Good news for the Australian lithium mining and processing sector (and for those in Chile and Argentina) – Mexico just ruled itself out of the global boom by nationalising the industry.
Left-wing president Andrés Manuel López Obrador this week drove the surprise decision made by a special meeting of the country’s Parliament that failed to extend control over the electricity sector but resulted in the President switching attention to lithium and getting the parliament to agree to its takeover.
The new law reflects the now usual Mexican political leadership’s determination to reassert state control over natural resource – the odd thing that apart from one project, there isn’t a lithium industry really in Mexico to nationalise.
But the decision was a kneejerk political reaction to try and cover up the loss of the electricity grab.
Back in June, 2021 Reuters reported a key parliamentary ally of the President as welcoming private interest in lithium in Mexico.
“Mexico’s leftist ruling party has dropped plans to nationalise lithium production and is now pushing to welcome private investors to help develop the country’s potential in the metal used to make batteries, the senior lawmaker behind the proposal told Reuters.
“After touting the possibility of a state-run lithium monopoly late last year (in 2020), Sen. Alejandro Armenta, chairman of the upper chamber’s finance committee and a key ally of President Andres Manuel Lopez Obrador, said he will instead author a bill to promote a regulated marketplace in the nascent sector, Reuters reported in early June, 2021.
“We’re convinced that we need private investment and we’re allies of domestic investors and also foreign investors who respect us,” said Armenta, attributing his new posture to having studied regulatory frameworks for lithium in other countries. Armenta said a market-friendly lithium bill will be introduced in September with the start of a new legislative session,” he told Reuters.
That didn’t happen and instead López Obrador sent a bill to the Congress calling for lithium to be reserved to the state (that was part of proposed legislation that was to enable his grab for control of the electricity sector) which eventually was grabbed and used as a political sop after he was defeated on the electricity takeover attempt this week.
But like the oil industry which continues to be underinvested by the state, the latest grab will make it harder for Mexico to benefit from whatever lithium reserves it has as demand for the metal booms off the back of the electric vehicle revolution.
López Obrador’s move ensures that as the EV revolution comes to Mexico it will pay heavily for foreign controlled resources and ideas. With Tesla’s new EV plant at Austin in Texas, supplying Mexico with new EVs will be easy for Elon Musk’s still growing giant.
Reuters says López Obrador had convened the Mexican congress for a highly unusual Easter Sunday vote on his controversial electricity bill, which the US had criticised for jeopardising billions of dollars of renewable investment and potentially contravening the US-Mexico-Canada free trade agreement.
Opposition lawmakers denied him the two-thirds majority needed for constitutional changes but the President responded immediately by rushing the lithium nationalisation bill, which needed only a simple majority, through both houses of congress over the following two days.
“The lithium is ours,” López Obrador crowed at his news conference on Tuesday, recalling “the oil is ours” refrain from the country’s 1938 expropriation of the oil industry from foreign companies.
“It was a very good decision yesterday. Let’s see if it acts as a scolding to those who didn’t finish the job,” he added, referencing opposition lawmakers who “thought by blocking the constitutional reform that it was resolved — no, no, no”, according to media reports.
Since winning office in 2018, López Obrador has fought to reverse resource reforms under previous governments which opened up the oil and electricity sectors to private investment.
He has pushed a model of development that gives primacy to resource exploitation by state-controlled companies. It’s a policy that currently sits well with the autarky being promoted by Chinese president Xi Jinping.
Collectively, South America (principally Argentina and Chile) has the world’s biggest lithium reserves and soaring demand the metal, which is used in rechargeable batteries in electric vehicles and home electricity supplies, has ignited hopes of a mining bonanza.
It has also encouraged left-wing politicians across the region to rush to nationalise: Bolivia has made lithium a state monopoly and Chile is planning to set up a state-owned lithium company. Peru continues to battle local opposition to water overuse and roads to foreign owned mines (especially China’s Las Bambas).
Chile seems to want to restrict and take greater control of its copper mining and lithium (brine) sectors.
In all cases the government action in South America – and that of Mexico – will make Australia seem like a safe haven.
The new law will establish a “decentralised” agency for the development of lithium. It also states: “The exploration, exploitation and use of lithium is declared to be of public utility, for which no concessions, licences, contracts, permits, allocations or authorisations will be granted.”
The Financial Times though wondered if it might have been something of a political dodge by the President because there is doubt that Mexico has much lithium any way.
The paper quoted The Mexican Association of Mining Engineers, Metallurgists and Geologists as saying in a statement that “clays containing lithium have been located” in the country. “To the best of our knowledge, no country has produced and commercialised lithium from clays,” it added.
British miner Bacanora Lithium has been developing Mexico’s only significant lithium project in the northern state of Sonora with Chinese partner Ganfeng International Trading which now Ganfeng now controls the $US420 million project. Production is due to start in two years and both companies had no comment this week on the shock move.
This prospect has attracted other companies to the region where the clays are the dominant resource, unlike spodumene in Australia and the salt/brine basins in South America and parts of southwestern US (where Albemarle operates America’s only lithium mine).
Mining experts quoted by the FT reckon the government’s move into a capital-intensive sector such as lithium, could very well emulate Mexico’s failure to establish a successful state-run uranium company in the 1980s.
Not sure what Elon Musk will make of all this. After a record profit and revenue and car sales in the March quarter, the Tesla chief continues to whinge about the price of lithium.
In the post-result analyst briefing, Musk said the rising cost of raw materials, especially lithium was a big problem. Unlike his last whine, however, this time he didn’t seem to be hinting that he or Tesla will become a miner.
He said battery production – more specifically lithium – is what he claimed the “fundamental limiting factor” for the rapid move to electric vehicles worldwide.
“We think we’re going to need to help the industry on this front,” Musk said. “I’d certainly encourage entrepreneurs out there who are looking for opportunities to get into the lithium business. Lithium margins right now are practically software margins.”
But unlike his previous comments on the issue – mostly made via Twitter – Musk didn’t canvass the idea Tesla or one of his other companies, or a new company, might get into the business.
That had seen a lot of lithium hopefuls preen themselves in case Musk came calling with some deal or promise. It was all hot air, delivered via Twitter.
You notice Musk didn’t talk very much about the way oil and petrol prices have soared, helping make his Tesla vehicles more attractive to consumers and effectively adding to the pricing pressures on lithium especially.
Nor did he talk very much about other boasts, such as automated driving or an electric ute (pick up) and electric cab. They are off in the future.
It is not in dispute that lithium prices have escalated rapidly in the past year or so, but that has been clearly a matter of rapid rises in demand meeting slow to build supplies.
UK-based Benchmark Mineral Intelligence said its lithium price index surged 280% in 2021 and another 127% in the first quarter of this year (helped by the spillover of high carbon-based energy costs boosted demand for batteries for cars, homes and businesses).
EV Sales figures help explain most of the surge in demand for the metal.
Global EV sales in the first quarter jumped nearly 120%, according to estimates from the website EV-volumes.
EV-volumes said global EV sales reached 6.75 million units in 2021 108 % more than in 2020. This volume includes passenger vehicles, light trucks and light commercial vehicles. As in 2020, EVs again were resilient to set-backs in auto demand and supply.
“The remarkable growth rate of 108% annual rise needs to be seen relative to the low base volume of 2020. Caused by regulations and Covid-19, global EV sales of 2019 and 2020 were below the long-term trajectory and in 2021 they returned back to trend. While the annual growth looks extreme, the 2021 volume is still fair,” the firm said.
Tesla led the original equipment makers (OEM) Electric Vehicle ranking with 936 000 deliveries, 436,000 more than 2020. The Model-3 reached 501 000 units and became the 2nd most sold midsize nameplate after the Toyota Camry. The Volkswagen Group stayed Number 2 and BYD climbed 4 positions to 3rd spot. BYD delivered nearly 600 000 units (excluding buses), over 400 000 more than in 2020.
“For this year we expect EV sales to return to more normal growth and reach around 9.5 million units, higher if remaining issues in supply and logistics are resolved,” the site forecast.
But a report from McKinsey released before Easter claims these concerns about a lithium shortfall may be overblown.
While lithium demand is skyrocketing – from an estimated 500,000 tonnes in 2021 to as much as 3.8 million tonnes by the end of the decade – new sources and new technologies will be enough to supply the market, McKinsey says.
“…we believe that the lithium industry will be able to provide enough product to supply the burgeoning lithium-ion battery industry,” McKinsey said.
But it warned in the report that “satisfying the demand for lithium will not be a trivial problem.”
“Over the next decade, McKinsey forecasts continued growth of Li-ion batteries at an annual compound rate of approximately 30 percent.
“By 2030, EVs, along with energy-storage systems, e-bikes, electrification of tools, and other battery-intensive applications, could account for 4,000 to 4,500 gigawatt-hours of Li-ion demand,” the firm forecast.
“Alongside increasing the conventional lithium supply, which is expected to expand by over 300 percent between 2021 and 2030, direct lithium extraction (DLE) and direct lithium to product (DLP) can be the driving forces behind the industry’s ability to respond more swiftly to soaring demand.
“Although DLE and DLP technologies are still in their infancy and subject to volatility given the industry’s “hockey stick” demand growth and lead times, they offer significant promise of increasing supply, reducing the industry’s environmental, social, and governance (ESG) footprint, and lowering costs, with already announced capacity contributing to around 10 percent of the 2030 lithium supply, as well as to other less advanced projects in the pipeline.”
McKinsey acknowledges DLE is still in its infancy and of the five types of technologies only adsorption processes are already in commercial use, but DLE has several benefits including eliminating or reducing the size of evaporation ponds, less fresh water use, decreased production times, and increased recoveries from 40% for traditional brine operations to over 80%.
While geothermal and oil waste-water brines with grades of 100 to 200 parts per million will play a role in future supply with carmakers Renault, Stellantis and General Motors are already invested in early-stage geothermal projects, any short-term supply shocks could also be mitigated by direct shipping ore (DSO) which happened in 2018, when lithium prices previously spiked.
As for secondary supply, McKinsey sees expected battery lifetimes of around 10 to 15 years for passenger vehicles coupled with the possibility of extending EV battery life through use in the energy-storage sector, while battery recycling is expected to only represent some 6% of total supply in 2030.
“Lithium-ion (Li-ion) batteries are widely used in many other applications as well, from energy storage to air mobility.
“As battery content varies based on its active materials mix, and with new battery technologies entering the market, there are many uncertainties around how the battery market will affect future lithium demand.
“For example, a lithium metal anode, which boosts energy density in batteries, has nearly double the lithium requirements per kilowatt-hour compared with the current widely used mixes incorporating a graphite anode,” McKinsey pointed out.
Lithium based batteries currently use around 77 kilograms of graphite, more than any other metal.
But April has seen the first quarter surge ended by China’s mass lockdowns, especially in the major car making centres of Shanghai and Jilin province. The lockdowns have also curbed car sales (total Chinese car sales fell 11% in March, but sales of new energy vehicles rose to 455,000 units – not as high as the record of 510,000 in December last year when buyers took advantage of higher subsidies).
Benchmark Minerals said prices had eased so far in April with battery grade lithium carbonate averaging $US78,350 a tonne. That’s about 1% lower over two weeks. In April last year it was trading around $US15,000 a tonne – when demand was much lower.
Benchmark says the slight downtrend in carbonate pricing “was not indicative of a wider market correction, but rather a temporary pause as a result of covid lockdowns in China, with expectations that prices will continue to increase in May if virus measures are eased.”
Any pent-up demand for EVs caused by the lockdown will see more pricing pressure on lithium, but Musk is impatient and not giving back any of the price rise gains he has locked in for the next year or so to help sell more vehicles. He is a premium price seller and whiner.