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Lithium and Chile: looking back and looking forward

Abstract

This paper focuses on the economic fortunes of the Chilean lithium industry over the past three decades and considers its likely future directions. When SQM commissioned its brine extraction facilities in the Salar de Atacama in 1995, joining the already established SCL (operating since 1984), Chile emerged as the world’s leading lithium producer. It retained this position until 2013 when Australian production surpassed it. Chile, Australia and Argentina now dominate the early stages of the lithium industry. Four multinational companies—Albemarle, SQM, FMC Corporation and Tianqi Lithium—accounted for more than 83% of world lithium output in 2016. These firms appear to exert considerable market power. Against this background, we outline and assess recent developments in the Chilean lithium sector, noting that the second Bachelet government (in office from 2014 to early 2018) convened a year-long National Lithium Commission in 2014. The members of this group suggested strategies to maintain and enhance Chile’s competitive advantage in the lithium sector. The final section considers the implementation of these in the light of the election of the second Piñera administration which took office in March 2018.

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Notes

  1. Some writers express lithium consumption in terms of lithium metal equivalent. Approximately, 5.32 units of lithium carbonate (Li2CO3) converts to one unit of lithium metal.

  2. These estimates are derived from the United States Geological Survey (various years a, b).

  3. There are presently also two lithium extraction brine operations in nearby salars in Northern Argentina. FMC operates at the Salar de Hombre Muerto, while Orocobre produces in the Salar de Olaroz.

  4. For more on this point, see Ebensperger et al. (2005), Moscoso (2010) and Desormeau (2015).

  5. Lagos (2012) provides some discussion of the reasons for the Chilean government’s classification of lithium as a nuclear material.

  6. This argument presupposes that the dominating producers will have incentives to raise prices. The presence of a few rather dominating producers is not, however, a sufficient condition for the exercise of market power.

  7. These companies also included the Arab Potash Company of Jordan, Sinofert in China and Israel Chemicals Limited.

  8. The data in the former documents are generally quite accurate. In the latter documents, particularly with smaller companies seeking to enter the market as producers, it is usual to refer to “Forward Looking Statements” that tend to be optimistic about the future. It is arguable, therefore, that the data in Table 5 overestimate the importance of recent entrants to the lithium industry.

  9. We have changed the punctuation of this passage to add to its impact.

  10. Starting in the early 1980s, several new copper mines were commissioned, utilising in particular the favourable conditions associated with Decree Law 600, which related to foreign investment. The most prominent of these new mines have been Los Bronces (owned by AngloAmerican, Mitsubishi and Codelco), Escondida (BHPBilliton/Rio/JECO), Collahuasi (AngloAmerican/Glencore /Japanese interests) and Los Pelambres (Antofagasta Minerals/Japanese interests). Since the restoration of democracy in 1990, these mines have run profitably.

  11. The CEOL acronym stands for Contrato Especial de Operacion de Litio.

  12. This is equivalent to 532,000 t LCE

  13. She had been President also between 2006 and 2010.

  14. See for example Stewardson (1992).

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Acknowledgments

The authors wish to acknowledge the contribution and inspiration of our late colleague and good friend, Christian Moscoso Wallace from Universidad de Chile, in developing our interest in this field.

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Correspondence to Philip Maxwell.

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Maxwell, P., Mora, M. Lithium and Chile: looking back and looking forward. Miner Econ 33, 57–71 (2020). https://doi.org/10.1007/s13563-019-00181-8

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Keywords

  • Chile
  • Lithium
  • Collusive behaviour
  • Vertical integration
  • Horizontal integration
  • Value adding
  • Market power
  • Mineral policy

JEL classification

  • L0
  • L1
  • L720
  • L11
  • D430