“It’s a fight against time.”
That’s how Guido Quezada describes Bolivia’s rush to pump lithium out of its vast salt flats, home to the world’s largest reserves of the lightweight metal used to make electric vehicle (EV) batteries.
Like many observers, the independent consultant is aware of the country’s immense potential when it comes to extracting the world’s new “white gold.” Though it possesses the largest reserves of 21 million metric tons (MT), according to the U.S. Geological Survey, Bolivia is not among the world’s top 10 producers of the metal. Neighboring Chile, with 11 million MT in reserves, is the world’s second largest producer behind Australia.
Global Lithium demand is surging and is expected to grow five-fold by 2030, according to Li-Bridge, a public-private alliance focused on developing lithium supply chains. While it stands to bring massive economic gains, huge economic, political and technical challenges have stunted Bolivia’s lithium extraction dreams.
Plans to Extract More Lithium
A new, $1 billion deal with three Chinese firms could address some of the headwinds, however. It gives the impoverished South American nation a chance to develop lithium and one day make EV batteries for the likes of Tesla or Ford, significantly boosting its exports.
Struck between the government of President Luis Arce, Chinese battery giant CATL, its BRUNP recycling arm and rival CMOC, the deal aims to pump 50,000 tons in an initial phase and up to 100,000 tons by 2028 from the country’s lithium industrial pole in the vast salt flats of Uyuni in the Potosi Department. The aim is to export electric batteries in 2025.
But Andy Leyland, founder of EV battery consultancy SC Insights, says Bolivia faces an uphill battle to fulfill its lithium dream. For starters, it needs much more investment, to the tune of $5 billion, to make a mark in increasingly competitive global markets.
“$1 billion is not enough,” noted Leyland. “This will have to be the first of many investments as they will need over $5 billion to ramp up production to serious levels.”
Bolivia risks falling off the radar of producers and battery makers unless the government moves to strike licensing deals and profit-sharing agreements with mining giants, Leyland added. This, however, will be very difficult to achieve as Bolivian law calls for lithium resources to stay in local hands.
“They would have to change the constitution to allow private entities to own the resources but if they do that, you would immediately have civil unrest,” he pointed out, adding that with a socialist government in tow, La Paz is unlikely to pursue this game-changing reform.
If it develops its lithium industry successfully, impoverished Bolivia’s GDP could rise significantly. Currently, it stands at roughly $40 billion, a tiny fraction of neighboring Brazil’s $1.6 trillion. But Oscar Vargas, an independent mining consultant advising La Paz on its lithium ambitions, said the ramp up could add $5 billion to the economy by 2027, if all goes well, of course.
“When the Uyuni pilot plant is fully operational in four years or so, it should make 100,000 tons of lithium through the different partnerships we are working on, enough to deliver revenues of $5 billion which will equal around 10% of GDP,” Vargas predicted. He added the lithium industry’s size could equal that of the natural gas industry, which has so far been Bolivia’s breadwinner.
State energy company YLB is currently working to churn out 15,000 tons of lithium from that same testing site by late 2023. Nestled in the 3,900 square mile Uyuni salt flat, the world’s largest and highest at 12,000 feet above sea level, the plant will use a largely untested technology called direct lithium extraction (DLE) to make lithium carbonate, which is used to make EV batteries. DLE uses a set of technologies that employ sorbents, membranes or other materials to chemically remove lithium from salty brines.
But the technical expertise needed to deploy DLE is also a looming risk.
“DLE is not one process, but many different ones and we don’t know exactly what tech they will use,” added Leyland. “While many companies are working on DLE and have pilot projects, they have not yet reached commercial scale.”
Bolivia is nevertheless trudging into DLE because if it can successfully develop it, it can extract lithium much faster than rivals in Chile and Argentina. Together with Bolivia, the two nations make up the so-called Lithium Triangle comprising 75% of the world’s lithium reserves but have vastly different economic realities and development timelines.
Argentina and Chile, for instance, mine lithium through conventional techniques involving brine evaporation and drying that can take 12 to 18 months, analysts say. Chile, however, has managed to carve a lead against Argentina and Bolivia, boasting 26,000 tons of annual production and ranked second globally after Australia, according to the U.S. Geological Survey. Chile also has the second-largest reserves, while Argentina has the third but only produces 6,200 tons, USGS data showed.
"When the Uyuni pilot plant is fully operational in four years or so, it should make 100,000 tons of lithium… enough to deliver revenues of $5 billion which will equal around 10% of GDP."
— Oscar Vargas, Mining Consultant
Not to stay behind, Argentina is rushing to draw mining investment. The government recently convinced industry giant Rio Tinto to make an $825 million investment in its Rincon Lithium Project in its Salta Flats region. Many other projects are also underway while Buenos Aires looks to strike cooperation agreements with Chile and Bolivia to boost the triangle’s output.
Price Volatility Emerges
Despite surging long-term demand, lithium prices experienced a decline in the first quarter of 2023, with the spot market for battery-grade lithium hydroxide delivered into North Asia (China, Japan, South Korea) falling by 50%, according to Fastmarkets. Global economic headwinds and falling demand for electric vehicles in China were largely responsible for the retreat. Prices hit a record of $85/kilogram in early December 2022 but have now plunged to $41.50/kilogram as a massive pool of new supply comes online.
With the lithium industry growing sharply, it has become increasingly important to manage the metal’s price volatility. CME Group offers market participants the ability to do this through its Lithium Hydroxide CIF CJK Fastmarkets contract.
As the market gains traction, the contract has seen open interest – or the number of unsettled contracts currently outstanding -- surge beyond 1,300 contracts extending to June 2024. As prices fell, the contract saw record trading volume in early April, and the number of clients such as banks, traders, and funds trading it doubled in 2022. CME’s cobalt contract is also witnessing strong trading with average daily trading volume up 668% compared to the same period last year, as of April 17, 2023.
Australia, Canada and the U.S. will also affect prices with their drive to win the lithium race through a slew of new production ventures. Currently, there are 50 lithium mining projects, mainly in those regions, with some close to starting production. Meanwhile, another 300 initiatives are seeking investment, according to Leyland.
Whatever happens, the space is set to balloon amid the EV revolution and surging demand for smartphones and laptops which also use the silver-white metal as its key component. According to Fortune Business Insights, the lithium market will be worth $6.6 billion in 2028, up from $3.6 billion in 2020.
But can Bolivia and South America make a splash in the market?
“It’s up to them,” noted Leyland. “They have the resources and companies that want to develop them.”
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