Chile on the hunt for lithium successPublished on 13 November 2021
The South American country has one of the most prized products of the moment under its soil. In this article, we show how it has been taking advantage of it and the opportunity it has in front of it.
The renewable energy revolution has transformed the raw materials market. Along with the conductors needed for wiring and circuits, the demand for lithium as the main input for the manufacture of batteries has skyrocketed. For this reason, the Latin American countries located in the so-called Lithium Triangle (Argentina, Bolivia and Chile) have launched plans to make use of lithium. In the Chilean case, the government has announced an auction process to allocate deposits for exploration and extraction, with an estimated availability of 400,000 tons.
These contracts will be divided into five quotas of 80,000 tons, with a term of seven years to explore and another 20 years to produce. This will give a boost to the exploitation of the 9.2 million tons of metal reserves in Chile, which are the largest in the world. Currently, Australia is the country with the highest production, but promoting exploratory activity will make it possible to evaluate the feasibility of using them to reach the highest extraction figure in the world. This would also imply an eventual increase in the number of participants in the industry, currently dominated by two companies.
The timing is optimal for such an announcement. After the sudden drop caused by the pandemic last year, prices and demand have risen steadily. The following graphs, which show the evolution of prices and the quantity of lithium carbonate exported from Chile between January and September, clearly show the trend.
Both demand for automobiles and increased investment in solar and wind energy projects have allowed for a sustained recovery in prices in 2021. Alongside this, what also seems to be evident is a sustained rise in the quantity demanded, in view of the September peak.
Pressure to meet carbon neutrality targets will drive lithium demand. This is because solar and wind generation require batteries to extend the availability of electricity as much as possible at night or when wind speed is insufficient. Also, as soon as the chip shortage problem is overcome, the automotive industry is expected to experience a rebound that will generate additional upward pressure.
As for the destinations to take advantage of, these are those with developed technology and automotive industries. Specifically, Asia and the United States are the main places, although there are also opportunities in Europe, where there are niches in the manufacture of generation and storage components and high-end vehicles. Due to the high specialization and scale required, the list is unlikely to vary greatly, even in terms of shareholdings.
The following table corroborates the above premise, which could only vary if events such as a leap in equipment production in the United States are achieved through greater government incentives.
There is much to take advantage of and little time to lose if we intend to remain competitive in attracting capital for the development of the mining industry and its direct and indirect beneficiaries. For more information on Chilean lithium exports, please visit Veritrade's website. Request your free trial at https://bit.ly/VRTFreeTrial.