Lithium Squeeze Looms as Top Miner Front-Loads, Chile Says

Plans by one of the world’s top lithium producers to accelerate output could lead to a shortage of the light metal used in electric-car batteries in five years, according to the Chilean government’s development agency.

Soc. Quimica & Minera de Chile SA last month announced plans to increase its capacity to produce lithium carbonate from 48,000 to 63,000 metric tons a year. At that rate, it would reach its output limit of about 1 million tons well before the concession with Corfo, which owns the land, expires in 2030. Extracting more from the area would require applying for new licenses. SQM is embroiled in a dispute with Corfo over royalty payments. 

“We estimate it will reach its quota and be forced to stop producing lithium in the Atacama salt flat in 2022,” Corfo Executive Vice President Eduardo Bitran said in an interview from his Santiago offices. "If demand keeps growing at the current rate, projections show a period of significant lithium scarcity.”

SQM may reach its quota in 2023 or later, depending on production levels and sales over the next few years, the company said in an emailed response to questions. On Friday, Larrain Vial raised its recommendation on the stock to buy from hold, citing the lithium expansion plan.

Chile’s Atacama salt flat is home to the world’s largest lithium reserves and is the only area mined for lithium in the country. SQM has a concession to operate in 75 percent of the salt flat. Albemarle Corp. operates in the remaining area.

In an arbitration process, Corfo is arguing that the company underpaid taxes and fees, an accusation that SQM has denied. The company controlled by Chilean entrepreneur Julio Ponce is also under investigation for a series of illegal payments to politicians and for tax evasion, while Ponce himself is appealing a $70 million fine for illegal trading in SQM holding companies handed down in 2014.

“The company hopes that differences with Corfo can be solved before the quota is exhausted," it said in the statement. "We also hope we can agree on a quota increase that will allow us not only to keep producing at these levels, but also to increase production."

In January, Charlotte, North Carolina-based Albemarle entered into an agreement with Corfo to raise annual production to 80,000 tons of lithium carbonate through 2043. But even that might not be enough to cover rising demand from companies including Tesla Inc.

"Albemarle is planning a significant increase in production over the next three years, to the point it will overtake SQM’s current output," Bitran said. "We expect Albemarle to keep increasing its brine extraction levels so they can increase lithium production even more in a few years’ time."

Global demand is forecast to reach 188,000 tons of lithium carbonate this year, and could reach 611,000 tons by 2035, according to Corfo’s most conservative scenario. The agency’s most optimistic outlook is demand of 1.2 million tons in 2035, about half of which coming from electric-car makers.

Argentina Ambitions

Still, Chile isn’t alone in developing its vast deposits.

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