Codelco to benefit from entry into lithium business, says Moody’s

Moody’s stated on Wednesday that Codelco will have the chance to diversify its business, boost cash flow, and reshape its profile by entering the lithium market.

“Codelco is going to be a significant producer of two commodities that are crucial for the energy transition worldwide,” Barbara Mattos, a corporate analyst at Moody’s, said.

She added, however, that entering the lithium market would eventually require capital and that could put pressure on Codelco’s credit quality.

On Tuesday, Codelco CEO Ruben Alvarado said that the company had made progress in negotiating with local communities over lithium mining and will keep working to win their support.

The miner has been in dialogue with Indigenous groups on the details of a new, state-mandated joint venture in the Atacama salt flat with SQM (NYSE: SQM).

Moody’s assessment comes almost one year after Chile’s government announced plans to nationalize the country’s lithium, with Codelco tasked with boosting state control of the lithium industry through partnerships with private companies.

Chile, one of the top global producers of lithium, pumped out 44,000 metric tonnes of the mineral in 2023, accounting for 24% of global lithium mine production, out of a global total lithium content of 180,000 tonnes.

Moody’s says the EV industry will keep interest in lithium high despite the slump in prices over the last year, which are almost three times lower than the levels of last summer.

Last October, Moody’s downgraded its credit ratings for Codelco because of lower production volumes and higher costs, while giving the state-owned copper producer a negative outlook.

In December, the miner had its credit rating cut two notches by S&P Global Ratings. 

Martina Gallardo, a lithium analyst for Moody’s, said that while a surplus of lithium could lead to a further decline in prices for the rest of the year, she expects a supply-demand rebalance in 2025.

“Despite this short-term volatility, the long-term outlook remains positive,” Gallardo said, adding that lithium demand could jump by 150% by the end of the decade and almost fourfold by 2050.

(With files from Reuters)