Lithium is one the key elements of the next energy wave. The soft, silvery white alkali metal is an essential ingredient in long-life batteries, which, in turn, are central to the global push to adopt electric vehicles and help extend the life of non-carbon-based energy supplied to electric power grids.
Although the world’s largest lithium producer is Australia, it is estimated that 60% of global lithium reserves sit in the “Lithium Triangle” composed of Argentina, Bolivia, and Chile. China, the United States and other countries are reaching out to secure new sources, which is bringing Argentina, Bolivia, and Chile into sharper geopolitical focus in Beijing, Brussels, and Washington. The great power rivals are seeking to secure the strategic metals central to the global energy transition.
China is the world’s leading battery power. According to S&P Global Market Intelligence, in 2021 China accounted for 79% of lithium ion batteries, followed by the U.S. at 6.2%.
This reflects China’s dominance in lithium refining capacity; over half of that capacity is in China. Moreover, two of the world’s largest lithium miners, Ganfeng and Tianqi, are Chinese. Tianqi also has holdings in Australia and Chile. Another of China’s large mining companies, Zijin Mining, recently added lithium to its portfolio by purchasing a Canadian company operating in Argentina.
Considering China’s role as the world’s lithium refiner, it has compelling motivation to be more deeply engaged in the Lithium Triangle.
The U.S. lags behind its Asian rival in lithium and battery production. It holds an estimated 3.6% of global lithium reserves, with a lone lithium mine in Nevada — though others are planned — while refining only 2.1% of the world’s lithium. To catch up with China, the Biden administration’s Inflation Reduction Act includes considerable incentives for domestic battery production, as well as mining. Considering that the Biden administration wants half of all U.S. vehicle sales to be electric by 2030, developing a viable battery industry and securing supplies of lithium has assumed greater urgency. Lithium batteries are also essential to U.S. electricity production in supplying storage for solar and wind power.
Opportunity in South America
The lithium boom is good news for the Lithium Triangle countries. In 2021, Argentina and Chile together produced nearly 30% of the world’s lithium, with the balance largely produced by Australia. In 2022, the lithium boom was evident in the profitability of Chile’s SQM, which accounts for 19% of global market share. In the third quarter of 2022, the company saw its net income skyrocket by 937%, powered by lithium prices and higher sales. The forward guidance for lithium is continued strength.
Chile’s lithium industry is the most advanced in the Lithium Triangle. Long-established, it is considered part of national security, with lithium regarded as a strategic resource. To mine lithium in Chile, companies must apply for a special license. Only two companies, SQM and Albemarle (a U.S.-based mining company) have been granted licenses.
While global demand for lithium is accelerating, Chile’s industry appears to have stalled, and it is possible that Argentina may soon be a more significant producer. No new mines have been opened for 30 years in Chile, which also faces a host of other challenges, including resistance from local communities, which object to the intense use of water in a desert region, and a series of scandals, some of which involved SQM and Albemarle.
Another cloud over Chile’s lithium sector is that the new leftist government of President Gabriel Boric has focused on establishing a state lithium company, which will work with private companies and balance mining needs with those of the local communities and the ecosystem. It is expected to be a time-consuming process. As explained by Martin Obaya, the director of CENIT, a research group at the National University of San Martín in Argentina, “They need to find a partner, then do the exploration, the consultation, the development – and build the plant. I don’t think it will happen this decade.”
Argentina has been the most liberal in the development of its lithium industry, willing to carve out a broad role for the private sector and foreign investment. Despite the overlay of populist economic policies of past and current Peronista governments, the lithium sector has benefited from a more pragmatic approach marked by a relatively light state regulatory role and low taxes. There is strong interest in promoting lithium as an export, especially considering growing global demand.
Argentina is also one of the few countries experimenting with a new technology, direct lithium extraction. The method could transform the industry, moving it beyond the current process of allowing evaporation for two years to separate lithium from the salty brines. The direct process could recover twice as much lithium and return much of the saltwater to its aquifer.
Argentina’s growing lithium mining industry has its detractors. There are concerns regarding environmental pollution and an unequal distribution of wealth from lithium sales. Some have even argued that the influx of foreign lithium mining companies could be “neocolonialism dressed up as a green revolution.”
Starts and Stops in Lithium-Rich Bolivia
While Argentina and Chile are mining and exporting lithium and tapping the expertise of foreign companies, Bolivia sits on the largest reserves but has little to show in exports. Bolivia under President Evo Morales did make a few efforts to launch the lithium sector, but the country was generally perceived as unfriendly to investors, and especially to Western companies. However, over time it was gradually understood that lithium could provide a new export source, though the preference was to establish a state-owned lithium-to-battery production matrix. That would take the Andean country several steps beyond its traditional role of being solely an extractor of raw materials.
Along these lines, negotiations occurred with Germany’s ACI Systems and China’s Xinjiang TBEA. However, protests erupted in 2019 over demands for higher royalties and better conditions for the country from the two companies. Faced with nationalistic backlash, Morales backpedaled, cancelling the contracts. The president was soon ousted, with some speculation that international actors interested in controlling lithium were involved. Despite that setback, Bolivia did proceed with the construction of a potassium chloride industrial plant and a lithium carbonate industrial plant, both central to the lithium battery process.
Conditions could be changing in Bolivia. Since his election in 2020, President Luis Arce has signaled that he wants his country to join the lithium club, making it “the world capital of lithium.” Arce’s goal is for Bolivia to supply 40% of global lithium by 2030. Bolivia needs two things to achieve that goal: foreign investment and expertise. In 2022, the government has negotiated with a handful of companies, including Russia’s Uranium One, Chinese battery maker CATL, US start-up Lilac Solutions, and three Chinese firms. For Bolivia the potential is there to become the world’s lithium capital. The challenge is reaching a consensus on the correct path for the country, one that can attract and manage foreign direct investment. Thus far, Bolivia’s aspirations have been just that — aspirations. More needs to be done to make lithium and/or battery exports a reality.
A Turbulent Outlook in the Lithium Triangle
Looking ahead, the race to the commanding heights of the green revolution will see Argentina, Bolivia, and Chile more intensively wooed by China, the United States, and other countries. For the lithium triangle countries, hard decisions loom on how to manage this commodity and under what terms. Although the lithium policies of each country differ, all three must consider balancing the needs for economic growth and wealth generation with the environmental impact, the rights of local populations, and how to manage foreign investment.
The global lithium revolution represents both opportunity and risk. Do Argentina, Bolivia, and Chile want to be simply the extractors of a commodity desired by the global economy, as they have been throughout much of their development, or do they want to find competitive niches for value-added goods? The answer is partially reflected in the results: Argentina is growing its lithium industry by tapping foreign expertise and capital (from both the U.S. and China); Bolivia’s state-dominated industry has yet to launch and remains suspicious of foreign involvement; and Chile’s industry risks stalling. For other countries, the excitement of going green is going to run into the reality that while lithium exists in abundance in the Lithium Triangle, it is going to be a complicated process to get it out of the ground and into their cars.
Dr. Scott B. MacDonald is Chief Economist at Smith’s Research & Gradings. Prior to this, he was Senior Managing Director and Chief Economist at KWR International, Inc (KWR). Prior to KWR he was the Head of Research for MC Asset Management LLC, an asset management unit of Mitsubishi Corporation based in Stamford, Connecticut (2012-2015) and Head of Credit & Economics Research at Aladdin Capital (2000-2011) and Chief Economist for KWR International (1999-2000). Prior to those positions he worked at Donaldson, Lufkin & Jenrette, Credit Suisse and the Office of the Comptroller of the Currency (in Washington, D.C.). During his time on Wall Street, he was ranked by Institutional Investor magazine as one of the top sovereign analysts.