The OPEC of lithium in Latin America
Latin American governments are in talks to join forces and dominate the lithium market.
London, 10 March 2023.
With their majority share of global reserves, a group of South American countries intends to cooperate in lithium mining and to retain as much of the value chain as possible. Most of the world’s known reserves of the metal are concentrated in the “Lithium Triangle” composed of Chile, Bolivia and Argentina. Their soil could contain around 50 million tonnes, which is 53% of global reserves.
Argentina, Bolivia, Brazil, and Chile may have plans to create “the OPEC of lithium”. This was announced by the Argentinian delegation at a mining convention in Canada. The OPEC is the club of oil producing countries that agree on production and price levels. Argentina, Bolivia, and Chile have been in talks since July of last year; Brazil joined after President Lula’s inauguration.
Buenos Aires is taking a prominent role in pushing for this union to take place. It has the world’s second largest proven reserves but comes fifth in production. It manufacturing sector is also smaller than Brazil’s. JP Morgan analysts are nonetheless projecting that it will become the third producer by 2030. President Alberto Fernández is also trying to take the lead in regional politics, as he hosted the CELAC summit of heads of state and foreign ministers earlier this year.
Argentina may still have the most challenges to get production going. The economy is currently hampered by export restrictions, a large debt, high inflation and the dual price of the dollar. The Economist recently published a piece of its inability to fulfil the whole potential offered by trade with China.
Outside of the Lithium Triangle, smaller yet significant fields are also found in Mexico, with 1.7 million tonnes; and Brazil, with half a million. Although the two countries have less of the mineral to mine, have more developed industries, for instance for automobiles. Brazil also has a relatively strong manufacturing sector, especially compared its neighbours. Its Sigma Lithium company is one of the few capable of processing the mineral in a sustainable way.
Green cars “Made in Mexico”
Mexican president Andrés Manuel López Obrador (known as AMLO) is nationalising lithium reserves. However, this does not mean that the resource will be off limits to private investment. Just two weeks ago, Tesla and the Mexican government confirmed plans for a new EV battery factory in Nuevo Leon, near the US border. AMLO is also envisioning central Mexico as a manufacturing hub for batteries, amongst the largest mines and production facilities of the country. In February, BMW announced plans to invest €800 million ($865m) to step up electric vehicle production in the central state of San Luis de Potosí.
Mexico has the strongest manufacturing sector of the group and is well-placed to export to the hungry US market, geographically and regarding trade deals. The likely growth in manufacturing is part of the reason why, this week, JP Morgan argued for giving Mexico a positive outlook - as opposed to the other regional giant, Brazil.
The new oil?
The importance of lithium and other minerals required for batteries cannot be overstated: they will be critical for the energy transition. This January, US southern command general Laura J. Richardson highlighted the region’s wealth of such resources at the Atlantic Council. Both the US and China are showing increasing interest in the mining of lithium and its manufacturing process.
Just as the OPEC brought wealth and power to Arab and Middle Eastern states, it has also brought conflict and stability. Prolonged wars in Iraq and Libya are just some recent examples. Likewise, while a lithium cartel could reinforce Latin America’s position, it will exist in a framework of great power competition.