said one French investor. “He bought his way into the establishment and it’s working.”

Křetínský declined to comment.

Born in 1975 in the Czech city of Brno to a professor and a judge, Křetínský learnt French as a schoolboy and travelled to France on exchange programmes. After beginning his university education in his hometown, he continued his legal studies in Dijon. “There’s a sentimental link there,” said one adviser.

Following a stint as a junior lawyer in Brno, in 1999 Křetínský joined J&T, an investment group founded in Slovakia, and quickly rose to become a partner and noted dealmaker. After buying a German coal company in 2009, J&T decided to spin off its energy assets into a new structure, EPH, granting him a 20 per cent stake in the venture.

His nose for a deal confirmed, Křetínský went on to lead lucrative acquisitions in central and eastern Europe, first in energy infrastructure then in power generation, eventually assuming control of EPH. He also forged ties with the late Petr Kellner, one of the Czech Republic’s richest men and the father of Křetínský’s future partner Anna Kellnerová, an Olympic showjumper.

“I was not surprised that he has become a successful entrepreneur . . . He does not waste time on things that are not important to his goals,” said Jiří Gottweis, who employed Křetínský at his Brno law firm.

Křetínský’s energy portfolio expanded rapidly with the acquisition of assets including power plants in the UK from Centrica and in Italy from Eon, as EPH became one of the biggest power suppliers in Europe.

His deals have not come without controversy. One of his early successes was securing a monopoly on Slovakia’s gas storage operations in a co-ownership deal with the Slovak government that included a pipeline company that transmits Russian gas — a connection that raised eyebrows when he first started investing in western Europe.

Gary Mazzotti, chief executive of EP Infrastructure, whose assets include Křetínský’s Slovak gas business, said the businessman’s decisions were based on pragmatism.

“People get obsessed with Russian risk but at the end of the day people here need to eat, sleep and have energy,” he said. “So if it comes from Russia, OK, but if not Europe can find alternatives. I know the story is whether we can survive without Russia but the reality is that we already have been.”

In Germany, Křetínský became known as a “coal baron” after taking over a number of coal-fired power plants as well as mines producing lignite, a highly polluting variety of the fuel.

“His realisation was that a 40 per cent renewable goal by 2040 was probably not realistic, and even then 60 per cent is still going to be fossil-based power,” said a person who has worked with him on energy projects. “Meanwhile, everyone rushed into renewables so returns were very low. When everybody is rushing into one side of the market, he’s playing the other side.”

For Mazzotti, “Daniel is a realist . . . someone who understands how long processes will take . . . He invests in common sense even if that common sense is sometimes not palatable”.

EPH said this month that it would split its German assets into a separate entity “to constructively negotiate with the German authorities on a phaseout of coal-fired power plants by 2030”.

By the mid-2010s, Křetínský was beginning to look beyond energy for other undervalued sectors. He landed on retail and logistics, which had struggled with the rise of online shopping, and media, where the internet had disrupted business models.

As well as Fnac Darty, his retail portfolio includes stakes in German wholesaler Metro as well as US sneaker chain Foot Locker and UK grocer J Sainsbury.

His 2018 investment in Le Monde, viewed as a pillar of the French establishment, ruffled feathers among the paper’s journalists and shareholders. While Křetínský had already snapped up radio stations in eastern and central Europe and magazine titles from French group Lagardère, buying into France’s biggest daily newspaper brought national attention and scrutiny.

“The view at Le Monde is that Daniel doesn’t count or doesn’t exist,” said one senior insider at the paper.

CMI France, his French media group had €220mn in annual revenues, according to people with knowledge of the business, a figure that could rise substantially if the Editis deal goes through. “Then we start to become a size of group that is interesting, with about €1bn in revenues,” a person with knowledge of the business said.

Further media deals were likely, according to people close to Křetínský. He had also cast his eye further afield, at one point looking to buy UK broadsheet The Telegraph before abandoning the project, the people said.

Not all of his investments have met with immediate success, however, including his 25 per cent stake in the parent company of the UK’s Royal Mail. But associates said Křetínský tended to take a long-term view on investments.

By diversifying, “he wants to create an enterprise equivalent to his energy interests”, said one of his advisers. “Keep in mind he’s only 47. By the time they’re as mature as his energy business he’ll be 60. Time is on his side. It’s a sort of second career, a second stage in the development of his group.”

FT : Big investors rush into bonds after ‘cataclysmic’ year

Big investors rush into bonds after ‘cataclysmic’ year
Capital Group predicts $1tn will flow into debt markets in next few years as investors move to lock in higher yields

Large asset management groups are piling back into fixed income to lock in the higher yields on offer after a “cataclysmic” period of performance for bonds last year.

A steep rise in US interest rates over the past 12 months sent bond prices tumbling but has now left yields on Treasury notes higher than they have been for most of the past decade. With the Federal Reserve close to the end of its tightening cycle, institutional and retail investors are buying both sovereign and corporate bonds.

“Bonds are exciting again, for the first time in a long time. They were boring with zero rates for several years,” Sebastien Page, chief investment officer of T Rowe Price’s global multi-asset strategy, told the Financial Times.

“It’s very simple — yields are much higher than they were and it just means you have higher expected returns,” added Page, who likes high-yield corporate bonds.

More than $332bn flowed out of active fixed income strategies in the US last year, according to Morningstar data. But the tide has now turned and more than $100bn has poured into fixed income funds during the first four months of this year.

Managers are equating the shift in capital into fixed income with the scale of the movement of assets from actively managed funds into lower-cost passive funds that track an index, a shift over the past decade that has fundamentally reshaped the asset management sector.

“We’re seeing enormous moves into fixed income,” said Yie-Hsin Hung, the chief executive of $3.6tn-in-assets State Street Global Advisors at the Milken Institute conference earlier this month, noting large flows into bond exchange traded funds and passive funds. “It feels like the beginning stages of what happened in equities, moving much more into passive.”

Mike Gitlin, chief executive of Capital Group, which manages $2.2tn in assets, told the conference that, due to the higher interest rate environment “we’re seeing an average of $500mn in net new flows into the bond markets at Capital Group per week”.

“I think you’ll see $1tn flow back into the bond market in the next few years,” he added. “I think it’s coming and I think you’ll see it accelerate.” 

Part of the shift in enthusiasm is down to the fact that bonds performed so badly last year. The yield on the two-year US Treasury, which moves with interest rate expectations, rocketed from 0.7 per cent to 4.4 per cent while the 10-year yield jumped from 1.5 per cent to 3.8 per cent. The bonds now yield 4.2 per cent and 3.6 per cent respectively. Bond prices fall as yields rise.

“2022 was cataclysmic for fixed income. It was by some measures, the worst year on record,” said T Rowe Price’s Page.


The ability to generate high yields while taking relatively low levels of risk is set to allow more traditionally risk averse investors — such as those who handle retirement savings — to allocate into the space. “Finally people can allocate to fixed income and get a return. You could have one-third of your pension fund in fixed income and still hit your target,” said Franklin Templeton chief executive Jenny Johnson on an earnings call earlier this month.

Investors are betting the Fed may be forced to cut interest rates as soon as this year. Asset managers have the largest long position — a bet that prices will go up and yields will come down — in two-year Treasury notes this year, according to data from the Commodity Futures Trading Commission.

“We think as interest rates calm in the market, we feel like there will be one more raise and then sit there through 2023, and probably not have a decrease,” said Johnson. “People will try to lock in those higher rates.”

However, she added that not all fixed income is set to yield outsized returns this year, and active selection of bonds will become more crucial. “It’s an important time to be active in the fixed income space. This is not a great time to be passive in it.”

Asset managers say that actively managed fixed income has also become a preoccupation for their clients after years of credit being a relatively quiet part of their portfolio. “We have seen a significant uptick in interest from clients,” said Eric Burl, the head of discretionary at Man Group in the UK.

“The utility of fixed income in your portfolio has completely changed . . . It’s not just that you can make equity like returns, but that’s clearly part of it,” said Page at T Rowe Price.

“It’s a time to be more active rather than less,” he said. “Now’s not the time to own the entire market.”

FT : Boeing boss cools hopes for sustainable aviation fuels

Boeing boss cools hopes for sustainable aviation fuels
David Calhoun tells transport executives there is no cheap way of decarbonising air travel

Boeing’s boss has warned that new climate-friendly biofuels will “never achieve the price of jet fuel”, pouring cold water on a central pillar of the aviation sector’s strategy to slash emissions.

Airlines say sustainable aviation fuels (SAF) — made from food waste such as cooking oil and plants — can bring rapid decarbonisation by replacing the kerosene-type fuels, such as Jet A, used in aircraft today.

But SAF currently accounts for less than 1 per cent of global aviation consumption and trades for at least twice the price of traditional jet fuel.

“We will create scale and get more economic,” Boeing chief executive Dave Calhoun said. But he added: “No, I don’t think we will ever achieve the price of Jet A. I don’t think that will ever happen. It is more positive and it will have an impact, but it’s gonna be what it’s gonna be.”

The comments from Calhoun echo concerns raised privately in the sector about the difficulties — and expense — involved in decarbonising an industry that, in creating mass transcontinental travel, represented one of the crowning achievements of the petroleum era.

“He’s saying the quiet bit aloud,” said Robert Campbell, head of energy transition research at Energy Aspects, referring to Calhoun’s comments. “There are no cheap ways to do SAF — if there were, we would already be doing them.”

Tax credits for SAF production in the US were among vast clean energy subsidies in the Biden administration’s sweeping Inflation Reduction Act (IRA), passed last year. The EU has also mandated that airports use increasing volumes of SAFs to fuel jets in Europe.

The International Air Transport Association, a trade group including the world’s biggest airlines, set a target in 2021 to achieve net zero emissions by 2050. SAF would account for 65 per cent of the abatement, Iata reckons.

But the move would be costly, said Willie Walsh, the former chief executive of British Airways, who runs Iata.

“It is achievable,” he told a Financial Times conference last week. But “anyone who says the costs of transitioning to net zero are going to be low or unnoticeable I’m afraid is fooling themselves”.

“Passengers will have to pay higher fares. We need to be honest with our customers”, Walsh said. “Airlines are not in a financial position to absorb that cost, so ultimately it will have to be passed on to consumers.”

The US price of sustainable aviation fuel on Friday closed at $6.83 a gallon, while a gallon of jet fuel cost $2.34, according to energy data provider Argus Media.


Among the costs associated with a switch to 100 per cent SAF use is that all existing fuelling infrastructure — at airports and aboard planes — must be adapted to handle the biofuel, which lacks the “aromatics” present in hydrocarbons that help seal pipes.

Boeing and its rival Airbus say they will render their aircraft capable of handling 100 per cent SAF by 2030, compared with 50 per cent at present. Boeing is also rolling out a new modelling tool, Cascade, to help airlines and policymakers assess methods of decarbonisation.

Critics of SAF have also warned that as demand for the fuel rises, feedstock from food fats will be quickly exhausted, creating new demand for crops, threatening forests, or generating an incentive to grow feedstocks on land needed to supply food.

The Biden administration, which has set industry a “grand challenge” to produce 3bn gallons a year of SAF by 2030 from less than 16mn now, says feedstock will come from agricultural waste produced alongside corn and soyabeans, and woody biomass in western states.

But analysts say that until long-term demand for the fuel is guaranteed, investors will be reluctant to plough capital into new SAF production capacity, leaving costs for a niche product high.

Tom Vilsack, the US secretary of agriculture, said the IRA tax credits would help the industry overcome that investment roadblock, although price parity with jet fuel would not be achieved soon.

“At the beginning you’re going to have government support and assistance . . . to learn the efficiencies that need to go into ultimately getting that price down”, Vilsack told the Financial Times last week.

>>> US After Hours Summary: CSWC +3.1%, NDSN +1.7%, ZM +0.7% up on earnings; GH

After Hours Summary: CSWC +3.1%, NDSN +1.7%, ZM +0.7% up on earnings; GH -7.1% down after filing stock offerings; RNR -3.7% lower after agreeing to acquire AIG's treaty reinsurance business

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: CSWC +3.1%, NDSN +1.7%, ZM +0.7%

Companies trading higher in after hours in reaction to news: BPMC +3.1% (FDA approves AYVAKIT), TERN +3% (to present TERN-601 data), TGNA +3% (announces $300 mln ASR program and dividend increase), LFCR +3% (enters into new financing with Alcon), PEB +2.1% (provides operating update), APLE +1.3% (extends repurchase program), GD +1.2% (U.S. Navy contract modification), BRO +1% (to acquire Kentro Capital), MODG +0.7% (repurchased shares), TRVI +0.5% (publishes positive data from CANAL trial), HLIT +0.3% (appoints new CFO), AIG +0.3% (to sell Validus Re to RenaissanceRe Holdings), CSX +0.2% reaches tentative agreement over sick leave benefits)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: LU -0.6%

Companies trading lower in after hours in reaction to news: GH -7.1% (files mixed shelf; also files $250 mln stock offering), RNR -3.7% (to acquire AIG's treaty reinsurance business; files mixed shelf, stock offering), RYAN -1.5% (stock offering), EFC -0.9% (increases repurchase authorization), SWN -0.1% (files mixed shelf)

FT : The UK and European electric vehicle trade

The UK and European electric vehicle trade
Hoping for delays to post-Brexit rules is not a strategy, particularly for British automakers

Everyone wants a slice of the electric vehicle market. Carmaking is not only a big employer, it has also long symbolised a nation’s manufacturing prowess, from British Minis to Italian Ferraris. As the sector goes electric to meet climate change targets, the US, EU and China have been thrust into a race to build up domestic EV production capabilities. In the frenzy of subsidies and deals, electric automakers need to decide how best to locate their complex supply chains.

Last week, global carmaker Stellantis — which owns brands like Vauxhall, Peugeot and Citroën — warned UK lawmakers that it may have to close one of its electric van factories. It fears that production will soon cease to be competitive. From 2024, as part of the post-Brexit trading agreement, EVs traded between the UK and EU will need to have 45 per cent of their parts sourced from either region, or face 10 per cent tariffs. British and European carmakers say they are not ready, and worry about being displaced in each other’s market.

While the so-called “rules of origin” regulations were clear when the Brexit deal was struck, carmakers claim Russia’s invasion of Ukraine and supply chain upheaval since have altered cost dynamics. Battery factories on both sides of the channel are also being set up later than expected when the rules were set. The rule itself acts as an important stick to both auto- and policymakers to invest in building a thriving domestic EV ecosystem. But if manufacturers feel this is not in place, the rules also risk denting the sector just as the US Inflation Reduction Act and China are luring them away. It could even mean EVs traded between the UK and Europe face tariffs, while petrol vehicles would not, keeping EVs more expensive for longer. That would not be ideal for the green agenda.

At this stage an extension of the 2024 deadline, as firms are calling for, may make sense. But carmakers and governments must not use it as an excuse to delay action further. Indeed, the UK — which is further behind Europe in the EV space — must recognise that the tariffs are just one element of the large effort needed to build a competitive EV system.

Batteries, which face local content rules too, comprise a significant share of EVs’ total cost. But the UK has only a handful of battery gigafactories in its prospective pipeline, compared with Europe’s 30. Attempts to woo battery makers from Asia and nurture homegrown ones have fallen flat — Britishvolt collapsed in January. Batteries also need critical minerals and refining processes in place. The US and EU are throwing money at this. The UK is trailing, right across the supply chain, even before factoring in broader issues like its high energy and logistics costs.

Developing a thriving EV and battery industry requires long-term and joined-up thinking across sectors. To date that is lacking in the UK. The government shuns the notion of an industrial strategy altogether, and recent political upheaval has not helped. It has been left chasing standalone deals and lobbying Brussels — an ineffectual approach compared to the billions being promised in the US and Europe. For electric automakers, Britain is not looking like a serious long-term bet.

In the end, hoping the European Commission delays the regulations is not a strategy, for either UK or European carmakers. The EU may have an incentive to postpone tougher requirements, being further ahead of the UK in the sector. But, equally, it could judge that with the damage likely to be greater on the UK than its own car industry, given the UK’s greater reliance on auto exports to the bloc, keeping it in place could help draw business across the Channel. Either way, the global battle for EVs is shaping up to be cut-throat and those that lack a strategic approach will be left behind.

WSJ : Exxon Joins Hunt for Lithium in Bet on EV Boom

Exxon Joins Hunt for Lithium in Bet on EV Boom
Oil giant quietly laid plans this year for producing mineral in Arkansas

Exxon Mobil XOM 0.46%increase; green up pointing triangle is bracing for a future far less dependent on gasoline by drilling for something other than oil: lithium.

The Texas oil giant recently purchased drilling rights to a sizable chunk of Arkansas land from which it aims to produce the mineral, a key ingredient in batteries for electric cars, cellphones and laptops, according to people familiar with the matter.

Lithium is far removed from the fossil-fuel business, which has powered Exxon’s XOM 0.46%increase; green up pointing triangle profits for more than a century, and signals the company’s acknowledgment that demand for internal combustion engines could soon peak, the people said. It would also mark a return for the company to an industry it helped pioneer almost 50 years ago.

Exxon bought 120,000 gross acres in the Smackover formation of southern Arkansas from an exploration company called Galvanic Energy, according to some of the people. The price tag was more than $100 million, people familiar with the matter said, a relatively small transaction for a company of Exxon’s size.

The new venture doesn’t amount to a significant strategic shift for Exxon, which has said it is confident that oil and gas will be needed for decades. But Exxon is looking to gain a foothold in a region believed to contain vast lithium reserves, both to produce the mineral and to test the viability of extraction technologies.

Exxon could begin drilling on the prospect in the coming months, people familiar with the matter said, and could expand its operations if it proves profitable.

Galvanic said last year that a third-party consultant it hired estimated the prospect could have 4 million tons of lithium carbonate equivalent, enough to power 50 million EVs. Extracting lithium from brine involves drilling for, piping and processing liquids, processes in which oil-and-gas companies have long developed expertise, making them well suited to produce the mineral, lithium and oil executives said.

Exxon projected last year that light-duty vehicle demand for internal combustion engine fuels could peak in 2025, while EVs, hybrids, and vehicles powered by fuel cells could grow to more than 50% of new car sales by 2050. The company has also projected the world’s fleet of EVs could climb to as much as 420 million by 2040, up from 3 million in 2017.

Exxon Chief Executive Darren Woods said last year that fossil-fuel demand would remain robust for decades, driven by the production of chemicals and heavy transportation and industry.

Lithium production would also diversify Exxon’s portfolio and expose it to a rapidly growing market. The company is positioning other parts of its business to accommodate electric vehicles. Exxon executives have said many of its chemical products supply EV manufacturers, whose cars are made with plastics and other petroleum products.

The auto industry’s shift to EVs has triggered a race to lock in supplies of lithium and other materials core to battery making, much of which are currently mined and processed outside the U.S. Tesla CEO Elon Musk has said the lack of a steady pipeline for processed lithium is a major obstacle.

The Biden administration is seeking to encourage domestic production of the metal, despite opposition from environmentalists and others. The Inflation Reduction Act signed by President Biden into law last year includes tax credits covering 10% of the cost of producing critical minerals, including lithium.

The U.S. once was the world’s largest lithium producer, but its output has plummeted, and it is now dependent on other nations such as China for its supply of the mineral. Producing lithium from regions such as Arkansas could help the U.S. meet its domestic needs as well as compete globally, analysts said.

In the 1970s, Exxon played a key role in the foundation of the lithium industry. Exxon chemist Stanley Whittingham won a Nobel Prize in 2019 for helping to develop the lithium ion battery while working at Exxon’s corporate laboratory in Linden, N.J. Exxon began to manufacture the batteries in 1976, but the market ultimately proved too small, so the company ceased making the batteries some years later.

Exxon has plans to spend $17 billion through 2027 on cutting carbon emissions and developing low carbon technologies. Unlike BP or Shell, which are investing heavily in renewable energy, Exxon has said it would limit its clean-energy investments in technologies that hew to its core oil-and-gas business, such as hydrogen and carbon capture. Exxon has never publicly proposed producing lithium as part of its investment plans.

Other large oil producers have been looking at the lithium business. Occidental Petroleum is developing technology to extract lithium from subterranean brine through its subsidiary TerraLithium.

The prospect of EVs dominating public transportation in the coming decades provides a strong incentive for oil-and-gas companies to get in on the lithium business, said Pavel Molchanov, an analyst at investment bank Raymond James. “It’s a classic hedge against the prospect of eventually declining oil demand,” he said.

Southern Arkansas in recent years has emerged as a potential future lithium hub. Smackover brine, a rich broth of saltwater and minerals, has long been known to contain relatively high concentrations of lithium, but new technologies have recently made it possible to extract the metal from the brine in warehouse-size facilities.

The region also offers a favorable permitting framework and existing infrastructure companies can capitalize on, lithium executives said. Over the last century, oil producers drilled thousands of wells in the region to extract crude oil. Special chemical companies, such as Albemarle, have been producing brine suffused with bromine there, a valuable chemical used in agriculture and sanitation.

Canadian company Standard Lithium has been operating a lithium demonstration plant in the region since 2020 at a site owned by German chemical company Lanxess.

So-called direct lithium extraction technologies have yet to be deployed at scale, and it could be years before plants start churning out the mineral commercially, analysts said.