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Lithium Can Play a Role in Integrating the Americas

A top investment theme for Latin American real estate is that the Americas will integrate in order to create a closed supply chain to counterbalance China’s. In the case of lithium, China contains only 6% of the known reserves, but controls the majority of the processing and consumption of the mineral vital to the production of batteries. As a result, the top 10 battery manufacturers are located in Asia. Latin America possesses 65% of the known lithium reserves and is flexing its muscles as of late given the 11-fold increase in lithium prices over the last three years.

lithium batteries and lithium

Global Lithium Reserves and China’s Stranglehold

One way China has made itself indispensable in the global supply chain is by dominating strategic and rare earth mineral production and processing. China controls 69% of Nickel processing production, 75% of cobalt, and 44% of lithium. This is remarkable considering that it is not a mineral rich country. China has won through hard-nosed diplomacy and cutting deals with nations. Meanwhile, American diplomacy is almost excusive focused on pushing social agendas and other trivial matters.

China controls nearly half of global lithium production yet only contains 6% of the known and reported reserves of the mineral. I say “known and reported”, because pinning down actual reserves is a difficult task. According to a US Geological Survey, there were 89 million tons of lithium reserves in 2022, up from 53 million tons in 2018. That’s a 41% increase in only 5 years.

Lithium Reserves Globally

An explanation for why new reserves are being found is that the price of lithium has soared 11-fold in only two years. The price in 2022 peaked at $70,000 per ton, up from $6,000 per ton in March, 2020. As of May, 2023, lithium was trading at around $32,000 per ton. In 2023, the price for lithium has retreated due to a slowdown in EV purchases. 80% of lithium goes towards battery production.

Lithium prices over time

Latin America and Lithium

Latin America is blessed with abundant lithium. 65% of known reserves of the mineral are located in Argentina, Chile and Bolivia. Collectively, they are known as the ‘lithium triangle’.

lithium triangle
Lithium Triangle in South America

In terms of production, the region is responsible for about a third of global production, thanks in large part to Chile’s mining industry. Australia is a major producer and has four lithium processing operations ongoing. Argentine and Chile each have two brine processing operations to extract lithium. China is third in processing of the mineral inside of the country, but it controls and owns the majority of processing facilities globally and dominates the production and consumption of the mineral.

top lithium producing countries

America contains vast lithium reserves and they remain largely unexploited due to aggressive environmental regulations. Its EV manufacturers must therefore rely upon foreign manufacturers for critical components, including batteries. The top 10 EV lithium-ion batter manufacturers are all located in Asia.

There are rumors of an OPEC like cartel being formed, centered in Latin America, in order to control the price of the mineral and provide leverage to insist batteries and components be produced in the lithium-rich nations. The arguments for this move are obvious, and if successful would lead to many positive developments for Latin America, on several fronts. Mexico and Chile have nationalized their lithium reserves in 2022 and 2023, and Argentina seems poised to do the same soon.

Latin America has a very poor track record with nationalization. This historical reality is exacerbated by the fact that the countries (i.e., Mexico, Chile and Argentina) who are busy pushing the cartel idea forward are now governed by left-wing governments. These types of governments tend to pillage profits, destroy value, and exchange appointments for political favors. It isn’t all together clear that lithium is a strategic enough of a resource to permit an OPEC like cartel to form. Oil is the substance that makes the world economies turn, but lithium is better defined as a specialist chemical. The moves to nationalize reserves are likely to steer investment to other nations to build up their lithium processing capabilities there, another potential setback to the top-down and politician-led approach.

Nationalization can work, it doesn’t have to end in misery. Indonesia is the world’s largest producer of Nickel, and recently banned the export of the mineral without processing occurring in-country. Shortly after the announcement, $30 billion of Chinese investment flooded into the country to build processing and manufacturing capacity. Indonesia’s first battery plant is nearly complete and is expected to deliver its first battery sometime in 2024. The EU has taken them to court and placed retaliatory tariffs on exports to Indonesia, but these measures will pale in comparison to the gains generated.

The Endgame

There are two likely scenarios that could play out, as it relates to Latin America, with the shifts occurring in the global lithium production and processing ecosystem.

The first is, China captures even more lithium capacity and control in Latin America. This is the most likely scenario, given how asleep at the switch Washington DC is on the matter, and the effectiveness China has had to date in the region. China’s Ganfeng Lithium Co. recently purchased a major concession of lithium from Mexico’s left-wing government. This concession sale occurred prior to Mexico’s reserves being nationalized in 2022, so Mexico is in a quandary as to how to handle that sale. Argentina is taking in the most foreign investment to expand its lithium capacity and most of that $8 billion of projected investment capital is coming from China. Chile has accepted a $290 million investment from BYD this year, a major Chinese EV battery manufacturer.

A cartel forming for lithium between the nations could frustrate China’s ambitions in the region, somewhat. It’s possible the countries do what Indonesia did and thus unlock large flows of further Chinese capital to build processing capacity in the region. China’s preference will always be to extract and bring the minerals to its own country for processing, so creating leverage is the only way to achieve the outcome desired with China. Another threat is that Washington DC wakes up and begins to pull levers of power to change the calculus for industry participants. It has many levers it could pull to change the battlefield, I may write about this in the future.

The second scenario is lithium becomes a Harvard case study example of the integration of the Americas. Mexico, who normally focuses the bulk of its diplomacy on engaging with America and Canada, has in this instance enthusiastically engaged its neighbors to the South. Mexico is in a good position to convince and drive integration between the lithium-rich nations. One can envisage automobiles assembled in Mexico, for shipment to America and beyond. The EV batteries coming from South American nations, under long-term purchase contracts, managed by the Mexican assembler.

My money is on China winning this struggle, but only because America has yet to show any resolve to pull any levers of power to change the status quo. Let’s see what happens.




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