SITUATION OF THE INDUSTRY OF LITHIUM IN ARGENTINA

SITUATION OF THE INDUSTRY OF LITHIUM IN ARGENTINA

11Aug
0

SITUATION OF THE INDUSTRY OF LITHIUM IN ARGENTINA

In front of the energy transformation, which has the potential to reshape the geopolitics and the economy, the lithium is a key input for the global transition towards an economy based on renewable energies and electromobility, in which focus will be the demand for this metal. Argentina (fourth producer in the world), along with a handful of countries, will dominate the supply of lithium for which demand is on the rise, because of the huge cost savings and performance improvements in the last few years, and will generate competition. The lack of its recognition as a strategic resource (and therefore adequate policies to guide the country as an actor competitive) increases the vulnerability and limits the opportunities for development.

Context

South america is the region with the largest amount of lithium in the world, even though comparatively, its share in world production is significantly lower. Argentina is the fourth largest producer and, along with Bolivia and Chile, integrating the so-called “Triangle of Lithium.” The strategic mineral found underneath the salt flats exist in this region, which account for 85% of the world reserves of easy extraction. Chile has established itself as a big player on the world market, while Argentina has a minor participation and Bolivia account with low production (DINE, 2021, and Martinez and Cucci, 2021). The lithium carbonate produced in Argentina in the provinces of Catamarca, Salta and Jujuy (north-west of the country) meets the purity standards that demand the international market of batteries. It is an important feature that the country must keep as a differentiator in front of the future competition (Vázquez, 2021).

Global reserves of lithium. Source: US Geological Survey, cited by América economía (2016).

Lithium is a key input for the manufacture of the lithium-ion battery which is used in electrical vehicles (which is the sector where it is estimated the increased demand in ten years), and major electronic products such as mobile phones, tablets and laptops, with the presence increasingly important in the global value chains. Is notable for being essential to the international efforts to ensure the global transition towards the use of renewable energy with the aim of reducing the consumption of non-renewable resources, especially from fossil fuels, with an impact on the greenhouse gas (DINE, 2021 and Vázquez, 2021). The World Bank estimates that the demand for lithium in the world will see an increase of 950% by 2050 (March, 2019). The lithium-ion batteries have experienced a great reduction of cost and performance improvements in the last few years, and the investments are also increasing in alternative, potentially more secure, cheaper, more potent and longer-lasting (National Intelligence Council, 2021). In turn, the rise in the international price of the mineral of lithium is due to the high expectations of the growth of the demand of this resource and the difficulties faced by the countries with the largest reserves of this resource to increase its extraction, in part because of the complications of the mining in salt lakes, and in part by the internal affairs of these countries (Martinez and Cucci, 2021).

Composition of the current demand for lithium. Source: CITI Research, as cited by América economía (2016).

In the united States, the government of Joe Biden wants to drive a plan for clean energy, for all its electricity is produced by renewable sources by 2035, and that half of the vehicles to be electric by 2030, surpassing the combustion vehicles to 2040. In this second point will be no impact on the production of lithium as these vehicles require energy storage systems, to be used for this battery rechargeable lithium-ion battery that allow people to accumulate large amounts of energy. According to the Center for Strategic and International Studies, the price of lithium has already more than doubled between 2016 and 2018 and will be multiplied by eight between 2020 and 2017 (DINE, 2021 and Vázquez, 2021). The mass adoption of electric vehicles in the world responds to the policy of zero-emission by 2050 that took more than 20 countries and 70 subnational governments. It is estimated that the current supply of lithium will not be sufficient to meet the global needs. Around 80% of the demand for lithium is to make the batteries that run these types of electric vehicles, whose global sales are on the rise (Vázquez, 2021).

Reservations with Argentina is estimated at 19.3 million tonnes, which is equivalent to 22% of the world total, extracted salt flats located in the above-mentioned three provinces of the Northeast region. In 2020 produced 6.200 tons, occupying the fourth place in the global production, behind Australia, Chile and China, exporting mainly to the united States. In the current conditions, it is estimated that lithium could get to contribute to the Argentina up to 3,500 million dollars a year in exports, knowing that even a small fraction of the full potential of identified resources (DINE, 2021 and Vázquez, 2021). Thus, it is estimated that the extraction of lithium has potential for development and participation at the international level and even to expand the industrial chain mining in the country, offering investment projects-innovation (OPM, 2017). 

Problems

It has been identified that, in the next few years, Argentina, along with a handful of countries, will dominate the supply of lithium for which demand is growing for electric vehicles. The context of geopolitical and geo-economic outlook is favorable for Argentina to lead the transformation of energy (Vázquez, 2021). While our country currently has the advantage of having a project with a high concentration of lithium, the technological advances can be put at risk this advantage in the future (DINE, 2021). Today it offers an aggressive policy of investment incentives in order to increase the extraction, attracting private investments in the millions that currently more than 20 projects of development of lithium in various states of evolution to export about 300 thousand tons per year (Vázquez, 2021, and The Chubut, 2021). It will be necessary to joint public-private, from the predictability and long term, to ensure these investments for long-term and high-risk.

The situation is different in the neighboring countries, such as Chile and Bolivia are more restrictive with private participation in the industry of lithium as a strategic resource. In the case of Bolivia, it formed a National Development Plan, they gave it the character of “public interest” with constitutional status, and the operation is in the hands of a company in the State, while Chile has adopted measures that have a negative impact on private investment, benefiting Australia, which became the main producer of the metal in 2018. The country, in addition, through the Organic Constitutional Law on Mining, also declares to lithium as a “strategic commodity” and has a National Commission of Lithium that aims to generate public policies to generate better governance of the regions of exploitation (Gelos, 2021; Martinez and Cucci, 2021 and Vázquez, 2021).

The State argentine has not advanced even in the recognition of lithium as a strategic resource, which would enable a regime specific to that resource, investing in start-ups and new products in the context of global growth, planning our settings productive future —only Jujuy in 2011 declared lithium as a “strategic natural resource for the socio-economic development of the province” (Martinez and Cucci, 2021)—. With a strategic plan of all the mining sector, you could define a shared vision of the role that we assure you to mining in the economic and social development of our country by putting in value the enormous geological potential mining that we have in planning and coordinating projects that will improve the production and add value-added. It highlights the need for responsible governance of mineral resources focused on the care of social and environmental, with the participation of all stakeholders, public, private, and civil society.

The producing provinces (Catamarca, Salta and Jujuy), by his account, have already indicated the importance of this resource, forming companies producing provincial and a “table of lithium,” which resulted in a treaty interprovincial signed on October 5, 2021 to create the “mining region of the lithium.” By constituting a committee to coordinate the requirements of provincial and national government for research, extraction, production, industrialization and commercialization of the metal, taking into account that the regulatory framework in argentina, as enshrined in the constitutional reform of 1994, the mineral resources belongs to the provinces (The Province, 2021, and Glezer, 2021). To complement the regulatory framework in argentina, the same does not present a specific distinction for the exploitation of lithium. There are only three rules that regulate the mining activity in Argentina. In addition to the National Constitution, is the Mining Code (which provides that the property and the right to exploit and market the resources correspond to whom the discover), and the Act of Mining Activity has shaped the two incentives are crucial to the mining projects: the fiscal stability for a period of thirty years after the project started, and the deduction of income Tax on the amounts invested (Martinez and Cucci, 2021).

An important step in the production process is the submission of the raw material extracted through a chemical process to obtain lithium carbonate, the component that is used in the cathode of the batteries (Vázquez, 2021). You should question if our country wants to be a exporter of lithium as a raw material or also have a role in the whole process, up to the manufacture of batteries, lead in addition to the energy transformation that is coming. If you pay attention to the rivalry between the united States and China, warning that the former only has three factories of lithium-ion batteries, and is largely dependent on China, which dominates almost 80% of global manufacturing of batteries and their components. While there are projects to break the dependence on china, the united States also dominates the production of the raw materials depending on imports to chile and argentina (Vázquez, 2021).

The Observatory SME Mining of the University of Belgrano (2017) warns that the evolution and development of the extraction of lithium depend not only on the international prices and the investment projects, but also of the national economic policy and structure of macroeconomic stable. As a result, “a greater uncertainty, embodied in a macro-economic volatility locally, induces a smaller margin of response to favorable changes in the international prices“. Also warns of the existence of provincial regulations and tax matters that “attempt” against the investments and the need to achieve a mining activity “is sustainable in the long term”, according to the requirements of global, as well as lawsuits from environmental groups and native peoples. Other difficulties corresponding to factors of the internal dynamics of each country play a fundamental role. Inadequate regulatory frameworks that do not sponsor a strategic development; technological backwardness that impede the development of the sector; and even the long distances that separate the “Triangle of Lithium” of the main markets that consume this metal (China and southeast asia), involving technical and logistical problems (Martinez and Cucci, 2021).

In the context of global trends, both the united States and the United Kingdom in its official documents, identify emerging sectors of the energy transition and the disputes, geopolitical, which bring about. The first, recognized that “the transition from fossil fuels has the potential to significantly remodel the geopolitics and the economy, depending on your speed and structure” and that “a change to renewable energy will increase the competition for certain minerals, particularly the cobalt and lithium for batteries”. As the players compete to develop new renewable energy technologies over the next two decades, will focus on the countries that supplied these minerals, with a view to the “Triangle of Lithium,” a south american (Ministry of Defence, 2018, and the National Intelligence Council, 2021).

Another factor of international competition between the companies that manufacture electric vehicles, due to the level of purity of the lithium carbonate used in the batteries, and also for the sustainability and carbon footprint of the entire production chain, starting with the extraction of the metal. The German carmaker BMW agreed to buy lithium source of the catamarca and a producer of australian origin, it merged with a company that extracts also in the country, forming a megaempresa of lithium, the fifth-largest in the world, with operations in Argentina, Australia, Canada and Japan (Vázquez, 2021). More recently, the major mining companies that mine lithium have confirmed an association international, with headquarters in London, to “speak on behalf of the sector” (The Economist, 2021). Among them are the transnational SQM and Albemarle-Rockwood, that work in Chile, and FMC Lithium Corp., based in Argentina, which are called the “Big3” and focus from almost 20 years ago about 50% of the world production (Gelos, 2021).

Growth of the global demand for electric vehicles and lithium batteries between 2008 and 2020. Source: Roskill, quoted in the American Economy (2016).

In the environmental issue, it is feared that the dramatic increase in global demand resulting in an extraction uncontrolled lithium, with possible negative impacts in the medium term for the excessive use of water needed in the production process (Vázquez, 2021). The automobile companies are going to rank every time more raw materials from the process environmentally and socially sustainable. There is still a lot of ignorance about the environmental and social impacts of the production of lithium so it would be wise to Argentina kept to the tip of the scientific studies that are being done in the world, in both private and public. The transfer of technology should be a primary goal at the time of signing contracts for exploration and extraction of lithium with the developed countries.

Lithium is already a reality that impacts in the argentine economy, and whose industry, in full expansion, not only can ensure the creation of new jobs, but that may sponsor the possibility that the above-mentioned state is inserted into new flows of international trade. In turn, this sector may become a key piece in the resolution of problematic structural economic. Presents need to Argentina to establish specific objectives and strategic planning for the national production, which will consolidate the country as an actor competitive.

BIBLIOGRAPHY

Vázquez, Patricia I. (September 25, 2021). Lithium in Argentina: there are who know how to seize the moment. The Economist. Retrieved from: https://eleconomista.com.ar/economia/litio-argentina-hay-saber-aprovechar-momento-n45055

@2020 by Fundación Argentina Global

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