OPEC-style lithium cartel now unlikely, analyst says 

The odds of Latin America’s three lithium powers banding together to form a production cartel have almost evaporated due to contrasting economic models, a leading geopolitical analyst says. 

Argentina, Chile and Bolivia have previously held discussions with Brazil about the creation of a group – inspired by the Organization of Petroleum Exporting countries, or OPEC – tasked with boosting lithium processing capacity and turning more of their mined metal into batteries. Together, Argentina, Bolivia and Chile – dubbed the Lithium Triangle – hold an estimated 60% of global lithium resources.  

While Chile and Argentina have made strides in luring foreign investors to boost output of the white metal, Bolivia – referred to by some observers as the Saudi Arabia of lithium thanks to its abundant reserves – remains a fringe producer due in part to wide-ranging state involvement in the industry. Even a possible change of government following the upcoming August election might not suffice to spur lithium output, according to Diego von Vacano, a political science professor at Texas A&M University’s Bush School of Government. 

“The Lithium Triangle is very important because about 60% of the world’s resources are concentrated there, but the countries have very different models,” von Vacano said in an interview. “People thought the triangle countries could create some type of OPEC situation, but now they are just too different. Coordinating between the three countries is going to be very difficult.” 

A Bolivian native and former adviser to President Luis Arce, von Vacano is writing a book on the country’s lithium sector for Oxford University Press. He is currently a fellow at the Woodrow Wilson International Center for Scholars in Washington. 

State-controlled

Although Bolivia holds reserves estimated at 23 million tonnes, the country has struggled to develop a viable lithium industry. In addition to the state-controlled resource extraction model, political instability and high magnesium levels in lithium deposits have made large-scale production a challenge.  

Bolivia’s stumbles contrast with the success of Chile, which has risen to No. 2 globally by attracting foreign miners such as U.S.-based Albemarle (NYSE: ALB). A new national lithium strategy, which relies on public-private partnerships and gives state-owned copper giant Codelco a central role in signing up partners, is unlikely to halt momentum, said von Vacano.  

“Chile is the gold standard for South America mining, even though it has neglected the social aspects to some extent,” he said. “Chile offers stability and a solid legal system, and it has a longstanding free market system. Even though Codelco is state-owned, it’s a successful enterprise.”  

While Bolivia has signed deals with Chinese and Russian companies to build lithium carbonate production facilities, depressed prices for the metal mean that the landlocked country may have missed its best chance of using mineral resources to curb poverty, von Vacano says. Lithium carbonate prices have plunged by more than three-quarters since hitting about $80,000 a tonne in 2022. 

The professor criticized President Arce’s effort in developing lithium after the 2020 election. 

“Things have stalled. They could have done something like Chile with a 51%-49% ownership structure between the state and private enterprise when Luis Arce came to power, but that did not happen,” von Vacano said. “The political capital that he had initially was very high, and he could have used that to generate support for lithium mining. That time is gone. Also, the demand for lithium today is much smaller.” 

Social acceptability 

Compounding Bolivia’s situation is a lack of social acceptability for large-scale mining. Some community groups are arguing that contracts signed with Chinese and Russian companies last year to exploit lithium reserves offer no real benefits to locals.  

“There’s a number of people in Bolivia who think that it might be better not to do anything with lithium,” von Vacano said. “Some of the Indigenous communities are saying it’s better to remain poor because exploiting the resources would mean more pollution and inequality. In the last two years, I’ve been hearing more and more examples of that from some communities in the Uyuni area.”  

It’s near the massive lithium-rich salt flat of the same name. Even the possible election of a more mining-friendly government might not move the needle. 

“It’s possible that even if a centre-right party wins in August, a lot of Bolivians are going to resist the more free-market policies,” von Vacano said. “That’s especially true if the new government doesn’t show the clear benefits of a royalties scheme. So even if a conservative government takes power, there’s going to be a lot of friction and resistance.” 

Bolivia’s economic plight “is dire,” he added. “There’s a lack of fuel, a lack of dollars, and inflation has gone up significantly. Almost every economic indicator is negative, and the natural gas resources have declined. Bolivia should really have taken action on lithium about four years ago.” 

Sleeping giant 

As Bolivia stalls, another South American country is preparing to move up in the lithium ranking– Brazil. The continent’s biggest economy is home to several explorers and emerging producers such as Sigma Lithium (TSXV, NASDAQ: SGML), run by CEO Ana Cabral-Gardner, the Miner’s 2022 Mining Person of the Year. 

Brazil’s lithium carbonate equivalent output could jump fivefold by 2028 from its 2023 level, according to a 2024 S&P Global forecast. Competitive production costs are one of the country’s key attributes, S&P said. 

“Brazil is a little bit like a sleeping giant that could wake up and drive the South American critical minerals sector, and especially lithium,” von Vacano said. “Its resources are not as large as those of the Triangle countries, but Brazil’s experience with infrastructure and mining is a strength.” 

Sigma and Vale (NYSE: VALE) “are good examples of companies that could work in other Latin American countries to drive their critical minerals sector,” he added. “Paraguay, Peru and Mexico have some lithium, so this could become a much bigger regional project.”