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Lithium nationalism is taking root in the richest region

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(Bloomberg) – Politicians in Latin America, a region that accounts for more than half of the world’s lithium resources, seek to increase the role of the state in an industry that is crucial to turning the world away from fossil fuels.

In Argentina, state energy companies are entering the lithium business as authorities make an offer to develop downstream industries. In Chile, a top presidential candidate wants to do something similar just as the nation drafts a new constitution that may lead to stricter rules for miners. In Mexico, the government is studying the possibility of nationalizing lithium prospects.

To be sure, no one in power is talking about expropriating production assets, and much of the anti-investor rhetoric in Chile comes from opposition groups. Still, by exacerbating inequalities and exposing supply chain vulnerabilities, the pandemic is fueling resource nationalism that could lead to less favorable conditions for producers just as they expand in a nascent lithium-ion battery boom. .

“The reliability of the country and the resources is something that the automotive and battery companies look at,” said BTG Pactual analyst Cesar Perez-Novoa. “So it’s a risk.”

Argentina’s state-owned oil driller YPF SA confirmed this month that it will explore for lithium and engage in the tender for battery production through a new unit, a strategy similar to the one that used to diversify into renewable energy. .

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Another state energy company, Ieasa, whose role President Alberto Fernández is revitalizing after the previous government sought to privatize many of its assets, has said it will incorporate lithium into its business strategy, without elaborating.

Lithium-producing countries have had little success in adding value to their raw materials industries given their distance from demand centers and sometimes harsh business environments. In the case of Bolivia, downstream investment requirements have been one of the barriers to obtaining lithium from the ground in the first place.

Argentina is betting on close ties with China, its lender of last resort, to open the door to the dream of local battery plants and electric vehicles. Argentine officials have been in talks with Gotion High-Tech Co. and Ganfeng Lithium Co.

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Adding fuel to the fire in Argentina is a bill drafted last year by lawmakers from the ruling Frente de Todos party that seeks to declare lithium a “strategic resource.” Still, the bill is not currently being considered, a party spokeswoman said.

In Chile, the main supplier of lithium after Australia, a process to rewrite the constitution is expected to include a debate on how to capture more profits from the sector, stricter licensing requirements and the classification of water as a national good for public use.

It’s unclear if a new constitution could alter property rights given that the state already owns the minerals, said Renato Garin, a professor at the University of Chile’s law school who was elected to the convention that drafts the law. letter. The change is likely to be based on environmental rules as concerns mount about the impact of lithium mining on the Atacama salt flat.

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“What the new constitution will drive is a leap away from mining capitalism to encourage more investment in technology,” Garin, an independent left-wing member of the assembly, said in an interview. “How to produce without destroying”.

The strongest comments come from Mexico, where the government is studying state control of assets. Mexico is still not producing lithium, and according to analysts at BTG Pactual, the rhetoric is unlikely to translate into action. But it still fuels the uncertainty.

Bolivia is also trying to move forward with a state approach to developing its vast deposits. After implementing a series of pilot tests over the past decade, including giant evaporation ponds to replicate the brine extraction method used in Chile and Argentina, the landlocked nation is turning to new technologies.

Bolivia has called for bids to test direct lithium extraction, or DLE, techniques, and the winners are scheduled to be announced in the coming weeks just as the state-owned lithium company and its partners complete work on prototype processing and battery plants. . Still, the DLE and subsequent Bolivian experiments offer no guarantees of a significant increase in production in the short term.

© 2021 Bloomberg LP

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In-depth reports on the economics of innovation from The Logic, presented in association with the Financial Post.

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