In light of the conditions imposed by China to approve the deal, experts warn about the commitments made regarding lithium supply and pricing.
By Patricia Marchetti
China has finally granted the long-awaited green light to the agreement between Codelco and SQM to exploit lithium in the Salar de Atacama. However, the approval did not come alone: it included conditions requiring the new joint venture to guarantee a minimum annual supply of the so-called “white gold” to the Asian giant for ten years.
Specifically, according to the state-owned copper company, it was agreed to “offer supply of certain minimum quantities of finished lithium carbonate products to Chinese customers, on fair, reasonable, and non-discriminatory terms, at market prices with certain adjustment mechanisms. On this basis, if there are significant disruptions in supply, the joint venture must make all reasonable efforts to ensure the continuity of supply.”
The strategic leverage used by the Asian giant opens an exclusive corridor for China into the Salar de Atacama, from where it already imports more than 80% of the annual production of the two key players: Albemarle and SQM. Indeed, according to the Chinese regulator’s disclosure of its approval requirements, the mining company linked to the Ponce family has been its largest international supplier, with a market share exceeding 50% over the past two years.
“From a practical standpoint, securing volumes is not particularly relevant right now, because today 92% of the lithium extracted globally ends up in China; therefore, there are very few alternative markets. This will change in ten years, but within a reasonable horizon of the next four or five years, it will not,” says Daniel Jiménez, partner at iLi Markets, in an interview with Diario Financiero regarding China’s conditions.
Sources familiar with the negotiations with the Asian regulator have indicated that the committed quota would range between 120,000 and 140,000 tonnes of lithium carbonate equivalent (LCE) per year—equivalent to half of SQM’s production and about 40% of Chile’s total lithium output, considering market projections of around 300,000 tonnes for this year.
“That percentage, one way or another, would have ended up in China anyway,” he emphasizes.
The Shadow of Minmetals
The pricing condition, as explained by the companies, has raised concerns. Codelco refers to “market prices with adjustment mechanisms,” while SQM mentions “prices that cannot exceed those established under the referenced commitment.”
Although the figures are confidential, José Hofer, lithium-battery specialist at the UK-based Supply Chain Insights, warns: “I understand that the intention of the Chinese government and its major battery producers is to keep lithium prices below US$10,000 per tonne. So accepting such a condition for more than 100,000 tonnes is substantial—it’s effectively burning an enormous amount of money for the State.”
This comes against the backdrop of new market projections suggesting an earlier recovery in “white gold” prices: they could return to US$15,000 per tonne in 2026 and potentially rise to US$25,000 in the next cycle, Hofer notes.
“This resembles what happened when Codelco signed long-term agreements with another Chinese firm: Minmetals,” he adds, referring to what has been called “the worst business deal in the company’s history.” In 2005, the state-owned miner committed copper supply to the Chinese firm at fixed prices to secure financing for the Gaby project. “Those contracts locked in prices far below the supercycle that followed in subsequent years, resulting in an invaluable
loss for the country.”
A former Codelco executive, speaking anonymously, confesses: “When I read the conditions, I immediately thought of Minmetals, because the shadow of offtake agreements is very strong within Codelco.” For that reason—and considering historical lessons—he believes the figures must have been rigorously analyzed in the current negotiation. Even so, “if in the coming years lithium prices rise to the levels forecast by the market, this will certainly generate friction.”
Hofer raises another warning: “If Chilean lithium already flows almost entirely to China due purely to supply and demand, why commit quantities and call it a fair price? The United States is monitoring this closely, and I am absolutely convinced that there will be a reprimand over this issue.”
Regarding the partnership in general, Jiménez adds: “I do not favor the State’s participation in productive activities, but given political realities, the agreement is the best and most elegant solution for Chile.”
China in the Lithium Triangle
Since the mid-2010s, China’s interest in South American lithium has grown in line with its need to secure supply for a value chain it almost entirely dominates. According to Andrés González, economist and head of the mining area at Plusmining, China accounts for roughly 70% of global chemical refining, 80–90% of cathode production, and the majority of battery and electric- vehicle manufacturing.
Its entry into the lithium triangle began with the acquisition of a 24% stake in SQM by Tianqi for US$4.07 billion. More recently, China attempted to partner with Codelco and Enami in Maricunga and Salares Altoandinos, although Rio Tinto ultimately won those processes.
“In Argentina the strategy has been different,” González explains, “as Chinese companies hold control over assets already operating at commercial scale, such as Ganfeng Lithium in Mariana and Caucharí-Olaroz.” This week, Ganfeng also secured environmental approval for its Pozuelos–Pastos Grandes project in Salta, while Zijin Mining recently inaugurated a plant in Tres Quebradas.
In Bolivia, industrial-scale production has yet to take off due to regulatory hurdles and the complex chemistry of its brines, although in 2024 a CATL subsidiary signed a US$1 billion agreement with YLB to develop two DLE facilities.
The major unknown for the market concerns the scale of China’s expansion in Africa, its new supply hub. Jiménez underscores: “They are extremely capable, have capital, and are pursuing lithium aggressively.”
Source: Diario Financiero