Lithium, the love story – by Antoine Dion Ortega and Pierrick Blin (Corporate – June 16, 2014)

Purmamarca, ARGENTINA – When Tesla Motors revealed in February it would build the world’s largest lithium-ion battery plant, shares in major lithium producers such as SQM, FMC and Rockwood – all active in South America’s so-called lithium triangle – got a noticeable boost.

Tesla pledged to invest more than $5 billion in its factory, construction of which would begin in 2017 with an eye to producing 500,000 batteries a year. Analysts now expect the Palo Alto, California-based electric carmaker to strike a strategic lithium supply agreement in the near future.

When that deal comes through, it could be huge. Tesla alone might represent an 8 per cent increase in global demand for lithium, and that’s good news for countries in the lithium mining game. Yet it’s unclear to what extent South America’s resource-rich nations will truly benefit from it, and whether the foreseen “white gold rush” will be a sustainable one.

Just a few days before Tesla’s announcement, Bolivian President Evo Morales was dressed in white overalls, carefully examining a battery cell during the inauguration of a pilot manufacturing plant, located within the 10,000 square kilometre salt flats of Uyuni. “If we have the greatest reserves worldwide, why not have the greatest lithium industry here in Bolivia?” he asked.

Unlike its neighbours, Bolivia still lacks its own lithium production infrastructure, and there remains some confusion over the exact size of its lithium reserves. But that wasn’t Morales’ concern. He was there to promote a vision: that lithium could be Bolivia’s ticket to being an industrialized nation.

For years, governments in the lithium triangle – which includes Chile, Bolivia and Argentina – have pledged to take advantage of their respective lithium deposits. In 2011, Argentina suggested that the countries create an “OPEC-like” arrangement on lithium outputs. Newly elected Chilean President Michelle Bachelet said during her campaign that she would put together a special commission charged with determining how the country, which holds more than 25 per cent of global reserves, could draw the most from its resource.

But how large is the opportunity? Chile, which Forbes magazine has called the “Saudi Arabia of lithium,” currently produces up to 60,000 tonnes per year of lithium carbonate, making it the largest producer globally. Production in Chile has more than tripled since the beginning of 2000.

Sounds impressive, but the big picture tells a different story. Lithium is still a third-class commodity market, roughly $1 billion in size globally. On its own, Chile exports a little more than $200 million annually. That’s less than 0.5 per cent of the value of its copper exports. In other words, even in the world’s largest producing country, lithium exports make up less than 0.1 per cent of its GDP.

“There is an illusion around lithium,” says Jaime Alée, director of the Lithium Innovation Center in Santiago. “We can’t talk of a rush for something that has such little economic value for the country. Global lithium production works out to less than a month of copper production in Chile.” Alée doesn’t think that the expected increase in global demand will change the situation.

“We see that the global commodity market will increase to $2 billion in 2020. This is still a negligible amount compared to other mineral commodities.”

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