Daniel TysonThe Lithium Road runs through Latin America.
It crosses three countries – Argentina, Bolivia, and Chile – whose economies are as bone-shakingly unstable as a potholed highway.
Chris Berry, president of House Mountain Partners, told Capital.com that lithium production, “is set to ramp up dramatically in the next few years” in those countries.
By 2025, the Lithium triangle is expected to provide 60 to 70% of the globe's lithium used in products ranging from electric vehicles to cell phones and laptops.
The abundance and growing demand for what is known as the white gold of renewable energy has caused countries – mainly Asian – to ink favourable deals with South American governments. It’s estimated those deals could add more than $1trn dollars to local economies, with China easily leading countries signing extraction agreements.
However, not everyone is eager to enter contracts with distant governments, recalling with worry the region’s painful colonial past of foreigners exploiting people and land.
White gold
Around 2018, the EV boom swept across the globe with electric batteries requiring lithium. Prices hit all-time highs, but by 2020 the COVID pandemic sent prices into a downward spiral.
As the world recovers and reopens, the price is now hitting record highs.
Lithium prices have jumped by 107% so far this year, according to an index of different grades and markets for the mineral, as tracked by Benchmark Mineral Intelligence, a market reporting and data firm specialising in the supply chain for lithium ion batteries.
As use of fossil fuels declines, lithium is witnessing its highest prices ever.
The increasing global demand for electric vehicles is causing tightened supplies, according to analysts. Around the world, economic and transportation plans are focussed on the increased use of EVs.
Recently, US President Joe Biden pledge to manufacture 500,000 EV charging stations. China plans to invest $60bn to buttress the EV sector as it pushes an all-electric or hybrid fleet of vehicles within 15 years. European governments continue to offer generous subsidies to purchase EVs.
Lithium nationalism
The Latin American governments’ role, “is a crucial issue today as lithium demand will triple by 2025 and then double again by 2030 to over two million tonnes of demand,” said Berry.
“For such a small, opaque industry, this is an enormous challenge and as the lithium price has doubled in a year, the threat of resource nationalism looms large, depending upon the country you're looking at,” he said.
Across the region, politicians are exploring ways to keep the mineral from being exploited. In other words, Latin American countries want their share of the lithium pie.
Argentina’s state energy company, YPF, is developing plans for downstream industries. A new constitution is being written in Chile where land and mineral rights are key topics in the debates. Mexico is considering the possibility of nationalising lithium prospects.
“This is going to force investors to really think hard about where they invest in lithium capacity as the political dynamics in South America are not uniform, to say the least,” Berry said.
China’s appetite
In an interview with Capital.com, Shanghai Metals Market’s lithium analyst Sherie Lui said China’s appetite for lithium will only continue in the future.
In addition to the increase demand for EV batteries, the country is turning to South America to help feed other industries dependent on lithium, including pharmaceuticals, glass and ceramics, according to Lui.
However, she noted, those industries’ need for lithium is dwarfed in comparison to the demand for China’s ballooning EV market.
In the waning days of 2020, China had 42% of the EV market. Germany came in a distant second at 14% and the US well behind at 11%.
Lui estimates China’s consumption of lithium will climb by 98% over the next decades as the country tries to reach carbon neutrality by 2060.
It’s estimated by 2025, China will consume about 800,000 tonnes of lithium to support its EV market. By 2050, an estimated 500 million EVs will be on the road globally.
The country is looking at South America more as diplomatic relations between China and Australia become lukewarm.
Big investments
China is a crucial player in the Argentinian lithium business, according to Berry.
He pointed to the recent acquisition by China’s largest lithium compound producer, Ganfeng Lithium, of Canadian exploration and development company Millennial Lithium for $280m.
The purchase increased Genfeng’s influence in the Argentinian market with the acquisition of two lithium brine projects in Argentina – namely Pastos Grandes and Cauchari East – located near Ganfeng’s operations.
In July 2020, Ganfeng also helped Vancouver’s Lithium Americas restart construction activities at its Cauchari-Olaroz lithium project. According to Lithium Americas, the joint venture increased Ganfeng Lithium’s stake in the project from 50% to 51%.
Brazil has also signed deals with China in recent weeks, but the country is showing a preference towards Japan.
In 2019, Mitsui entered into an agreement with Sigma Lithium Resources to pay up to $30m in advance for future shipments from the company’s Brazilian project.
According to media reports, the infusion of cash, along with $40m in debt forgiveness, allowed Canadian-based Sigma to construct a processing plant at its Grota do Cirilo facility.
Indigenous rights
Not all are excited by the possibility of new mineral riches. Recently, the Indigenous population of Latin America have discovered their voice and political power.
Latin America is seeing rural citizens participate in street marches, and run – and win – political offices. In Chile, an Indigenous person heads the committee to write a new constitution promising land and mineral rights reform. In Peru, an Indigenous teacher defeated the scion of a political family for the position of president.
From water rights to land conservation, Indigenous people are asking questions and protesting in Buenos Aires, Brasilia, and Santiago.
Chemicals pollute
The Woodrow Wilson Center reported the lithium produced from brine has high chemical levels.
“Lithium extraction is a water intense process and extraction from this method raises concerns from local communities and environmentalists,” according to a Center video.
In Chile, regulations and judicial reviews have put two communities at risk over polluted aquifers and lands, the Center found.
Forecast
For Berry, lithium is a mineral that will be extracted for years to come. How Latin American governments handle this is still murky.
“Lithium demand is going to grow regardless of what happens in South America. How governments, investors and citizens decide to responsibly develop these assets so there is a true, sustainable win-win scenario is a crucial question for the entire lithium global supply chain today and into the future,” he said.
