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In the past two years, the price of lithium has plummeted by more than 80%, dropping from $70,000 to $10,000 per ton. What has caused such a sharp decline? While several factors are at play, the main reason is simple: an excess of supply compared to low demand.
This seems contradictory, given that lithium is essential for the batteries of electric vehicles, cell phones, and computers, which are in high demand. When interest in electric cars grew in major markets, producers of "white gold" prepared to meet that need. However, demand did not materialize as expected, resulting in a surplus of lithium.
China, the largest electric vehicle market, played a crucial role, as sales in the country fell short of the optimistic projections anticipated by lithium producers.
Impact on Australia, the world's largest producer
The price drop has severely impacted Australia, leading some companies to suspend operations or reduce production. Firms like Core Lithium, Albemarle, and Arcadium Lithium have already made announcements regarding this.
Despite this, some producers, such as Pilbara Minerals, are expanding their operations, confident that global demand for lithium and prices will recover. Kingsley Jones from Jevons Global asserts that lithium remains key for the energy transition, although many analysts warn that the oversupply could pressure the market until at least 2028.
Australia also faces additional challenges: its extraction of lithium from hard rock consumes three times more energy than the brine method used in Chile and Argentina, which also generates more emissions.
The situation in Latin America
In Latin America, the focus is on Chile and Argentina, as Bolivia does not yet produce lithium. The price drop has affected both mining companies and public finances, resulting in lower tax and royalty revenues.
In Chile, SQM and Albemarle, which operate in the Salar de Atacama, face challenges due to their tax structure being dependent on the price of lithium. Emilio Castillo from the University of Chile notes that fiscal revenues have decreased with the price drop, and it is necessary to adapt to price cycles in the mineral sector.
On the other hand, the situation in Argentina is more critical, as the country had planned to increase production based on the assumption that prices would remain high. Shunko Rojas from Quipu mentions that some smaller projects have had to suspend operations or delay their start.
As plans become more complicated, some companies like Arcadium have canceled credits and slowed their expansion, impacting expected revenues for the provinces.
Despite these challenges, Rio Tinto's acquisition of Arcadium, the second-largest mining company in the world, suggests that there are still long-term expectations in the sector.
Geopolitical considerations
The price of lithium is also influenced by geopolitical factors. The United States and Europe view South America as a key partner in the supply chain for electric vehicle manufacturing. At the same time, China, the main producer of electric vehicles, seeks to secure its sources of raw materials.
The international context also plays a role, with uncertainties regarding tariff policies and incentives for electric vehicle production. José Fernández, a U.S. official, has indicated that China may be manipulating the lithium market, reflecting tensions among major economies over access to critical minerals.
Thus, the role of Chile and Argentina in the lithium market will remain crucial in the coming years.
Source: BBC with contributions from Phil Mercer.
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