As the global race for “white gold” intensifies, the so-called “Lithium Triangle” in South America is taking on increasing importance in the global economy.
The price of lithium is going through the roof, as demand for battery cells far outpaces supply. Spot prices for battery-grade lithium in China — where three quarters of all battery-making capacity is located — have surged more than 600% so far this year, from about $10,000 per metric tonne in January to $62,000 in June, according to Benchmark Mineral Intelligence. Citi Group has forecast that prices will continue to rise as a “structural shortage” of the metal persists, meaning there isn’t enough capacity in the industry to satisfy demand.
The International Energy Agency projects the value of global lithium sales could grow 20-fold between 2020 and 2030, and that is putting huge pressures on the price of many electronic goods, including electric vehicles. Lithium is a critical component of the green energy transition plans of countries like China as well as the EU. Also known as “the new oil” or “white gold,” the metal is used to make the lithium-ion batteries that power electric vehicles (EVs), smartphones, and wearables.
The global race is now on to secure supplies of the white metal, which for the moment China is winning handily. It is the number one refiner of processed lithium and the number one maker of lithium batteries, according to energy consultancy BloombergNEF. “It refines 60% of the world’s lithium, controls 77% of global battery cell capacity and 60% of the world’s battery component manufacturing,” notes a recent report by Gavekal Research. “Of 200 battery mega-factories in the pipeline to 2030, 148 are in China.”
China has also been moving into lithium mining in a very big way. Despite holding only 5.1 tonnes, or 7 percent, of the world’s proven lithium reserves, China is now the fourth-largest producer. It also boasts the world’s largest lithium miner, Ganfeng Lithium Co, which already owns the rights to the world’s largest lithium deposit, in Sonora, Mexico. Gavekal counted six completed or pending deals between Chinese companies and developers of lithium projects in South America, the region of the world with the largest lithium reserves.
Bolivia, Argentina, Chile: The Three Sides of the Lithium Triangle
Bolivia has the largest known reserves in the region (and by extension the planet) with an estimated 21 million tons of the mineral, though it has struggled to find a way of successfully exploiting those reserves. According to the Chilean newspaper El Ciudadano, next year it will open its first lithium plant, on the edge of the Salar de Uyuni, the world’s largest salt flat. Together with neighbouring Argentina (14.8 million tons) and Chile (8.3 million tons), it comprises the so-called “lithium triangle” which accounts for 63% of the planet’s known reserves.
Last week, Ganfeng Lithium announced plans to buy up the Argentinean company Lithea Inc., which has salt lake assets at Pozuelos and Pastos Grandes to the west of the city of Salta, in northern Argentina. Lithea’s first phase of production is expected to reach annual capacity of 30,000 tons of lithium carbonate. According to Bloomberg, Argentina has the world’s largest pipeline of lithium projects and an estimated 19 million metric tons of resources that are yet to be tapped.
Chinese and US companies have been locked in bidding wars for Argentina’s lithium deposits, while Rio Tinto Group and Zijin Mining Group Co. are investing more than a billion dollars in the country.
Argentina’s government, with record high debt levels of $370 billion, equivalent to six times the total debt it owes the IMF, needs the money desperately. Like its lithium-rich neighbors, Bolivia and Chile, it wants to make sure it (and hopefully by extension its voters) benefit from the gathering lithium rush. This is part of a broader trend of growing resource nationalism in the region that has global mining companies and their investors extremely concerned, and which I discussed in my February 11 article, “Resource Nationalism on Rise in Latin America, As Fever for ‘White Gold,’ aka Lithium, Grips the World“.
Toward an OPEC of Lithium?
Bolivia was the first country to nationalize its lithium deposits, which it did way back in 2008. In April this year Mexico, with the ninth largest reserves on the planet, did the same. Now there is talk of creating an association of lithium-producing countries that will function in a similar way to the Organization of the Petroleum Exporting Countries (OPEC) whose creation in 1960 wrested much of the control over global oil prices from the so-called “Seven Sisters” grouping of multinational oil companies.
Due to the sheer size of their deposits, Bolivia, Argentina and Chile could in the future set the price of lithium in the international markets, just as OPEC has done for oil. Argentina and Bolivia already signed a partnership agreement in April this year. Of course, to set up a functional association, the three countries of the lithium triangle will have to overcome certain obstacles, including their markedly different regulatory and ownership models. The exploitation of lithium in Chile lies in private hands whereas in Bolivia it is state-owned and in Argentina provinces have sovereignty over the resources of their territory.
Argentina’s President Alberto Fernández already met up with his Chilean counterpart, Gabriel Boric, on the fringes of the Summit of the Americas in Los Angeles to discuss increasing cooperation for the development of the lithium industry. They also launched a “Binational Working Group on Lithium and Salt Flats”, which will apparently support the development of binational cooperation. Mexico has also shown an interest in joining an “OPEC for lithium”.
“There has been some communication with the president of Bolivia, who in turn has a relationship, like us, with the president of Argentina, which also has lithium, as well as with the president of Chile, with the purpose of creating an association to help us mutually,” said Mexican President Andrés Manuel López Obrador in May.
The Argentinean financial daily Cronista recently reported that Fernández received an invitation from AMLO to visit Mexico City on his return from the Summit of the Americas. There they would announce the, together with their Chilean and Bolivian counterparts, the launch of the “OPEC of lithium”. But according to Cronista, Fernández considered it imprudent to have a stop-off on his return from an event that AMLO was conspicuously absent from. What’s more, as a source of lower quality lithium Mexico would be a second-tier member of any future alliance.
A Convenient Oxymoron
Calling such an alliance an “OPEC of lithium” is, of course, an oxymoron, says the renowned Mexican geopolitical analyst Alfredo Jalife. After all, OPEC is a price-setting cartel for producers of petrol not lithium. But is has been a very effective tool for ensuring sovereign control over oil prices and it remains highly relevant to this day, more than 60 years after its creation. As such, adopting the temporary moniker “OPEC for lithium” represents, if nothing else, a powerful marketing strategy.
Jalife also recommends that each country that joins the association set up its own sovereign wealth fund or bank to manage the proceeds from their lithium sales. They should also denominate their sales in a strong currency but not the dollar, he said. He also had a word of caution for the governments involved: “Do not assume that just because you have set up an OPEC of lithium, you will have free range of action. There are going to be some very powerful reactions from the countries affected.”
Those countries include, of course, China, which already holds huge sway over the global lithium market, as well as its biggest rival, the United States, whose brand “has lost much of its shine in Latin America in recent years,” according to Gavekal Research. “While Beijing courted Argentina and other countries across the region, the US under the Trump administration launched a trade war against it and Brazil.”
But that doesn’t mean that Washington is going to go quietly into the night as China expands its influence in the US’ own direct neighborhood and as resource-rich countries in the region begin talking about setting up a price-setting cartel for one of the most important minerals of the future.
The Biden administration is already stepping up its criticism of China’s growing influence in Latin America, as I reported just a couple of weeks ago. Somewhat ominously, it appears to have chosen the Pentagon as its mouthpiece. In an interview with the Spanish edition of Voice of America, the Commander of US Southern Command, General Laura Richardson, accused Beijing of using “debt trap” diplomacy to expand its power and reach in Latin America.
Richardson went even further during her address last week to the 2022 Concordia Americas Summit in Miami. Perched between Colombia’s outgoing president Ivan Duque’s Ambassador to the US, Juan Carlos Pinzón, and Carlos Vecchio, who claims to be Juan Guaido’s diplomatic representative to the US, the four-star general gave a clunky, meandering speech on Latin America’s economic importance to the US that should chill the spine of any leader of a resource-rich Latin American country:
This region is so rich in resources. Rare earth minerals, lithium. The lithium triangle is in this region. There are a lot of things that this region has to offer. The Belt and Road Initiative — 21 of the 31 countries [of Latin America] are signatories. Over the last five years, from 2017 to 2021, investment of over $50 billion, I think it might be closer to $100 billion of Chinese investment in this region (sic). I think they’re playing chess. Russia is also prevalent in this region and I think they’re playing checkers.
I think they’re there to undermine the United States, they’re there to undermine democracies and they all mean business. Whether they’re playing chess or checkers, they’re there to undermine democracy. And quite honestly, with all the disinformation and the Russia Today Español, Sputnik Mundo, over 30 million followers of Russia were on social media (sic). I mean this is very concerning. We have a lot of important elections coming up or just happened and we have to continue to stay engaged and concerned with this region.
It’s not just tough talk from the US’ top brass that should have lithium-rich countries in Latin America concerned. In June, the US government signed a “minerals security partnership” (MSP) with some of its strategic partners, including the European Commission, Canada, Australia, Japan, the Republic of Korea and the UK. In a press statement, the US Department of State said:
“The goal of the MSP is to ensure that critical minerals are produced, processed, and recycled in a manner that supports the ability of countries to realise the full economic development benefit of their geological endowments.”
The US describes the partnership as a “friendly coalition” of countries that are committed to “responsible critical mineral supply chains to support economic prosperity and climate objectives.” In what is probably a more fitting description, Reuters dubbed it a “metallic NATO.”