0,00€

Nessun prodotto nel carrello.

0,00€

Nessun prodotto nel carrello.

TematicheAmerica LatinaChile’s nationalization plan on lithium intensifies the “white gold...

Chile’s nationalization plan on lithium intensifies the “white gold rush”

-

Last April, newspapers reported that Chile’s President Gabriel Boric announced he would seek to nationalize his country’s lithium industry over the next years. In an address to the population on national tv, the leftist president stated: “This is the best chance we have at transitioning to a sustainable and developed economy. We can’t afford to waste it” (Reuters, 21 April 2023).

By establishing public ownership over the profitable industry, Boric pursues multiple goals: on the one hand, he would redirect the revenues into the state coffers, providing for needed money in order to finance his radical political agenda; on the other, he wishes to protect the environment from the side-effects of the extraction of lithium – or more precisely of lithium carbonate – from geothermal brines, which involve the “use of large quantities of water and related pollution; potential increase in carbon dioxide emissions; production of large quantities of mineral waste; increased respiratory problems; alteration of the hydrological cycle” (Columbia Climate School, 18 January 2023). As a matter of fact, indigenous communities living in the Atacama region have been lobbying for a long time for a stop to lithium extraction, and the Chilean government seems to be balancing between their demands and the need to support economic development.

The nationalization plan

At present times, Chile’s extractive industry is dominated by two private companies: the American-owned Albemarle and the Chilean SQM, short for Sociedad Quimica Y Minera de Chile. The two corporations have contracts with the Chilean government that expire respectively in 2043 and 2030, and Boric’s plan doesn’t actually aim to achieve immediate public ownership over lithium extraction, but rather to start talks with Albemarle and SQM in order to reorganize their contracts and allow for the participation of the state-owned company Codelco for at least 51%. 

Codelco (Corporación Nacional del Cobre de Chile), currently the largest copper producer in the world, has also been tasked by the Chilean government with establishing new ventures in order to expand the extractive industry over the Atacama desert’s salt flats, where most of Chile’s lithium can be found, and even farther.

However, many analysts and private investors have criticized the move, as they say it could threaten the supply of this critical mineral. Others think that public ownership could frighten potential new investors, that would divert their money to other places such as Argentina, Brazil or the African continent, as stated by Daniel Jiménez, a former executive at SQM (Financial Times, 3 May 2023).

Boric also faces internal political challenges, as he still has to get the approval from the Chilean National Congress, in which he doesn’t hold a majority, so that many of his ambitious reforms have been obstructed so far. But also within the coalition that led to his election different souls coexist, some of which lean more towards liberal economic policies, while others pushed for nationalization. Boric’s plan seems to be a compromise in this respect.

The lithium industry

Chile is the second country in the world for lithium production, with 19.300 tones extracted in 2019, after Australia, and is the third for reserves, with 9,6 million tons. As a matter of fact, Chile is located in the so-called “lithium triangle”, the biggest lithium field in the world, accounting for about 60% of the total, which Chile shares with Bolivia and Argentina, respectively first and second reserve-holders (US Geological Survey, 2019).

Lithium is an essential component in the production of lithium-ion batteries, such as those that give energy to electric cars, and thus in the transition towards carbon-neutrality. However, the market is short on supply: according to World Bank estimates, the extraction of the mineral has to be stepped up to 450% of nowadays production in order to meet the increasing demand for batteries (World Bank, 2020)

This is why Boric is seeking to step up production. As we have seen, Chile has got a lot of untapped potential in terms of lithium reserves, and the market is hungry for it. However, some believe that the presence of the state in the government’s most recent development plans may scary foreign investors, that could divert their investment to other places such as Australia, which in 2017 surpassed Chile and became the biggest producer, or even neighboring Argentina, that, according to forecasts made by JP Morgan, would surpass Chile as the third producer, following Australia and China, by 2030 (Bloomberg Linea, 15 February 2023). Among the three South American countries in the lithium triangle, Argentina is the most market-friendly, also due to its need to attract foreign investment in order to heal its debt. Bolivia, on the other hand, runs its lithium industry completely through the state.

Bolivia has also gone further in recent times, proposing to create a “lithium OPEC” (Reuters, 23 March 2023), a cartel similar to that of petroleum exporting countries, formed by Bolivia itself, Chile, Argentina and Peru. The idea follows a similar proposal from Mexico’s president Obrador, and Mexico is also seeking to nationalize its extractive industry. The organization, at least in the mind of Bolivia’s President Luis Arce, would benefit its members by defending them from the volatility of lithium prices on the stock market. As a matter of fact, the price of lithium carbonate hit an all-time high of 600.000 Chinese Yen per ton in late 2022, due to the expansion of electric vehicles (EV) industry, especially in China, before falling to 165.000 CNY/T in late April this year, due to restrictions to EV subsidies by the Chinese government in January. The commodity price has rebound in the last few weeks, but it’s still far from last year’s record (Trading Economics, n.d.).

The extreme volatility in the price of lithium carbonate, the fact that the price itself is expressed in Yen and that it seems to depend so much on decision taken by the Chinese government, shows the importance of Beijing in this market. China is the country that imports the most lithium carbonate, followed by South Korea and Japan (Statista, 11 May 2023) and has an outstand refining capacity. The dominance of China actually goes beyond lithium. Beijing is also the number one producer of lithium-ion batteries and of electric vehicles, a primacy acquired by gaining access to many other criminal minerals, or critical raw materials (CRMs), which are “essential components in many of today’s rapidly growing clean energy technologies” (IEA, n.d.). Among these, there are copper, nickel, cobalt and lithium itself.

The geopolitics of lithium

Unsurprisingly, lithium is thus becoming the object of what has been named by many a “white gold rush”. Developed countries around the world are trying to secure easy and reliable access to the precious mineral in order to lead the transition towards carbon neutrality. But most importantly, Western powers – the US and some European states, often through the framework of the European Union – want to reduce their dependency on China and to threaten Beijing’s primacy in the field.

China, for its part, has secured its access to Latin American lithium in these years, also through its Belt and Road Initiative, to which Chile and Bolivia have gained access in 2018, while Argentina has joined the new silk road only recently, in 2022. China has invested heavily in the mining sector of all three Andean countries: in Argentina, Beijing has invested more than one billion dollars and through Ganfeng Lithium it has signed a memorandum of understanding in order to build a lithium battery manufacturing plant (IARI, 29 January 2023); in January, three Chinese firms have signed a deal with the national company Yacimientos de Litio Bolivianos (YLB) in order to explore Bolivian reserves with a plan to start exports in 2025 (The Diplomat, 10 February 2023); finally, a Chinese firm, Tianqi, has purchased 24% of Chile’s SQM in 2018 (Nikkei Asia, 4 December 2018)

But most importantly, China has refining capacity and a quasi-monopoly in the production of batteries, things that Western powers critically lack. For these countries, and especially the United States, securing access to lithium, as well as expanding their refining capacity and the production of batteries is also becoming a matter of national security.

Last year, the Biden administration passed the Inflation Reduction Act. Despite the name, the act deals extensively with the transition to clean energy production and in particular it includes subsidies to the green energy sector and tax reliefs for those who buy an electric vehicle, provided that at least part of the critical minerals – i.e. lithium – that are used in order to produce the battery come from the USA or countries which have a trade agreement with the US. The consumer gets an additional tax relief if the battery is also assembled in the USA or in North America, at least to a certain proportion. Eventually, the act puts restrictions on EVs built using batteries that come from a “foreign entity of concern”: clear reference to China. 

The European Union as well seems determined to stay in the race for lithium and not end up being too dependent on foreign powers, especially China, in its effort to reach zero net emissions. Last December, the EU signed the EU-Chile Advance Framework Agreement (European Commission, n.d.), according to which Chile commits not to form export and import monopolies on critical minerals, in order to maintain its access to Chilean lithium, which already accounts for 80% of Europe’s imports (World Bank, 2019). Chile also agreed to avoid export restrictions to the EU.

Lithium is getting more and more relevance also in the European strategic framework as one of the most important CRMs, so much that it is included in the EU’s Strategic Autonomy plans, as outlined in the latest briefing named “Securing Europe’s supply of critical raw materials” (European Commission, March 2023). Europe is one of the biggest producers in the automotive sector, which is driven by Germany. As a matter of fact, last January, Germany’s Chancellor Olaf Scholz visited Chile and Argentina in his first South American tour in order to secure access to the critical mineral (Reuters, 29 January 2023).

In conclusion, despite growing exploration projects all over the world to secure access to lithium carbonate, the lithium triangle will retain a certain predominance on the lithium market in the near future. In addition, brine extraction – the method used in Chile, Argentina and Bolivia – is, with all due premises, much greener than hard-rock extraction, the method used in Australia, thus making south American lithium much more attractive. While the world rushes in order to secure access to the white gold, with the side effect of deepening the global competition between the US and the People’s Republic of China, countries in the lithium triangle, and especially Chile, can get a significant economic and a strategic advantage.

Articoli Correlati

Nuovo accordo tra Unione europea e Cile per il litio: liberalizzazione, strategia e doppio standard

L’Advanced Framework Agreement tra UE e Cile garantirà la liberalizzazione commerciale tra le due parti in cambio di materie...

L’asse Venezuela-Iran: un’alleanza strategica di sopravvivenza

Da più di vent’anni, Venezuela e Iran mantengono un’alleanza strategica che permette loro di far fronte alla situazione di...

Haiti tra gruppi armati e traffico illecito di armi

Haiti è in preda al caos. Nel Paese vige la legge del più forte e il traffico illecito di...

I BRICS e il controllo degli stretti: una possibile spiegazione dell’allargamento

Il primo gennaio 2024 il gruppo BRICS si è allargato ad Egitto, Etiopia, Iran, Arabia Saudita ed Emirati Arabi...