How Chile is shaping the global market for lithium, a vital component of EV batteries
The global boom in electric vehicle production has sent demand for lithium-ion batteries soaring. That's turned Chile's vast, lithium-containing salt flats into a vital national resource.
In Chile's Salar de Atacama, near the border with Argentina and Bolivia, close to one-third of the world's lithium is produced from brines.
But South America's fifth most-populous country is losing market share on the world stage to Australia, which in 2017 leapfrogged Chile to become the largest producer of lithium. Argentina is also gaining momentum thanks to increased international investment.
With increasing pressure to ramp up production, Chile's leftist president Gabriel Boric recently announced a state-led plan for the development of the country's lithium industry. The policy, disclosed in April, requires private companies to partner with the government for the development of all future lithium mines.
The only two lithium companies currently operating in Chile are North Carolina-based Albemarle, the largest lithium producer in the world, and SQM, the No. 2 producer, headquartered in the Chilean capital of Santiago. Both companies' stock prices slumped after the new policy was presented amid concern the government will be exerting too much control over future projects.
For Boric, it's a delicate balancing act that goes well beyond economic growth and global competition.
The effect of brine mining on ecosystems and water supply is a constant concern, the impact of which isn't fully understood. And Chile's indigenous communities have traditionally opposed mining expansion. Boric's policy represents a compromise between the two wings of his governing coalition, which is divided leftists who supported full nationalization, and a more pro-free market group that lobbied for private industry to take the lead.
In January, CNBC visited Albemarle's lithium-brine plant in the Salar de Atacama region to speak with company employees and community members alike about this pivotal moment in Chile's lithium industry.
Up to 30 trucks a day
In the brine-mining process, extremely salty water from underground reservoirs is pumped to the surface and evaporated as it moves through a series of large, extravagantly colored ponds, leaving high concentrations of lithium behind.
At Albemarle's plant, it takes about 18 months for the brine to reach optimal concentration. The liquid is then transported over 150 miles via truck to Albemarle's processing facility near Antofagasta, where it's further purified into battery-grade lithium carbonate.
"Typically we send between about 24 and 30 trucks everyday," said Ellen Lenny-Pessagno, Albemarle's vice president of government and community affairs.
Chile led the world in production until six years ago when Australia, where lithium is mined from hard rock, took the lead and expanded on. In 2022, Australia produced about 47% of global lithium supply while Chile produced about 30%.
China is third, followed by Argentina, which accounts for about 5% of global supply. While that South American rival's market share remains relatively small, the country has become an attractive place for development after throwing open its doors to foreign investment.
"Some people are even talking about Argentina taking away the second position that Chile has now," said Patricia Vasquez, global fellow at the Wilson Center, a research institute in Washington, D.C.
Though Chile is typically viewed as one of the more business-friendly economies in the region, its lithium industry has always been heavily regulated. In 1979, then-dictator Augusto Pinochet categorized lithium as a strategic resource due to its use in nuclear weapons, allowing the government to restrict its extraction.
No new lithium mines have opened in Chile in decades, leaving Albemarle and SQM as the only major producers. Both companies pay high taxes and royalties to the state. Lenny-Pessagno said that in 2022 Albemarle paid the Chilean government over $600 million.
"We're paying the highest commission in the world to extract lithium here at the Salar de Atacama," she said.
Chile's lithium is of particular strategic importance to the U.S., which has a free trade agreement with the country but not with neighboring Argentina.
Politics of mining
The business community is trying to work within and around Boric's plan for a state-controlled lithium industry. The new framework should provide private producers more opportunity than in decades past to enter the market and explore resources beyond the Atacama.
"It's helpful that it looks like Chile will be welcoming new investment in its lithium sector and that it is now formally in favor of new projects," said Benjamin Gedan, director of the Wilson Center's Latin America program. "In that sense, it's a positive development."
The plan calls for the creation of a national lithium company to partner with all private businesses looking to enter the sector. It also honors Albemarle and SQM's existing government contracts, which are set to expire in 2043 and 2030, respectively. But Boric has said he plans to negotiate with the two companies for a government stake in their operations before their contracts end.
Reuters reported that SQM is set to begin talks with the government in the next few months and is investing $2 billion into sustainable technologies to meet the new plan's environmental goals. The company did not respond to multiple requests for comment.
In a statement to CNBC, Albemarle said, "We expect no material impact as the Chilean government made clear it will fully respect existing contracts." The company said it will continue to collaborate with the government moving forward.
Lenny-Pessagno told CNBC in January that Albemarle supports the creation of a state-owned lithium company.
"We're also quite interested in partnering with them because, of course, we've got more than 40 years experience here and certainly know how to work with brines," she said.
But it could take years to get the national lithium company up and running. Its creation first has to be approved by Congress, where Boric has struggled to pass legislation. His party doesn't have a majority, and his major tax reform bill was recently rejected. That blow came on the heels of Chilean voters' overwhelming opposition to a progressive new constitution last year.
In the meantime, two existing state-owned entities will be in charge of handling all new lithium contracts — mining company Codelco and minerals company Enami.
Boric also wants Chile to invest in downstream processing for the battery supply chain. Chinese EV giant BYD reportedly has plans to build a $290 million cathode-manufacturing facility in Antofagasta, and the government has given it preferential prices on lithium carbonate, the input for cathode material.
It's a controversial strategy because the EV industry in the country is practically nonexistent.
"They don't have much of the demand for these products locally," said Gedan. "They don't have big electric vehicle sectors."
'Clean image to the world'
Environmental and climate issues were central to Boric's campaign, and he's said that strengthening social and environmental sustainability in the mining sector is a priority. But indigenous community members, through a translator, said they remain very concerned about the environmental and social harm from mining on their ancestral lands and way of life.
"The mining companies are occupying our identity to show a clean image to the world for the extraction of lithium water, which is not the case," said Christian Espíndola, an indigenous Atacameñan farmer.
The Atacama Indigenous Council represents 18 communities around the Salar de Atacama, and 3.5% of Albemarle's revenue from its Chilean operations goes to the council, which can use the money in any way it sees fit.
But Sonia Ramos, an indigenous Atacameñan activist, said she has seen the money sow division in her community.
"Seeing us become so vulnerable to an economic system that is not ours, you have to forget your worldview, your laws, your word, right?" Ramos said. "And seeing that world so Western, so material, but without spirit. Our cultural history is the spiritual world and this is not spiritual at all."
Indigenous communities have succeeded in stopping the development of past lithium mining projects by BYD and Chilean company Servicios y Operaciones Mineras del Norte.
With Chile in the midst of a decade-plus megadrought, many fear that evaporating so much brine in the Atacama desert is exacerbating the problem. But Albemarle counters that brine is different from fresh water, since it's too salty to either drink or to use in agriculture.
The extent of the the potential environmental impact is a big topic of debate. Cristina Dorador is an associate professor of microbial ecology at the University of Antofagasta. Her research indicates that lithium mining has led to the death of microorganisms that are key for scientific research and vital to the broader ecosystem.
"If we are thinking about life, we have to include everything," said Dorador. "And microbial life are the dominant type of life on the planet. Everything is related."
There are no easy answers when it comes to balancing the various interests at play, and though Boric has laid out a general strategy for the country's lithium industry, there's still much uncertainty about his plan.
"The devil is in the details," said Luciano Cruz Morandé, a partner focusing on energy and project development at the Chilean law firm Arteaga Gorziglia. "The main problem here is that we are losing time. We were awaiting a sound policy with answers and not something this blurry that is only creating more questions."
As battery-recycling technology improves, less lithium-intensive battery chemistries are explored and other countries ramp up production, Chile's lithium could lose its global importance. While that's welcome news to some environmentalists and activists, it's created a sense of urgency among those advocating for Chile's economy.
"I think Chile is trying to find a middle ground here," Gedan said. "There are countries that do want to control every aspect of this industry. There are others like Argentina taking a real hands off pro-market approach."
Gedan said Chile is trying to protect the environment and its local communities while simultaneously becoming a more attractive place for foreign and private investment.
"It's not clear it will succeed," he said. "But I think that's a fairly reasonable, logical approach."
Watch the video to learn more about CNBC's visit to the Salar de Atacama.