Lithium in Latin America*
May 28, 2014
About a month ago I was interviewed on lithium in South America by Industrial Minerals, a leading specialized magazine from the United Kingdom (UK). Here is the complete transcript of that interview.
Published: Monday, 28 April 2014
As lithium developments continue around the world, IM caught up with Juan Carlos Zuleta**, a Latin America economist, to find out the latest from South America.
What would you say are the main obstacles facing lithium developers in South America?
Hurdles vary by country. Let us start with Chile. As I argued almost two years ago in a reply to a commentator of a report on lithium including my points of view published by UK newspaper, The Guardian, most predictions about lithium availability take Salar de Atacama’s production for granted.
Indeed, without significant production from the driest desert on earth, none of them make any sense. I then went on to ask myself: but what if Atacama fails to deliver the lithium necessary for all the different competing uses in the following years? And my answer was: I have reasons to believe that that could in fact be the case.
This has nothing to do with reserves. It pertains to availability of a key element in brine production nowadays: water. This point was already raised in November 2010 by an executive of Sociedad Quimica de Minerales (SQM) at the Senior Expert Group Meeting on Sustainable Development of Lithium Resources in Latin America: Emerging Issues and Opportunities, held in Santiago, Chile.
According to SQM, to evaporate two litres of brine, 100 litres of water from the borders of the salar are required. To this, we must add the regulatory measures in Chile that consider the lightest metal on earth as strategic limiting lithium concessions to only two operators, one of which (SQM) appears to have already reached the maximum possible level of extraction before it can affect the agricultural activities occurring on the borders of the salar.
Indeed, between 2012 and 2013, the Chilean government tried to expand lithium production through the so-called Special Lithium Operation Contracts (CEOL, in Spanish).
Unfortunately, this process was plagued with errors and accusations of conflicts of interest (involving precisely SQM) that in the end forced the government to abort it.
Regarding Argentina, it is well known that until recently this country was thought of as almost the “promised land” for lithium. As I argued in a 2011 article, however, everything changed dramatically once the government decided to apply exchange rate controls to all mining operations in Argentina.
The situation now is that most - if not all - mining operations have completed their exploration and pilot phases of development and are preparing to start producing lithium. Chances are that they won’t produce anything unless those exchange controls are lifted, however. In this connection, I have just learned from a reliable source of information that many international companies operating in the Argentine Puna will put on hold their production plans until a new political situation is visualised in Argentina. That could only happen after presidential elections and an eventual change of government in 2015.
Lastly, as I have written extensively over the last four years or so, Bolivia has missed a golden opportunity to become a lithium superpower following a failure to come up with a plausible technical approach to produce lithium carbonate on its own after six years of unfruitful experimentation.
In sum, South America appears to have entered a sort of conundrum of which nobody knows it will be able to get out in the following three to four years, which leads me to forecast a virtual stagnation of lithium production from brine in the world in that time frame. Under these circumstances, Australia will eventually consolidate its leadership in the lithium market and Canada and other countries (possibly Serbia, the US, China?) are likely to emerge in the years to come as the new reliable sources of lithium (albeit mostly mineralised) on the planet.
You have said in the past that you believe Japan will become more involved in the lithium resource market, are there any indications that this is happening?
Not really, the only visible Japanese company with a significant investment in the lithium industry nowadays is Toyota, through its subsidiary Tsusho, in Salar de Olaroz, Argentina.
At first sight, this move seems to be in contrast to what Toyota has been saying all along with respect to completely electric vehicles (EVs). However, Toyota´s business strategy with this regard consists of three parts: one, prepare for the transition to electric propulsion, in which case it makes sense for the Japanese motor giant to invest in lithium (as part of a long-term perspective); two, delay as much as possible the up-coming EV revolution so as not to kill its hybrid Prius, which explains why Toyota doesn’t like (at least in the medium term) pure EVs; and three, go beyond lithium, which clarifies Toyota’s recent inclination toward fuel cells.
Lastly, it remains a bit of a puzzle why other Japanese companies heavily involved in both Li-ion battery manufacturing (an argument that can be extended to electric car production as well) have not yet shown much interest in ensuring access to an adequate amount of lithium resources in different parts of the world.
What about the current supply/demand situation and what does this mean for would be developers of lithium in South America?
An interesting upward trend for battery-grade lithium carbonate and lithium hydroxide prices is beginning to emerge which might be an indication of excess-demand for lithium in the near future.
This could be of course exacerbated if Elon Musk, CEO of Tesla Motors, project to build the world’s largest Li-ion battery in North America is crystallised in the short term. But, in general, the horizon for junior lithium developers in South America doesn`t seem really bright unless they bet on production of high-purity lithium compounds, a task for which they are not likely prepared at the present time.
So perhaps in order to survive some of them may be forced to get involved in strategic alliances with bigger partners - either in the lithium industry as such or in the downstream of the lithium value chain.
Which South American country has the opportunity to exploit the most lithium resources? Is it doing so? If not, why not?
After having realised that the lithium industry in South America is indeed confronting serious problems right now, I am hesitant to suggest which country would have an unambiguous competitive advantage to exploit the most lithium resources in the short or medium term.
Nevertheless, there are reasons to believe that Chile still has the opportunity to increase its levels of production so long as it is able to put together a plan to recover its previous leadership of the market. After all, it is there where the most high-concentration lithium reserves are deposited and it is there where the most lithium is extracted from in South America. Time will tell, though, whether the up-coming government understands the new market conditions and acts accordingly.
Can South America maintain its crown as lowest cost-per-tonne producer?
The answer is a definitive no. Things have changed since the times South America became the lithium king as the lowest cost-per-tonne producer. In this sense, I foresee a situation in which the three countries, namely Chile, Argentina and Bolivia, forming the so-called lithium triangle, will have to develop a rather combined strategy of production where solar evaporation co-exists with other more sophisticated and costly methods of lithium extraction.
Could you comment on the recent Tesla news?
In recent times I have written extensively on Tesla Motors. Overall, my views have favoured a positive development of a start-up company that is beginning to change the whole spectrum of what could be called the new lithium economy in the world.
In this connection, my findings have been astonishing. First, following my observation about nine months ago, that Tesla’s Model S had become a threat for Toyota’s (TM) luxury hybrids (Lexus), I have since shown in my latest research that this can be extended not only to all luxury hybrids but also to all luxury internal combustion engine (ICE) cars of similar price to the Model S in the US market for the period January 2013-March 2014.
Second, I have also discovered that, during the period January-November 2013, Tesla Motors consumed 2,090 tonnes of lithium carbonate equivalent (LCE), which amounted to 72% of all the lithium required for the production of Li-ion batteries used by all the plug-in vehicles commercialised in the US and 68% of all the lithium required by all the hybrids and plug-ins sold in the same market.
Assuming a lithium global demand of 168,000 tonnes for 2013, Tesla’s lithium consumption that year would have been 1.24% of the world’s lithium consumption. Hence to materialise its prospects to produce 500,000 EVs by 2020 in the US, Tesla would alone require between 40,800 and 59,442 tonnes LCE, which translates into between 24.29 and 35.38% of all LCE consumed in the world in 2013. These numbers were based on information on lithium content in Li-ion batteries using a Li-Ni-Co-Al chemistry as suggested by Argonne Laboratory.
Third, after reviewing the scientific literature on disruptive innovation as applied to electric cars in general and Tesla’s Model S in particular, I have argued in a recent post that Clayton Christensen’s approach to this issue may be much more powerful than what most critics would believe, concluding that Tesla’s Model S may indeed be considered a disruptive innovation which in turn led me to establish also that Tesla Motors is a disruptive company. This, in essence, means that it is beginning to change the whole automotive industry with enormous implications for the lithium value chain.
Lastly, in light of my previous comments, I am now of the view that Tesla Motors is indeed giving lithium and lithium producer countries (in particular, Bolivia, Chile and Argentina) a last chance to assume the challenge of being part of the “new way of doing things” in the world that we can foresee for the coming years.
*The interview can also be found at the original web site where it was first published: http://www.indmin.com/Article/3334713/Search/Results/Lithium-in-Latin-America.html?Mode=0&OrderType=1&Keywords=lithium+in+latin+america.
** Juan Carlos Zuleta is a Latin America economist.
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