In our latest look at global commodities, the Daily Update explores how the US is making efforts to protect its supply chain by friendshoring with Chile.
Before her trip to the G20 finance ministers meeting in Brazil, US treasury secretary Janet Yellen said that Chile represented a key partner for the US’ route to net zero.
Part of the ‘Lithium Triangle’, alongside Bolivia and Argentina, Chile remains one of the world’s largest sources of raw lithium – second-largest in terms of raw production, behind only Australia.
As we’ve reported previously, lithium is heavily relied upon in battery and electronic vehicle technology, as part of the ‘green transition’, and is being included in many national and corporate plans to protect critical supply chains.
Yellen impressed
While visiting Lithium producer Albermarle’s site in Antofagasta, Yellen said she was “impressed” with Chile’s climate agenda.
In remarks to Chilean president Gabriel Boric, a left-wing environmentalist who has blocked several mining projects, and to the American Chamber of Commerce in Chile, Yellen further emphasised Chile’s importance to the US’ green transition.
She said:
“As the US and other countries grow our EV markets and invest more and more in renewables, Chile will play a key role.
“Our Free Trade Agreement with Chile means that critical minerals from Chile help vehicles qualify for the Inflation Reduction Act’s Clean Vehicle Tax Credit, boosting industries in both Chile and America.”
Chile
During Yellen’s visit, Chilean finance minister Mario Marcel said that Chile could become a “strategic partner” in supplying materials for the US’ clean energy transition, benefiting from US president Joe Biden’s Inflation Reduction Act.
Marcel also told reporters that he wanted Chile to open three or four lithium mines by 2026.
There are currently only two major lithium miners operating in Chile, SQM and Albermarle. Many companies are reportedly still waiting for further details of how the government wants its lithium industry to operate.
In April 2023, Boric announced plans to nationalise the Chilean lithium industry. Under the policy, the Chilean state will own a majority stake in projects it dubs strategic, while foreign investors can own the majority of the remaining projects.
Chilean mining minister Aurora Williams told reporters that she expects her government to lay out the terms of public-private contracts by June, as reported by Mining Weekly, with the broad terms agreed in March.
‘No chance’
Joe Lowry, founder of consultancy Global Lithium, expressed scepticism of the announcements.
“No chance Chile has multiple new lithium projects ‘up & running’ by 2026. Maybe one by 2028.” Lowry said on X, formerly Twitter.
Replying to the Daily Update, he explained further:
“It is already 2024 and the 3–4 new projects haven't been approved, let alone financed. Building lithium-brine projects takes much more time than the politically motivated pronouncement allows for.”
The real winners
Of Chile’s plan, Lowry raised the issue of who would actually benefit from the details:
“If Chile insists on the government getting a 51% ‘carried interest’ – meaning the lithium company invests 100% of the capital for a minority interest in the production, what western company would invest?
“China seems like the only player with the long-term focus and willingness to accept those types of terms.
“Although, Argentina could win too, as they will likely get a larger share of investment.”
China remains a major player in the lithium market and is the world’s largest refiner. In 2021, China accounted for 65% of lithium processing. This is a reduction from the 80% it was responsible for several years earlier.
Argentina, one of Chile’s rivals in Latin America, is also seeking to boost its domestic supply and capitalise on the rush for lithium.
On Tuesday (5 March), Chinese company Genfang Lithium agreed to purchase a 15% stake in Lithium Argentina for $70m, as part of preparation of two regional development projects in Salta, North-West Argentina.
The plan for the two sites is expected to be finalised in 2024.
US domestic supply
The developments are in stark contrast to the US’ own efforts to secure its domestic supply of the critical mineral.
Although Yellen said that she was “ramping up” the US’ supply, key projects, such as the Thacker Pass mine in Nevada or Piedmont in North Carolina, have taken years to even get approval, often in the face of environmental or native opposition.
The Thacker Pass approval process only received the final approval in July 2023 after a federal appeals court rejected the final challenge to government approval.
The project, which was initially expected to break ground in 2021, required dozens of permits and was initially submitted for approval under the administration of president Donald Trump in 2019.
Market prices
Complicating matters is the fact that the price of lithium has fallen significantly over the last year, although it’s important to note the was very high at the beginning of 2023.
Data from Asian Metals, a specialised metal pricing website, showed that the price of several key contracts has fallen significantly over the last year, with some contracts reporting as much as a 60% drop over the last 360 days.
Australian miner Core Lithium said that the price of spodumene concentrate, a high-purity lithium ore, had fallen by 85% since January 2023.
Prices
The Core Lithium announced in January 2024 that it would be mostly focusing on processing existing stockpiles and “temporarily pausing” mining at the Grants open pit.
The prices, fuelled in part by China’s declining desire for electric vehicles, have caused some concern in industry circles, as the Asian nation remains the largest single producer of the vehicles at every possible price-point. By comparison, US and European counterparts like Telsa primarily focus on the high-end section of the market.
In a recent earnings post, Albemarle’s CEO Kent Masters said these low prices were “unsustainable” for developing the industry.
“The economics for new greenfield projects, particularly in the West, are not supported,” Masters told analysts, according to Bloomberg.
Masters still said that he expected the long-term future for the metal to be bright, fuelled by the green transition, and pointed to market conditions that would reduce the supply.