Commentary

Who wins in Chile’s plans to nationalize its lithium industry?

May 8, 2023

Peter Zeihan (Commentary Contributor)

Chile has decided to nationalize its lithium industry, a decision with broadly positive implications across the globe, with one key exception. — Image credit: AP Images

All opinions expressed in this article are solely the opinions of the contributors.

In April, Chile’s President Gabriel Boric said his country would be nationalizing its lithium industry, a move set to bolster its economy and protect its environment. Chile is the world’s second-largest producer of the metal, which is an essential component in the manufacturing of electric vehicle, cellphone and laptop batteries.

Straight Arrow News contributor Peter Zeihan breaks down the global winners and losers and details how the decision affects the U.S. and China.

Excerpted from Peter’s May 8 “Zeihan on Geopolitics” newsletter:

With the demand for lithium growing, Chile is making moves to nationalize its lithium industry. This isn’t just another money grab; it’s an effort to move up the value-add chain.

The Indonesians have seen noteworthy success with the reclamation of their nickel industry, and the Chileans are looking to take a page from the Indonesian playbook. One of the most significant changes will be the development of critical infrastructure in the Atacama Desert, where most of the Chilean lithium is found.

So who are the biggest winners and losers in all of this? China is really the only loser; much of its lithium ore supply will disappear and its processing infrastructure will sit idle. The Chileans are the biggest winners, but most countries transitioning to green energy will benefit from this. So maybe nationalism isn’t always bad…

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All opinions expressed in this article are solely the opinions of the contributors.

Hey everybody, Peter Zion coming to you from snowy Colorado and today we’re going to talk about some of the changes in the lithium market that are going on because of the Chileans. Now that’s lands are one of the world’s two largest producers with Australia being the other one. And most of the lithium that Chile produces comes from, basically brine, they dissolve a number of things that they mined in Brian pools, and then it becomes more concentrated that concentrate is then shipped out. Well, the plans have now announced that they have plans in progress to nationalize the entire sector, so that the state will have a majority share in every single holding. Now in a lot of sectors when countries especially in Latin America, nationalized that things. That’s a code word for I’m just going to steal this all and strip it apart and melt it down and make as much money as I can and leave nothing behind. That’s not how the trillions work. The Chileans are looking to take control of more of the production process. Now they have done this before with the copper market about 50 years ago. Instead of having international companies coming in mind all the copper they went in, and they nationalized it and took it over and ran it themselves. Now nationalization is not expropriation. Nationalization means you pay the people on the other side, a decent price for what you’re taking expropriation means you just take it and they get nothing. One of the problems that Chileans had 50 years ago is they discovered when they successfully took it over and ran all the mining themselves. They were dealing with the exact same companies internationally who would then buy the orange smelted into metal and go on so well. Yes, the Chileans did take control of their own minds. And at least the base materials are still produced in Chile, by national companies. They missed out on a lot of the important value add where the real money is. And the reason the Chileans are thinking of doing that with this with lithium, and now it’s not that they haven’t learned is that they’ve seen someone else do something that might actually work better. A few years ago, the Indonesians who were the world’s largest producers of nickel ore, banned the export of nickel ore, not necessarily nationalized, but they forced the production of processed nickel within their borders. So they instead of necessarily taking everything for themselves, they forced industrial plant to be built in Indonesia in order to supply international markets. Nicole like with lithium is a very important product and anything that is going to involve mass electrification and EVS and batteries and all that good stuff. The Chileans have made it very clear very publicly, that they’re taking their inspiration for this route of nationalizations from the Indonesians. So we’re going to see a lot of investment in industrial plant in the Chilean desert, the Atacama where most of the stuff comes from, to turn the raw lithium not just into concentrate but into lithium metal. And who knows down the line, they might even get into battery production themselves, although that’s a problem for another five years or 10 years from now. Winners and Losers. Now the biggest winners, obviously are the Chileans themselves, the process of turning raw lithium into concentrating in on the metal is not particularly sophisticated, but it is a value added product. And it’s something that Chileans have always been aiming for, I have no doubt that they can do it, especially if they get a little help from foreign investors. The biggest losers are at the top of the list the Chinese, the Chinese have spent a huge amount of effort in the last decade or two in building massive processing capacity for copper and for lithium in China and then just importing the raw product. And Chile has arguably been the biggest loser from that. Well, the Chileans are now taking some of that back. And if they have even moderate success with lithium, you can bet your ass they’re gonna do the same thing for copper as well, which is going to leave all that industrial plant in China, stranded without supplies. Now, if you’re like me, and you think that China’s going down, or if you’re a more traditional economic nationalist, and you just don’t like the idea of trusting a genocidal dictatorship for your raw material supplies. This is actually a really good thing for most of the world, especially for the United States. We’ve known that we need to massively increase the industrial plant and especially the processing capacity for a lot of these green tech materials on a global basis because it’s too concentrated in China. Well, the Chileans are kick starting that process for lithium, and I have no doubt that in a year or three, they’re probably going to do the same thing for copper. We need to see this happen in a lot more places. So his nationalization and a naughty word. Maybe. But that doesn’t mean that it can’t benefit everyone except for the Chinese over the long run. All right. That’s it for me.

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