Lithium, named the new “White Gold” as prices soared last year, has fallen back to earth. But many believe the price of the commodity essential to decarbonisation is just getting started.
Lithium is needed to produce nearly all types of batteries powering electric vehicles (EV). A single EV battery pack typically includes about 10 kilograms of lithium. In the past two years, massive EV sales worldwide helped boost prices of lithium twelve-fold, pushing mining producers to invest, carmakers such as Tesla to sign supply deals, and governments to label it a strategic material.
Source: The Economist
After peaking in November 2022, the lithium price rally has reversed, more than halving. One reason is the slowing demand for EVs in China, the biggest market for them. Another is that carmakers signed battery-supply deals at high prices last year, and are now reviewing the terms. Thirdly, the global supply of mined lithium is rising fast. After growing by only 1% in 2022 (to 575,000 tonnes), it will probably jump by around 20% as big mines come online in Australia and Chile. Australia is the world’s largest producer, followed by Chile.
m is still expensive: prices are around four times what they were on average between 2016 and 2021. The marginal cost of production is estimated at between USD 15-20,000 a tonne. The price today is around USD 25,000. Prices below USD 22,000 a tonne would likely cause many of China’s domestic mines to shut down, lowering supply. Analysts predict that production must increase by 450% by 2050 to meet skyrocketing needs.
But a recent development has upended some market expectations. Chile’s left-wing government has announced its intention to exert more state control over the country’s most valuable natural resources. Chilean President Gabriel Boric announced that he will nationalise the country’s lithium industry “to boost the economy and protect biodiversity”.
Under the plan, the Chilean government will negotiate with the two lithium-mining companies in the country for larger stakes in their current contracts; these negotiations, as well as any new contracts, will be overseen by the state-owned copper producer Codelco, which has also been asked to create a new state-owned lithium company. Boric must still seek approval from Chile’s National Congress, where he lacks a majority, in the second half of this year to wire down the move—meaning the plan could undergo significant changes before being finalised.
The rest of the world is hungry for Latin America’s lithium—some 60% of the world’s reserves can be found in the so-called “lithium triangle”, encompassing Chile, Argentina, and Bolivia. Chinese Belt and Road Initiative (BRI) investments in lithium and copper have surged in Latin America over the last few years, with Chile joining the BRI in 2018. The European Union secured lithium and copper trade deals with Chile in December 2022, and German Chancellor Olaf Scholz visited Chile and Argentina in January to strengthen lithium ties. Mexico and Bolivia have even proposed the creation of a lithium OPEC, with Chile, Argentina, and Peru as fellow members. Mexico also nationalised its own lithium deposits last year.
Whether Boric’s nationalisation plan will actually benefit Chile is yet to be seen. Some analysts are skeptical, saying nationalisation is difficult to implement and could freeze new production players from entering Chile.
In the meantime, Chile’s plans could be a boost to the rest of the world’s lithium industry, potentially reversing a period of oversupply and diverting capital towards nations with a more attractive investment regime. Chile’s proposals could mean additional capital for more friendly or reliable lithium producers, such as Australia.
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