Increasing demand pushes further competition
Batteries are made out of lithium and batteries are needed for smartphones, wind turbines, electric cars, and electric mechanisms, in general. Since in the future the most sought after goods will require lithium, markets have increased their interest in the soft metal, thus increasing its price.
Demand for lithium is expected to triple by 2025 according to The Economist.
Even more impressive than the rising contract prices for lithium is the fact that 54% of the world’s lithium sits over the so-called lithium triangle, a region that compromises central Chile’s Atacama Desert, southern Bolivia’s Uyuni salt flat, and Olaroz in northern Argentina.
The three different countries are sovereign and have tackled the issue in different ways. Here’s a breakup of how each of the countries have seized the opportunity of sitting on the reserves of what is being dubbed as the next oil.
The Republic of Chile has a long history of mining. Ever since 1541, the South American nation has extracted copper, making the reddish metal a part of the Chilean economy ever since. As a result, the South American nation was one to first take advantage of the search for lithium.
The Atacama Desert hosts the largest reserves of lithium among all three countries. Also, it is found in one of the best locations since it’s near the Antofagasta port while bearing the best quality by cost output making Chile the international favorite for extraction.
An open market dynamic and access to valuable resources seem to be the Chilean’s key to maintaining their privileged position in the region. As of today, two companies extract lithium from Chile, local SQM, and American Albemarle.
The Plurinational State of Bolivia has carried the weight of the socialist mandate of Evo Morales since 2006. Evo Morale’s government has had a two-stage cycle: a first stage consisting of strong socialist policies where most of the primary sector industry has been nationalized, including lithium, and a second cycle where massive production of lithium shall be carried out.
An undesired outcome of nationalizing an industry of its size is that local human capital is often not enough to provide an efficient chain of production, and since Bolivia doesn’t enjoy of a favorable economy, proper governance remains in peril.
Slow action has permitted the Bolivian government to slowly allow its own private sector into the lithium market; Yacimientos de Litio Bolivianos is the first private venture to exploit lithium in the region. Nevertheless, the high quota that Evo Morales’ government imposes is highly discouraging for potential investors.
Newer deals with international institutions such as the Inter-American Development Bank and the World Bank have opened Bolivia’s mindset towards a globalized world, and the panorama is set to change toward a more dynamic future.
The Argentine Republic has had a difficult recent history led by a failed attempt to move towards populism. Cristina Fernandez de Kirchner, former president of the nation, instructed strong currency policies that extended to off-the-top export taxes and tight control on imports. All key factors to dissipate international interest for lithium production.
Another difficult condition for extraction in Argentina is that property rights over the lands where lithium is stored are the property of provinces, which are often difficult to negotiate with; they also expect high returns for operational permission.
Change has been brought by Mauricio Macri, the new market-friendly president of Argentina who believes in a more Chilean dimension of markets by setting better conditions for regulations and who has been an active part of provincial negotiations to increase the signing and production rate of the Olaroz region.
Argentina is moving forward to be a key player in the lithium industry for years to come, but neither Bolivia nor Chile is holding back.
Latin American Post | David Eduardo Rodríguez Acevedo
Copy edited by Susana Cicchetto
Copy edited by Susana Cicchetto