China’s firms seek to avoid pitfalls in search of key EV metal in Latin America: analysts

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Chinese firms, which needs the raw material to make batteries for the world's largest electric vehicle (EV) market, are hitting resistance in some Latin American countries that hold the keys to the world's reserves of the soft, silvery-white alkali metal.

The miners face environmental, protectionist and occasionally political barriers, analysts said, with some issues leading to legal problems and prolonged negotiations.

Latin American countries, such as Chile, Bolivia, Mexico and Peru, also place extra scrutiny on non-Chinese investors, but China's access to lithium is seen as especially critical as it is the largest producer of EVs with about US$34.1 billion worth of exports last year.

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"China is currently the world's largest lithium smelter, and the demand for lithium ore grows day by day," said Aggie Hu, senior editor with the China commodity data analytics service Mysteel Global.

"At the same time, other countries are basically reviewing their own national industrial development needs and are gradually paying more attention to lithium resources."

Among the higher-profile cases, Chilean officials and the state-run Sociedad Quimica y Minera de Chile (SQM) chemical company have been haggling with Chinese EV giant BYD since 2022 over discounts on chemicals at a BYD lithium project in the country.

Chile announced in April 2023 that it was planning to nationalise its lithium sector, but the Chinese carmaker can help Chile improve its mining technology, bolstering its case in any future negotiations, analysts said.

"The Chilean government wants to move up the value chain, and BYD's project in Chile accomplishes this," said Jesse Rogers, head of Latin America economics with Moody's Analytics.

Shenzhen-based manufacturer BYD or representatives from the Chilean government did not respond to requests for comment.

Bolivia, Mexico and Peru are also scrutinising foreign lithium interests. Bolivia and Chile, along with neighbouring Argentina, hold more than half the world's reserves.

Mexico nationalised lithium resources in 2022, a move that has cancelled or threatened mining concessions held by private firms, the Washington-based Council on Strategic Risks policy think tank said.

Ganfeng Lithium, a Jiangxi province-based firm that is among the world's biggest producers of the battery material, and its local partners have registered an arbitration case against the Mexican government over cancelled lithium concessions. Ganfeng did not immediately answer a request for comment.

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Peru, a newer lithium source, is known for environmental rules and - in one case - evaluating the impact of Chinese interests in the country.

The Peruvian port authority said in March it intended to cancel the approval of exclusive operating rights for a China-based subsidiary of the state-owned Cosco Shipping over the multipurpose Chancay port, but it later withdrew the proposal.

The port in Peru would handle shipments of lithium, among other goods, from South America to Asia.

Bolivia and Chile have "raised legislative barriers" that deter foreign investment, said Cameron Hughes, battery market analyst with market analysis firm CRU Group.

Bolivia has placed the exploitation of lithium under government control, while Chile requires state participation in any new project and collects royalties from private parties, he said.

The economic rivalry between China and the United States over the past six years is having a limited but still visible impact on China's lithium activity in Latin America, analysts said.

But in Bolivia, the US government may be pressuring officials to de-risk or decouple from Chinese investment, Rogers said.

"There is growing talk in the US about the need to secure lithium reserves in Latin America and edge Chinese firms out," he said.

General Laura Richardson, head of the US Army's Southern Command, was quoted by Brazilian news website Brasil de Fato as having called US access to lithium in Bolivia and adjacent countries a matter of "national security over our backyard".

Chinese consortium CBC, which includes battery firm Contemporary Amperex Technology Limited (CATL), signed a deal with Bolivia's state-owned lithium company in January 2023.

And investors from China could probably keep mining in the Americas if they showed host countries that their activity adds value to local economies through jobs, taxes or new technology, analysts said.

"There are certainly several factors at play here on how often or why a country would consider pushing back against China, such as ... the level of investment or economic benefits that Chinese miners bring to the local economy," said Yuan-Sheng Yu, a managing director at Lux Research in Singapore.

To safeguard against bottlenecks in the tougher Latin American nations, Chinese investors are turning to places with laxer rules, while also working to make output more efficient.

BYD is looking to build an EV factory in Brazil to help process lithium for the international market, seeking to utilise a recent liberalisation of mining rules.

In Argentina, Ganfeng said in March it had agreed to take a US$70 million stake in a lithium brine project.

Chinese companies invested US$3.2 billion in Argentinian mining projects, including seven lithium operations, from 2020 to 2023, according to the Business & Human Rights Resource Centre advocacy group.

Argentina and Brazil are "safe" countries for Chinese lithium investors, Hughes said.

Ganfeng is also acquiring a 40 per cent stake from an Australian partner in a lithium mine in Mali to gain full ownership and "ensure a better supply of lithium resources", the Yicai Global news outlet reported in May.

However, under a new mining code enacted last year, the government of Mali has the right to hold up to 35 per cent of the project.

Chinese miners are also exploring new extraction methods to boost mineral recovery rates from between 40 and 60 per cent to between 60 and 70 per cent, an option that could be commercialised within five years, Yu said.

And China could sell itself in sceptical Latin American countries as the world's strongest in terms of technical ability to extract lithium ore, said Zhao Xijun, a professor of finance at Renmin University in Beijing.

Because every country has mining requirements, especially concerning environmental issues, Chinese miners need "good relations" with mineral-rich countries to sell the idea of joint development as a "joint win", he added.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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