Chile has decided to take control of the lithium industry in a bid to develop its vast resources of the metal key to the production of electric car batteries.
However, some analysts believe that the strategy presented on April 20 will have the opposite effect and will frighten investors, especially due to a series of technical and political challenges for the realization of state production of "white gold", world media write.
The threat of increasing competition
The move to introduce greater state control over key lithium-related projects could drive commercial investors away from Chile in favor of Australia, Argentina and several African countries, The Financial Times reported.
Chile's two existing lithium groups, US-based Albemarle and Chile's SQM, as the world's two largest producers, could face a radically different investment environment in the country with the largest global reserves of the metal.
The plan for new state involvement announced in April by leftist President Gabrijel Borić proposes private-public partnerships for the development of resources owned by Santiago with the option of not changing current contracts. However, according to the Financial Times, the plan appears to have spooked investors, and the value of the country's two lithium companies fell by a total of $8,5 billion by early May.
Analysts say a failure to capitalize on the industry's boom means Chile will fall from the world's second-largest lithium producer last year to fourth by 2030 behind China, Australia and Argentina, with its share shrinking from almost a third to 12 percent.
The threat of increasing competition will be felt more acutely after, the London paper points out, lithium prices have fallen from $80.000 to below $30.000 per ton this year as weak Chinese demand for electric vehicles has met with a greater supply of raw materials.
Given that alternative supply will flourish in Australia, Canada, the US and Argentina, and uncertainty about the longevity of the lithium expansion while, according to the paper, work continues on alternatives such as sodium-ion batteries, the West's need for Chilean supplies is not assured.
However, the government's plans still lack details, and the official proposals will have to go through Congress, where Borić does not have a majority, so it is likely that the lithium package will undergo changes, assesses the Financial Times and adds that some experts believe that the metal will still be rare for at least another decade. due to the speed of transition of electric cars".
Political and technical challenges
While Chile's plan to take control of its lithium industry has caused global shockwaves, the country's production of the metal used to make batteries for electric vehicles is likely to take years given a number of technical and political challenges, Reuters writes.
Borić emphasized that he will gradually nationalize the lithium industry in the country that has the world's largest reserves of the metal, the agency points out, adding that the plan relies on negotiations with lithium producers, public-private partnerships with technology companies, tense negotiations with political rivals and the creation of a national company. for lithium.
However, analysts believe that all this could take years, Reuters points out, adding that Chile's divided Congress has already distanced itself from a large part of Borić's progressive program while the government needs the support of opposition parties.
According to the statement of the Minister of Economy Nicolas Grau (Nicolas), the government wants to start negotiations with the current producers by the middle of the year in order to reach an agreement before the end of Borić's mandate in 2026.
SQM and Albemarle, the only two companies currently mining lithium in Chile, have held preliminary meetings with the state development office to discuss the government's plan. Still, Reuters pointed out, full cooperation from existing lithium producers is unlikely, and Albemarle has already signaled it will keep its contract unchanged until it expires in 2043.
Some analysts also warn that the most complicated element of Borić's plan relates to the creation of a national company, since it requires legislative support. The key role in the new state plan for lithium appears to be played by the Chilean company Codelco (Codelco), the world's largest copper producer, which has no experience in producing the white metal.
Despite Chile's leading role in global lithium production, "an effort to establish state control over strategic projects" could strengthen the role of Australia and Argentina "which have demonstrated greater regulatory certainty and less risk of resource nationalization," the JPMorgan report said, noting that Argentina currently has more lithium projects in the pipeline than any other country in the world.
The search for an alternative
Although lithium is still important in today's market, it is by no means a guarantee of a safe future in terms of battery production for electric cars, writes Vostrit journal (The Wall Street Journal) with the assessment that the management of the economy by politicians is never a good idea.
After announcing on April 20 that his government would nationalize the lithium industry, Chilean President Gabrijel Boric called the country's vast reserves "the best chance we have for transitioning to a sustainable and developed economy" in his address to the nation.
However, despite the fact that Chile has one of the world's largest reserves of lithium, prices of the "white gold" have fallen by about 70 percent since November, mainly due to a lack of demand in China, the paper wrote, noting that the search for lithium's replacement is underway.
The Wall Street Journal points to a Thomas article from November, which argued that industrial demand combined with "lithium extraction and safety issues are driving markets to find alkaline-metal-independent batteries."
Among them are "sodium-based battery technologies," through which only "a few ventures threaten to displace lithium entirely" for use in rechargeable batteries, the Wall Street Journal reports, concluding that the idea that humanity will be content with limitations on lithium production defies experience.
Another problem is the unlikely assumption that government ownership is the best way to capitalize on the need for lithium. The question is how excited investors will be about taking risks with a state partner that has the final say in management and keeps most of the profits, the paper points out, concluding that much will depend on alternatives for private capital.
Possible benefits from the role of the state
Although private investors are wary of plans announced in Chile last month for greater state control of lithium production, a greater role for the state may still help solve some of the problems that have so far held back Chilean lithium, which is cleaner and more profitable than hard rock compounds extracted elsewhere. in the world, according to Bloomberg.
Chile's most important export, copper, has seen production rise in the five decades since Boric's ideological predecessor, Salvador Allende, nationalized the industry under the Kodelko company. Production rose from about 686.000 metric tons in 1970 ahead of the state takeover to 5,7 million tons in 2020, when Chile became the world's largest copper producer with a 28 percent market share.
Whether Chilean lithium will boom or bust will most likely be determined by tax policy, not state ownership, Bloomberg estimates, noting that the private capital that has come into Chile's copper sector in recent decades has been attracted by the lowest rates of license fees that have made the country a very attractive place. for investment.
The latest version of the government's plan for the lithium industry, according to Bloomberg, contains much lower tax rates than proposed in previous proposals.
Chile's lithium sector could even benefit from a greater role of the state, and there is no reason why Chilean history should not repeat itself, Bloomberg concluded, adding that a public sector that competes and cooperates with the private sector can often be a healthy way to ensure abundant flows of basic commodities.
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