Here’s why Australia won’t get knocked off by a South American ‘lithium cartel’
While potential cartel-like collaboration between Bolivia and Argentina on lithium could allow for accelerated production expansions from South America, there are several roadblocks that will likely hinder their efforts.
Right now Australia is the single largest lithium producing country after it surpassed Chile last year.
But the Bolivian and Argentinean governments are reportedly in talks to establish an agreement on lithium, giving rise to the idea of a “regional lithium cartel” not unlike what the large oil producing countries did with the formation of the Organisation of Petroleum Exporting Countries (OPEC).
Bolivia and Argentina, along with Chile, form what is known as the “lithium triangle”, and together account for over half of the world’s lithium supply.
But there are several reasons why their push to control lithium production may not work or take some time to eventuate.
Bolivia is what Henrique Ribeiro — editor, Latin America metals for S&P Global Platts – calls a “black box” because of its very “non-liberal approach to the economy”.
“We’re talking about a very state-centralised economy,” Ribeiro told Stockhead by phone from Sao Paulo in Brazil.
“So even though they have the largest resources in the world, all those resources belong to the Bolivian government and they’re not very interested in allowing foreign companies to go there and exploit that lithium.”
The other problem is the quality of the country’s brine.
Lithium is mined from two main sources — hard rock (hosted in spodumene ore) and brine (lithium-enriched salt water).
The lithium in South America comes from brines, while in Australia it comes from hard rock deposits.
But Bolivia’s brines are particularly high in uranium, according to Ribeiro.
“Amongst the three of them Bolivia has the worst brine because it’s very high in uranium,” he explained.
“So any company that is willing to exploit lithium in Bolivia would have higher operational costs because they would need to separate that uranium, which is a lot higher concentration in Bolivia than Argentina and Chile.”
Bolivia has created a state-owned agency that is investigating ways to cost-effectively mine the country’s lithium.
But Ribeiro says that won’t be a quick fix.
“This will definitely take so many years because they don’t have the technology, they don’t have the structured workforce to develop it,” he said.
“So basically, Bolivia at this point is totally outside the game. It doesn’t mean in the future they won’t be able to participate in this industry, but this would require a totally different approach from the local government.”
Argentina also faces a quality problem in that it can only cost-effectively produce technical grade lithium carbonate and not battery grade lithium carbonate from its brines.
“It’s not that cheap to produce lithium carbonate as a battery grade, which is what really matters to the industry,” Ribeiro said.
“It’s a lot easier in Chile because the quality is a lot better.”
Australian lithium producers also have a bigger advantage than South American producers because their lithium-bearing spodumene ore can be turned into lithium hydroxide much more cheaply and easily.
This gives them a cost advantage of 10 to 15 per cent compared to the largest South American brine producers, according to the Australian Department of Innovation, Industry and Science.
Ribeiro said the industry is moving towards a preference for lithium hydroxide in the coming years due to the new battery technologies that are expected to prevail.
“When we talk about lithium hydroxide production, it makes a lot more sense to produce the spodumene through hard rock mining, which is achieved in Australia, than from brines because you can’t just upgrade directly from the brines to hydroxide,” he explained.
Lithium hydroxide fetches a higher price than lithium carbonate.
Most of the new supply that is coming online in the next couple of years will be mostly from Australia and not South America.
“It’s kind of the consensus that supply from Chile and Argentina is not expected to move forward that quickly,” Ribeiro said.
“There will likely be some expansions, especially in Chile, and in this case we’re talking about expansions from existing projects … but not really talking about new entrants.
“So the supply in Chile and Argentina actually will grow a lot less than it will grow in Australia in the coming years.”
Although the market is in oversupply at the moment, which has weighed heavily on lithium prices, the good news is they shouldn’t “freefall” like they did last year, and they are heading for a rebound.
Ribeiro says prices will likely remain under pressure through to 2020 or 2021, but by no later than 2022 they should be on their way up again thanks to strong demand for electric vehicles.