Argentina's Lithium Sector: A New Strategy on the Horizon?
Argentina's Mesa del Litio (lithium’s table) consisting of lithium producing provinces- Catamarca, Jujuy and Salta, the three of them in the North of the country- and members of the executive branch is preparing to submit a proposal to Congress outlining the country's comprehensive strategy for the exploitation of lithium. In a previous edition of this newsletter, we examined Chile's recently unveiled "National Lithium Strategy," which grants significant authority to the Chilean government in the exploitation of this valuable resource. However, Argentine officials have confirmed that Buenos Aires' approach will differ significantly from Santiago's.
Contrary to Chile's strategy, Argentina's project aims to foster industrialisation within the country, without necessarily relying on state participation. As reported by Ámbito, an Argentine news site, the proposed legislation includes a section that mandates a certain percentage of lithium to be processed domestically, though the exact percentage has not been made public yet. By doing so, the government aims to create higher value within its borders, thereby avoiding the position of a mere raw material exporter. The primary objective of this measure is to create a larger number of highly skilled jobs within Argentina. Additionally, it seeks to address the issue of import reliance for batteries, considering Argentina's foreign currency challenges.
The concept of implementing a "quota" for local processing finds its inspiration in the Chilean approach, which involved the selection of the renowned electric vehicle manufacturer BYD to establish a processing facility in the Antofagasta desert region. However, it seems that the similarities between the two strategies largely diverge from this point. Reports from the aforementioned news site indicate that Argentina does not intend to pursue state-led exploitation of lithium, with the exception, perhaps, of certain projects carried out by the state-majority-controlled YPF Litio.
The primary rationale behind Argentina's private sector-led approach to lithium is rooted in constitutional limitations rather than solely in the government's business-friendly policies. The 1994 Constitutional reform explicitly stipulated that natural resources are the purview of provinces rather than the federal state, rendering nationalisation unconstitutional. Consequently, Argentina's lithium sector has thrived as a result of a decentralised and pro-market approach. Nonetheless, this has not substantially benefited the country so far, as lithium exports remain relatively low, representing less than 1% of the country’s export revenue.
Currently, Argentina hosts two operational lithium projects: ‘Fénix’ in the province of Catamarca, which is operated by the American firm Livent, and ‘Sales de Jujuy’, also located in the province of Jujuy, operated by the Australian company Allkem. Interestingly, these companies have recently announced their merger, paving the way for the emergence of a formidable player in the industry. Additionally, the ‘Exar’ project has just commenced its operations in Jujuy, bringing together Canadian Lithium Americas, Chinese Ganfeng Lithium, and the local energy company of Jujuy.
Despite having a robust private-led sector, Argentina faces challenges in competing with other lithium-producing countries such as Australia and Chile. In 2022, Argentina's lithium carbonate exports amounted to nearly US$700 million, significantly lower than Chile's impressive figure of US$8 billion for the same year.
Argentina's market-oriented strategy is expected to continue attracting companies and investors from around the globe as clean energy sources gain prominence, particularly with the surge in EV markets. The increasing relevance of clean energies presents a favourable environment for Argentina's approach. However, there is an ongoing debate regarding whether Chile's more statist approach to lithium exploitation will have a positive or negative impact on Argentina. On one hand, it may make Argentina appear as an attractive market for companies seeking alternative options. On the other hand, some specialists argue that Chile's decision could potentially harm Argentina, as investors might seek safer markets such as Australia and withdraw from South America.
However, it should be noticed that Chile has a well-established reputation for maintaining a business-friendly environment, unlike Argentina, which adds to its attractiveness for investors, irrespective of the government's intervention in lithium production. Consequently, it remains challenging to ascertain whether Argentina will significantly benefit from this approach by attracting more investment than Chile.
Key aspects to follow:
The coming together of the Lithium's Table and their ability to reach an agreement and present the project to Congress will be crucial. Additionally, the Legislative branch will need to engage in thorough discussions and ultimately decide whether to pass the project or not. This undertaking appears to be challenging, particularly considering that this year is deeply influenced by the upcoming October presidential elections.
Despite the pro-market strategy mentioned earlier, it is important to note that it alone will not attract a substantial amount of foreign direct investment (FDI) into Argentina's lithium sector. The country is currently confronted with significant political, economic, and social risks, including upcoming elections, an inflation rate of over 120%, and a growing sense of social discontent.
Both the federal state and the provinces must take decisive action to ensure that companies adhere to ESG considerations. This is crucial for minimising the environmental footprint and mitigating negative social impacts, particularly since mining facilities are often situated in regions inhabited by indigenous communities.
*article photo from Reuters.