Can South America Take Advantage of the Lithium Boom?

Commodity prices have gone haywire lately, but lithium is one that shot up and stayed there. The price of lithium carbonate, a key component of many electric batteries, hit an all-time high in April and remains almost 10 times what it was two years ago, with a global weighted average price of around $60,000 per metric ton. Demand is being driven by the sudden shift toward electric vehicles and is expected to rise from roughly 500,000 metric tons in 2021 to 3 or 4 million metric tons in 2030. That, coupled with a structural deficit in supply that looks set to last for years, has sent countries and carmakers scrambling to secure resources.

This ought to be good news for South America. The salt flats of the so-called lithium triangle—made up of Argentina, Chile, and Bolivia—contain roughly half the world’s known lithium. Last year, Argentina and Chile produced about 30 percent of the world’s lithium, while Australia produced most of the rest. Lithium is typically extracted from the South American salt flats by pumping brine into ponds and processing the lithium salts that crystallize once the water has evaporated. It requires time and investment to set up, but thereafter production is cheaper than the hard-rock mining practiced in Australia.

Each of the countries in the lithium triangle has taken a very different approach to the industry, with Bolivia’s state-controlled project on one end of the spectrum, Argentina’s liberal stance on the other, and Chile somewhere in between. But it’s far from clear that any of them will be able to quickly ramp up production to ease supply shortages—or that their governments will reap windfall revenues while the high prices last.

Start with Chile, the world’s second-largest producer of lithium. Chile produced roughly 150,000 metric tons of lithium carbonate in 2021—more than a quarter of global production. It is commonly seen as the most neoliberal economy in South America, but this light-touch regulation does not extend to lithium, which the government considers a strategic resource. This means the owner of a mining property in Chile does not own any lithium found there and would need to apply for a special license to extract it—something no private company has yet been granted. In practice, companies have to lease from the state, as only two lithium mining companies—SQM and Albemarle—have done. No new mines have been opened for 30 years.

The Chilean state will benefit from the current high prices, as its contracts include royalties of up to 40 percent. But expansion plans have been complicated by resistance from local communities, which object to the intense use of water in a desert region, and a series of scandals, some of which involved SQM and Albemarle allegedly extracting more brine than allowed by their state-set quotas. Given the political sensitivity of pumping more brine, the companies have instead focused on extracting lithium more efficiently from the same amount of liquid. Production has grown—but not as fast as it could have if they were pumping more brine, too.

Meanwhile, Chile’s new left-wing government, led by President Gabriel Boric, has focused on creating a new state lithium company. The idea is to extract lithium in alliance with private companies, growing the state’s role in the sector and paying greater attention to the demands of local communities and the salt flat ecosystems. But any joint venture will be long in the making. “They need to find a partner, then do the exploration, the consultation, the development—and build the plant,” said Martín Obaya, the director of CENIT, a research group at the National University of San Martín in Argentina. “I don’t think it will happen this decade.”

Those concerned about the growing role of the state in Chilean lithium mining see Bolivia as a cautionary tale.

Those concerned about the growing role of the state in Chilean lithium mining see Bolivia as a cautionary tale. Bolivia has more lithium resources than any other country, but 14 years after the state declared its intent to industrialize its salt flats, large-scale production has yet to begin.

YLB, Bolivia’s state lithium company, has dug ponds to pursue the same extraction method as Chile and says it will produce 15,000 metric tons of lithium carbonate a year starting in 2023. That would be a little less than 3 percent of the global production in 2021. But more delays seem likely, since Bolivia has yet to start building a required water treatment plant. Then there are doubts that the completed plant will hit its capacity. Juan Carlos Zuleta, a lithium analyst and former executive manager of YLB, says the lithium recovery rate via this method in Bolivia is less than 10 percent—compared with 35 or 40 percent in Chile.

There are technical reasons for this: Bolivia’s salt flats have low concentrations of lithium, high levels of impurities, and a rainy season that lasts several months of the year—all of which complicate the proposed method of extraction. This might explain the change of strategy at YLB, which is now considering direct lithium extraction (DLE) technologies that pull lithium straight from the brine, potentially without the need for solar evaporation. But DLE technologies are relatively unproven. There are just five operations using DLE technologies at a commercial scale: one in Argentina and four in China. None use DLE alone but rather combine it with solar evaporation.

It’s unclear whether that model is replicable in Bolivia, said Daniel Jimenez, a partner of iLiMarkets, a lithium consulting firm based in Chile. “But what would need to happen for there to be production by 2030? One of the DLE technologies would need to work, and work well, and then be deployed relatively quickly. And [everyone involved] would need to reach an agreement on how to split the margins.” Jimenez, for one, is skeptical.

In sharp contrast to Bolivia, Argentina has taken a liberal approach to developing its lithium industry, with little state involvement, low taxes, and permissive regulation. There has been a frenzy of investment from international companies ever since lithium prices began to climb in mid-2020. Two projects are already producing roughly 40,000 metric tons of lithium carbonate, a little under 10 percent of global production; another is due to become active before the end of the year; and almost 40 others are at some stage of development. “The combination of the situations in Chile and Bolivia is creating great expectations in Argentina,” Obaya said.

These projects are being pushed by investors despite a complicated macroeconomic situation, with annual inflation around 70 percent. But analysts who spoke to Foreign Policy reckon they will be able to endure the turmoil. As the sector is export-oriented, it doesn’t depend on internal demand. And there is a broad political consensus encouraging mining in Argentina. The government needs dollars to replenish its international reserves and make debt payments, so it is creating special rules for export sectors—for example, by helping them to access foreign currency. “In any case, the mining industry is used to operating in difficult environments,” said Lukasz Bednarski, a battery materials analyst and author of a book about the lithium industry. “You can’t do it where you want—you do it where the resource is.”

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The next few years will see a small number of new projects in Argentina and, potentially, the expansion of existing ones in Argentina and Chile. In the second half of the decade, more projects may become operational in Argentina. But for new, state-led operations in Chile to arise, and for Bolivia to become a truly significant producer in the market, 2030 and beyond is more realistic.

That raises the question: How long will high prices last? Jimenez breaks the projections down into five-year periods. For the next five years, prices will stay high as demand outstrips supply, which will remain almost unchanged because of the time it takes for new mines to be set up. Demand will remain strong in the following five-year period, but as more supply becomes available around the world, the fruit of the current influx of capital, prices will come down. But the big fall in price will happen more than 10 years from now, when still more new mines come online—and lithium recycling kicks in. Recycling involves shredding old batteries, separating the materials, and putting them into new ones. For now, there still aren’t many used batteries, but ones sold today will be recycled in the 2030s.

And there’s another risk for the lithium triangle: The longer prices stay this high, the more lithium resources are being discovered and becoming profitable to extract. Many resources are already being developed in Brazil, North America, and parts of Europe. Governments and carmakers are keen to bring mining closer to home to secure their supplies. The global significance of the lithium triangle will shrink.

Still, the lithium triangle retains certain advantages. It is the world’s cheapest source of lithium carbonate, which is favored by the Chinese battery producers that dominate the market. And brine extraction is debatably greener than hard-rock extraction. It demands more water and has a larger physical footprint, but it uses less harmful chemicals and, since it relies on solar evaporation, less energy. Such considerations have become increasingly important, especially for European companies.

“The lithium triangle will remain extremely important,” Bednarski said. “It will take perhaps decades, definitely more than five years, for other regions, besides Australia, to displace it.” That means the window of opportunity is still open for Argentina, Bolivia, and Chile. The question is how adroitly their governments manage the extraction of lithium—whether they get the most out of it for their people or simply stifle it.