Chile Keeps Faith in Lithium Expansion Despite Worsening Glut

Chile, the world's second-largest lithium producer, is pressing ahead with its plans to expand lithium production, despite a worsening global glut that has seen prices plummet. The country's National Lithium Strategy, announced in April 2023, aims to double production by 2025 and attract significant investment in the sector. However, the current oversupply and low prices have raised concerns about the viability of new projects.

The global lithium market is expected to post a surplus of 89,000 tons in 2024 and 141,000 tons in 2025, according to Chile's government agency for mining studies, Cochilco. This surplus has led to a significant decrease in lithium prices, with some analysts suggesting that prices may have reached a floor. Despite these challenges, Chile remains committed to its expansion plans.

Chile's finance minister, Mario Marcel, recently stated that the country is aiming to double its lithium production, arguing that the risk of renewed shortages and price spikes is more dangerous for the industry than a prolonged oversupply. The country's lithium production is concentrated in just two companies, SQM and Albemarle, in only one salt flat region: Atacama. The challenge is to expand production both in Atacama and in other areas, and to attract more players to deploy investment and technology to increase production in a sustainable way.

The National Lithium Strategy aims to balance the interests of private investors, the state, and environmental concerns. The strategy encourages private investment by offering partnerships with state-owned companies like Codelco, CORFO, and ENAMI. It allows private companies to retain a 49.99% stake in lithium projects, with the state taking a majority stake of 50.01%. This approach aims to attract investment while ensuring state control over the strategic mineral.

However, the strategy has faced criticism and misunderstandings, with some international newspapers headlining Chile's new "nationalization" of lithium. The market reaction to the new law missed a central fact: lithium has always been nationalized in Chile, with the Chilean constitution defining lithium as a strategic, state-owned mineral. The strategy's requirement for state ownership has been misinterpreted as nationalization, causing concern among investors.

Despite these challenges, Chile remains committed to its lithium expansion plans. The country's significant lithium reserves and strategic importance in the global lithium market make it a crucial player in the energy transition. By capitalizing on its resources and implementing a balanced approach that addresses the interests of private investors, the state, and environmental concerns, Chile can secure a stable and profitable future in the lithium industry.