Can Chile Build a Lithium Value-Add Industry?

Chile has the world’s largest lithium reserves, but it has been slow to capitalise on new demand. Although the country has remained a top producer, it has been losing ground to global competitors for several years. 

As part of Chile’s lithium strategy, the country will look to boost production through its two current producers (SQM and Albemarle), encourage new producers through tenders of additional quotas, and create a state-owned lithium company similar to “Codelco”.

The last part of the strategy involves encouraging companies to create value-added lithium products in the country. That way, the country not only ships raw product but also captures the benefits of adding value to the natural resource.

New Tender starting August 31^ST

Corfo, the country’s development agency, will open a tender to invite companies to submit proposals on how they could add value to lithium products. This could include precursors and/or cathode material, lithium cathodes, lithium battery components, and lithium metal, among other applications.

The tender will start on August 31^st and will run for 365 days or until the quota has been filled. All tender documents will be published on this day.

Qualified companies may apply to access the lithium carbonate and lithium hydroxide produced by SQM at discounted rates. Supply will be guaranteed until 2030, when SQM’s contracts with Corfo end.

The discounted prices will correspond to the average “free on-board price” calculated based on 20% of SQM’s export volume, considering the lowest price within the previous six months.

See the announcement here.

Overview – Previous Attempts

Corfo has previously awarded contracts for a total investment of USD$754 million. The companies at the time were Molymet, Sichuan Fulin Industrial Group, and a joint venture between Samsung and POSCO. The companies were to produce battery components in Chile using discounted lithium provided by Albemarle.

The deals were extremely positive for the country as they would kick off a value-add industry in the country. However, the deals never came to fruition.

At the time, the supply of lithium from Albemarle was at risk over disputes with the government about the price it would receive from battery makers. Also, technological hurdles were delaying increases in Albemarle’s production, and the company did not produce lithium hydroxide in Chile, the type required by POSCO-Samsung for their batteries.

The Chilean government projected that Albemarle would be producing 64,000 tonnes of lithium by 2020, with 16,000 tonnes of that sold for discounted prices. The issue was that the three winning projects required 28,496 tonnes of lithium which was almost twice the amount Albemarle was required to supply.

In addition, Albemarle applied in March 2018 to increase its export quota to as much as 145,000 tonnes of lithium annually. The Chilean regulators rejected this as they believed the mining company failed to prove it had the technology necessary to produce the extra lithium without straining water resources.

Where are SQM and Albemarle now?

Albemarle and Corfo have settled their differences on prices. Albemarle inaugurated its US$500 million La Negra III/IV plant this last June, which is billed as one of the most modern chemical conversion plants in Latin America. It will help the company reach its goal of producing approximately 80,000MT of lithium carbonate per year.

As part of the investment, a new thermal evaporator was installed, which reduces the amount of freshwater used per metric ton during the process at La Negra. The technology is expected to reduce water consumption by up to 30% per metric ton.

The newest tender will take lithium from SQM’s facilities. Corfo previously had a dispute with SQM over royalty rates which was settled in January 2018. As part of that agreement, a clause was included obligating the company to sell lithium at a reduced price.

SQM has started increasing production to 180,000 mt/year of lithium carbonate and 30,000 mt/year of lithium hydroxide, a threefold increase from its output in 2018. Earlier this year, the company announced a new expansion which will increase production to 210,000 mt/year of lithium carbonate and 40,000 mt/year of lithium hydroxide starting in 2023.

Conclusion

A couple of years have passed, and some tough lessons later, it seems the Chilean government has the pieces in place to make the tender happen.

Contractual issues between producers and Corfo are settled, so there is now a guaranteed supply for these tenders. In addition, both SQM and Albemarle have increased production from a few years ago, which means the overall supply to potential winners is larger than before.

Chile understands that to fully benefit from its lithium, it needs to have a value-add industry that can increase jobs, investment, and tax revenues for the government.

From a manufacturing point of view, it could make sense for companies to invest in Chile, where before it was easier to ship the raw product to Asia, where facilities were already operating.

• Future manufacturers will benefit from Chile’s growth in sustainability. It can tap into a robust renewables market. Manufacturing close to production will also create a more sustainable supply chain. 
• Chile has a well-educated population and reasonable labour costs making it a perfect location for advanced manfacturing.  
• There is a push in North America to have access to the minerals and battery technology needed to produce batteries. Chile has a great relationship with the United States who wants to diversify where these critical systems and minerals currently come from. 
• Chile has a huge umbrella of free trade and double taxation agreements with countries from across the world – including China. This will make it easier to manufacture, sell, and ship goods to wherever they are needed in the world. 

The Corfo tender could help start the growth of Chile’s value add lithium industry. There have been false starts, but the world is now in a different place from where it was in 2018. Could this be the time for Chile to kick-start its value add industry? 

Ax Legal is an advisory firm that works with foreign companies in Latin America. Our team of legal and commercial advisors have a distinguished track record of helping foreign technology and services companies to grow and operate in Latin America. Over the years, we have worked with starts up, mid-size businesses, and publicly listed companies. The one common factor that connects our clients is that they are leaders in their field, providing innovative technologies and services to the industrial sectors.

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