Does the Preliminary Adoption of Chile’s Resource Nationalisation Proposal Affect the Supply Pattern of China's Lithium Market?

SHANGHAI, Feb 11 (SMM) - The tight supply of lithium resources in China has lasted for several months. Domestic mainstream enterprises have also turned their attention to overseas high-quality salt lake resources. Zijin Mining, Ganfeng Lithium, CATL, and other leading enterprises have successively extended their business in brine lakes in South American to strengthen their leading position in the fast development of new energy industry and their raw material supply capacity. At present, spodumene concentrate is still the largest source of lithium, and the supply from brine likes is also growing at a high speed. According to SMM statistics, in 2021, the global supply of lithium is about 540,000 mt of lithium carbonate equivalent, of which the supply from brine lakes is increasing fast.

Suggestion of Centralised Management and Control of Lithium Increased the Difficulties of China’s Obtaining of Chile’s High-quality Resources

With the continuous emergence of national resource advantages, suggestions such as resource alliance or resource nationalisation have been put forward constantly. It was reported that in 2011, in order to prevent the overexploitation of lithium resources and the control of the lithium ore’s prices, Argentine authorities proposed to establish organisations like Lithium Producing Countries Association with Chile and Bolivia, heating the discussion on "lithium OPEC". If the organisation is successfully established, a unified and limited quota system will be implemented for lithium mining by the three countries with the richest lithium resources in order to maintain the reasonable and stable lithium prices and maximise the economic benefits of lithium resources.  However, in the process of the constant change of political situation in the three countries, the idea was repeatedly put on hold.

In 2021, Gabriel Boric was elected as the new president of Chile and will take office in March 2022. Boric supports the nationalisation of lithium mines and advocates the establishment of state-owned lithium mine enterprises. Recently, Chile’s Constituent Assembly adopted a proposal initially to promote the nationalisation of copper mines, lithium mines and other strategic assets. Chile, which has a strong resource endowment, will lead and manage the development of lithium resources to reduce the competition among enterprises. However, for domestic enterprises with a shortage of lithium resources, Chile’s act will increase the difficulty and cost of obtaining and securing the supplies of high-quality resources in Chile.

Chile's Nationalisation Proposal Has not Yet Been Approved, Worries over Supplies in China Have Already Surfaced

On February 7, 2022, the relevant person in charge of Tianqi Lithium said that the nationalisation of lithium mine in Chile has not been approved yet. Previously, the company had signed a contract with the local government in Chile and obtained the lithium resource mining permit and quota before December 31st, 2030, which will not change. According to the Valuation Report of Total Equity Value of Sociedad Quimica y Minera de Chile S.A. (SQM) Shareholders released by Tianqi Lithium in May 2018, the Chilean government Production Development Corporation (Corfo) authorised SQM Salar, a shareholding company of Tianqi Lithium, to increase its quota of exploiting lithium products from Salar de Atacama Salt Lake. According to the agreement, SQM Salar shall have the right to develop, process and sell 349,553 mt of lithium metal during the lease term (that is, before December 31st, 2030), and the remaining 64,816 mt of lithium metal quota under the original Rental Agreement and Project Agreement, which will be equivalent to 2.2 million mt of lithium carbonate in total. It shows that the promotion of nationalisation will have no obvious impact on the allocated resources for the time being.

However, as an important source country of overseas salt lake lithium products imported by China, it may have an impact on China's supply and pricing in the future: 1) It is difficult for domestic enterprises to participate in the development and utilisation of overseas high-quality resources. In October 2021, the Chilean government invited tenders for the domestic production quota of about 400,000 mt of lithium metal, which was divided into five parts, each with 80,000 mt. A total of five enterprises participated in the bidding. Among them, BYD won the bid with the highest price of 61 million US dollars (about 387 million yuan) on January 12, 2022. But, only two days later, on January 14, 2022, the Chilean court stopped BYD's contract involving a total production quota of 80,000 mt of lithium metal. Although the suspension of contract was based on the fact that the governor of Copiapo, where the lithium mine is located, and the indigenous community near Atacama Salt Lake appealed that the bidding scheme violated the principles of environmental protection and economic development, Chinese-funded enterprises will also face many difficulties in developing resources in the future. 2) Nationalisation of these resources will enhance the pricing power for local resources as well as rights on the allocation of benefits. According to statistics, in 2021, 78% of China's brine lake-based lithium imports came from Chile, so the cost of imported lithium products by Chinese enterprises may be greatly raised in the future.

China’s Supply and Demand Pattern of Lithium Resources Has Been Volatile. How Will Lithium Price Evolve in the Future?

According to SMM’s calculation, the lithium carbonate market in China will be difficult to keep balance in the next five years. From 2021 to 2022, the supply of lithium carbonate in China will be limited by overseas resource capacity. In 2022, there will be a supply gap of about 7%, and the annual average price will rise sharply. From 2023 to 2024, the new expansion projects of overseas mines and brine lakes are basically put into operation. It is expected that the supply of lithium resources will be supplemented in time. Domestic lithium salt manufacturers will maintain high operating rates. However, as the largest and downstream lithium market, the growth rate of new energy vehicles sector is expected to be less than the initial period which featured high growth, and the marginal increase of supply will exceed the demand. It is expected that the lithium carbonate prices will once again enter a short-term decline. In 2025, the global energy storage market will explode, and the sales of new energy vehicles will soar to 18 million units, which means the demand for lithium resources will increase significantly. In the same year, the planned production projects of global lithium resources will further face bottlenecks. The supply gap will reappear and the prices will rise. While overseas resource control is gradually strengthened, China's resource supply will also face risks and challenges in the future.