VINACHEM

During a recent trip to Chile, Argentina and Brazil, market participants and experts voiced their concerns about a certain sluggishness in establishing and enforcing new policies in the continent that could make room for output growth, while also noting there is a big question mark on measures to be taken with changes in administrations.

At the same time, slower-than-expected electric vehicle (EV) sales – and therefore demand for battery raw materials – coupled with years-old investments now resulting in operations coming online and turning the market into a surplus have sent lithium prices plummeting. Fastmarkets research forecasts that downward pressure will last.

Lithium prices poised to continue under pressure from excess supply
Fastmarkets’ benchmark price assessment for lithium hydroxide monohydrate LiOH.H2O 56.5% LiOH min, battery grade, spot price cif China, Japan & Korea was most recently at $12.50-14.00 per kg on Thursday March 7, down by 14.52% so far this year, compared with $14.50-16.50 per kg on December 29, 2023, and 81.72% lower than $70-75 per kg on March 7, 2023.

Meanwhile, Fastmarkets assessed the price for lithium carbonate 99.5% Li2CO3 min, battery grade, spot prices cif China, Japan & Korea at $12.40-14.00 per kg on Thursday. It fell by 13.44% from $14.50-16.00 per kg at the end of 2023 and by 78.54% from $58-65 per kg a year before.

According to Fastmarkets’ latest battery raw materials market tracker, published on Tuesday March 5, the global market is expected to be in a 13,350 tonne surplus this year, growing to a 30,050 tonne surplus in 2025.

But there were recent positive signals, leading Fastmarkets research to forecast hydroxide and carbonate prices to rebound to $18.92 per kg on average during the second quarter, finishing 2024 at $16 per kg. For 2025, the outlook was for an average $15 per kg.

At the center of that surplus are new projects initiating production in the coming months, with a strong concentration in South America. The next four projects on the market tracker’s list, for example, are located in Argentina and Brazil and are estimated to bring more than 100,000 tonnes per year of lithium carbonate equivalent (LCE) to the global market.

The region’s importance is set to increase so much that Argentina is forecast by Fastmarkets research to become the third-largest lithium producing country by 2031, with output rising to 380,003 tpy of LCE from 50,550 tpy last year. Chile would fall to fourth place, with production hitting 345,418 tpy at that time, from 225,000 tpy in 2023.

Chile’s race to prevent growth stagnation relying on heavy state presence
The first country in South America to achieve commercial lithium production from brine at its resource-abundant Atacama salt flat, Chile has comfortably stayed among the largest producers in the world, maintaining second place until last year.

It was then that, in the midst of social turbulence following protests caused by dissatisfaction with public services and general cost of living, Chile announced the National Lithium Strategy. President Gabriel Boric said that the state would oversee lithium exploration.

This meant that both Sociedad Química y Minera de Chile (SQM) and Albemarle, currently producing locally, would have to enter deals with the government to continue operations beyond the expiration of their current concessions (in 2030 and 2043 respectively). SQM has already done so, resulting in a joint venture that will be created with state-owned copper giant Codelco.

But the industry is still waiting on the exact policies under that strategy, such as the list of salt flats to be protected. The government plan is to protect 30% of the country’s salt flats, but there is no clear details for which ones, or which parts of them will have exploration forbidden.

“We were awaiting a definition around November, then at the beginning of this year. Now, maybe at the end of March,” a Chilean market participant said on February 27.

A day later, the country’s mining minister, Aurora Williams told the local press a definition was scheduled for the end of April.

“There are a lot of problems with that, mainly regarding whether private companies will or won’t be able to explore,” a second participant in Chile said. “Some junior companies are researching it currently, and if their parts of the salt flat get protected, this will turn into a huge litigation.”

Company executives and experts all agreed that clarity would be key for Chile to grow its lithium output beyond current projects. They also commented that the upcoming presidential elections in 2025 could show a shift in popular preference from left to right – and with no definitive framework for the national strategy, policies could change again.

“They already lost the bid for a new Constitution. This resulted in loss of popularity too,” a third participant in the country said.

A fourth participant added that it was also unclear what role Enami, the other state-owned mining company in Chile, smaller than Codelco, would have in the policies. According to the fourth participant, the company was also in dire need of new revenue, especially after it put its Paipote copper smelter under care and maintenance in February due to financial hurdles.

For now, Codelco continued advancing in its plans to add lithium to its vast copper asset portfolio. A final deal with SQM is expected to be signed at the end of March; meanwhile, on Monday March 4, Australian authorities gave the final authorization for Codelco to acquire Lithium Power International (LPI).

LPI owns the Salar de Maricunga’s Blanco project, and Codelco holds assets adjacent to it. The agreement will allow exploration at the site in the future, potentially at the end of the decade, but until then the copper giant will be looking for a strategic partner, Fastmarkets has heard.

Argentine prospects clouded by Milei’s promises, macroeconomic fundamentals
While Chile struggles with uncertainty about its National Lithium Strategy and its potential hinderance for fresh investment entering the region, market participants say neighboring and lithium-rich Argentina is a more attractive destination for investment, despite its macroeconomic volatility.

Most recently, China’s Gangfeng Lithium agreed to buy a 15% stake in Lithium Argentina’s Pastos Grandes lithium brine project, worth $70 million.

“The transaction with Ganfeng Lithium demonstrates our long-term commitment to [the Argentine northwestern] Salta [region] and the sustainable development of Argentina’s lithium industry,” John Kanellitsas, Lithium Argentina’s executive chairman and interim chief executive officer, said in an announcement on Tuesday March 5.

Argentina is grappling with hyperinflation – up more than 250% year on year in January, according to national statistics bureau INDEC – and uncertainty regarding newly elected President Javier Milei’s proposal for the adoption of the US dollar as the national currency while abolishing the country’s central bank.

“Investments are going through in Argentina regardless of dollarization of the economy,” a market participant in Argentina said, adding that the framework to invest in the region is more positive now.

Market participants told Fastmarkets that despite macroeconomic uncertainty in Argentina, the country’s legal and political systems have kept the country competitive in attracting investment.

“We have seen the effects of [nationalization] policies in Bolivia and now Chile,” a second market participant in Argentina said. “Argentina is different. We say that our constitution actually protects the development of this industry, because resource ownership is provincial.”

Argentina’s federalist structure gives provinces original ownership of mineral rights, which they can exploit according to their own constitutions. This legislative framework is singled out by the officials as a buffer against resource nationalism, whereby authorities enact policies to restrict private companies’ access to mining resources.

“There have been macroeconomic problems in the country, but our legal stability [on that] has been key. Changing the president does not mean changing the legal framework,” the second participant added.  – Fastmarkets –