November 02, 2022
Humanity has fought over food, land, and shiny things – but this century’s “gold rush” might belong to metals and semiconductors. That’s largely in-part because of how critical these building blocks have come to be in technology and advanced computing.
Demand for one metal in particular has hit a fever pitch during the pandemic: lithium. Its increased importance – namely in the world of electric vehicles and battery technology – sent shares of lithium mining and refining companies skyrocketing since the March 2020 lows.
Lithium, which is traded as a spot futures product in China, has climbed all by itself, too: it’s up more than 434% YoY. And though Goldman Sachs has cautioned that the prized metal is bound for an aggressive correction, EV leaders like Tesla CEO Elon Musk have told entrepreneurs to get into the lithium biz, calling it “a license to print money.”
There’s just one problem, at least for the U.S. lithium market: the majority of lithium is mined and refined outside of the United States. According to research from BloombergNEF, the U.S. is only expected to mine 5,000 metric tons of the metal in 2025; that same year it is expected to refine some 41,754 tonnes of the metal in the same year.
That pales in comparison to Australia, Chile, China, and Argentina – which will deal in hundreds of thousands of tonnes of lithium, both on the refining and mining front.
To make matters worse for the U.S., more than half of the discovered lithium deposits are in just three countries – Bolivia, Chile, and Argentina. And those countries, along with Mexico, look prime to start an economic cooperation around their potentially blockbuster metal businesses.
What does that mean? Well, look to the Middle East for some hints:
Saudi Arabia, Iran, Nigeria, Egypt, and the United Arab Emirates are just a few of the world’s largest oil producers. They’re also among some of the world’s largest refiners, which deserves underscoring. By owning both production and refining, these countries’ and their economic cooperations have an outsized influence on the oil market. Together, these names – and a handful of others – make up OPEC+.
By the way, many of those countries have nationalized their oil industries – meaning that the oil industry is property of the State. This has turned countries like Saudi Arabia, Russia, Iran, and China into 100% shareholders in their multi-billion dollar oil businesses. That means that they have one of the most effective bargaining chips, or levers, to control global oil prices and supply.
Why does that matter? Well, lithium has the makings of a new oil:
An economic cooperation in South America could foundational change the future of the lithium industry. Up to this point, Chile and Argentina have been the only movers in the continent. The addition of more mining and refining output in those two nations, plus Bolivia and Mexico, could center Latin America as a market leader.
As we’ve learned from oil (which this same cooperation has been progressively nationalizing as well), that would almost certainly put its economic cooperation above the outputs of Australia, China, and other markets. It would also mean that the countries producing this lithium would own complete integration over it – the mining, the refining, and the product they create. That would turn the economic bloc into the price leader, guarantee higher prices for lithium in global markets because of collective bargaining, and translate to higher prices for battery and EV makers.
That could be bad – at least in the near term – for the EU, the United States, and other industrialized economies looking at lithium for its various applications. That means EVs would stay fairly expensive, unless strides in battery technology were made. However, it could make the case for more domestic lithium mining and refining in the U.S. and EU.
The cooperation might not happen overnight, but given the success of existing trade blocs, Latin America’s moves in lithium could stand to transform the emergent lithium industry – and once the proposed bloc emerges, those changes would certainly be seen overnight.