The reasons behind the Asian companies’ decision to withdraw from projects that aimed to promote lithium processing in Chile
“We are not going to limit ourselves to the extraction of this non-metallic mineral; we will also create value chains and transfer knowledge,” declared President Gabriel Boric in October 2023, during a highly publicized announcement in Beijing, China. He revealed that a Chinese company would invest US$233 million in Mejillones to produce lithium precursors. The left-wing government appeared to be taking decisive steps toward a new economic model: not only signaling the decline of neoliberalism, but also positioning the State as the driving force in the industrialization of lithium, moving beyond the traditional extractive model to enable the domestic manufacturing of Made-in-Chile batteries.
“This is a major announcement because it reflects tangible progress in our National Lithium Strategy, which aims not only to boost our production capacity but also to generate greater added value,” added Economy Minister Nicolás Grau at the time.
Nineteen months later, that enthusiasm has been met with a cold reality: Diario Financiero revealed that the previously mentioned firm, Yongqing Technology, as well as BYD—another company selected to build a lithium carbonate plant with a US$290 million investment—have pulled out of the projects.
BYD was the first to be selected, in April 2023, followed by Yongqing. CORFO’s intention was that both companies would receive up to 11,244 tonnes per year of battery-grade lithium carbonate produced by SQM, at preferential prices, with the commitment to advance the value chain domestically and create more than 1,000 jobs.
However, executives from both Chinese firms, along with lithium industry experts, say the contracts offered by CORFO lacked economic viability, compounded by a series of bureaucratic obstacles.
The Reasons: Bureaucracy, Permits, and Pricing
“Building a lithium conversion plant in Chile doesn’t make economic sense today. First off, constructing such a facility in China requires only one-third of the capital investment needed in Chile, and permits there take just a few months, whereas in Chile they can drag on for years. Also, essential raw materials like iron phosphate—which in terms of volume is three times that of lithium—must be imported from China and then the final product shipped back. Initial interest back in 2022 stemmed from a temporary lithium supply shortage.
Today, with lithium prices lower in China, the economics are even less attractive,” explains Daniel Jiménez, lithium industry expert and founding partner of iLiMarkets. In November 2022, lithium prices hit a record high of nearly US$80,000 per tonne, but began to decline as new supply came online.
However, price alone wasn’t the only factor in the firms’ decision, according to executives involved in the negotiations, who requested anonymity due to the sensitivity of the matter.
“We tried to renegotiate the terms with CORFO, explaining they were irrational. We told them that with falling prices, the contract didn’t make sense. If the pricing was based on the six- month average and continued dropping, it would no longer be preferential. It would be cheaper to source lithium directly from China. But CORFO refused to revise the pricing model,” criticized one executive from a Chinese company.
There were also issues with the land allocated for the plants. Last year, BYD publicly complained about delays in securing the location for its lithium conversion plant. In May, CORFO’s Executive Vice President, José Miguel Benavente, responded that if the investment wasn’t materialized by 2025, the firm would lose its status as a “specialized producer,” and the next company on the waiting list would take its place to access lithium at preferential rates.
“When you build a lithium precursor plant, that’s just the first step of a broader industrial park. A standalone plant isn’t economically viable unless you develop the entire lithium value chain. For that, we needed access to solar energy and adjacent land. The Ministry of National Assets never understood this. They wouldn’t allocate more than 50 hectares,” added another Chinese executive.
Expert Reactions and Future Outlook
“It’s unfortunate the investment didn’t come through. However, there were early signs that this wouldn’t materialize. This news just confirms what was already expected,” said Juan Carlos Guajardo, Executive Director of mining consultancy Plusmining.
“Apparently, three key factors played into this outcome: weaker market outlook for lithium, permitting difficulties, and uncertainty over continued preferential access to lithium feedstock beyond 2030, when the current contract between CORFO and SQM expires,” he added.
Both Guajardo and Jiménez expressed surprise that the awards to BYD and Yongqing were not backed by performance bonds. This allowed both companies to walk away without facing major consequences.
Now, attention turns to CORFO’s new call for a specialized producer to receive a lithium quota from Albemarle. The application process opened on April 30 and will remain open until September 25.
As of the publication of this article, neither CORFO nor the Ministry of Economy had responded to our inquiries. Meanwhile, the Finance Minister commented, “This is a missed opportunity, more for the investors than for Chile, because we will continue with our policy to develop lithium value chains.”
Source: La Segunda