Analysis: As China ties up global lithium, Asian rivals must bet big on South America

Wealth Minerals

09/04/2018 05:00

(Repeats ANALYSIS originally published on April 6, no changes)
    By Dave Sherwood  and Nicole Mordant
    SANTIAGO/VANCOUVER, April 6 (Reuters) - South America's
lithium triangle is the lowest-cost place to produce the vital
battery ingredient, but political hurdles will require Japanese
and South Korean companies to make big investments to crack into
the region as they chase Chinese rivals who have tied up
resources in other parts of the world.
    Even China, the leader in the global race for the metal used
in batteries for everything from smartphones to electric cars,
has had its efforts thwarted in the lithium triangle of Bolivia,
Chile and Argentina, home to around two thirds of global
reserves.
    Because of China's problems, market experts say the lithium
triangle is one place South Korean and Japanese auto and battery
makers can play catch-up.
    The race will go to whichever producers can best navigate
policy obstacles in all three countries. But Panasonic, Samsung
and other South Korean and Japanese companies focused on
long-term supply contracts find themselves further behind the
Chinese, who have been aggressively going after physical assets
elsewhere, such as purchasing their own mines.
    
    JOLTED OUT OF COMFORT ZONES
    South Korean and Japanese firms have relied largely on South
American lithium, and formed longstanding relationships with
producers there. But they have been jolted out of their comfort
zones in the last year as China has engaged in a deal-making
spree elsewhere in the world, spurred by government quotas for
electric car sales. 
    The Japanese and Koreans are "certainly looking for
supplies" in South America, said Henk van Alphen, CEO of small
Chilean lithium brine developer Wealth Minerals Ltd  WML.V ,
which has held talks with battery makers from both countries.
    Japanese and Korean companies have dipped a toe in backing
new lithium mine developers, including in Latin America where
Japanese carmaker Toyota  8105.T  invested in an Argentine
lithium project. Company executives and government officials
from those countries say more is needed. 
    "How to secure metal supplies is one of the interests I have
these days," Park Jin-soo, chief executive and vice chairman of
LG Chem  051910.KS  told reporters in Daesan, South Korea, last
month.  
    "We could consider cooperating with companies which have
such metals, or if needed, a joint venture or a long-term deal,
and we are making a lot of plans for the next few years."
    A Korean official said the government was looking at how to
back the private sector. Previous efforts by Korean state
development agencies have been halting, especially in Bolivia
where a lithium initiative is mired in debt. 
    "We are currently focused on giving support to the private
sector like POSCO or Samsung SDI on the sideline," said the
official speaking on condition of anonymity.  
    Japan's Panasonic Corp  6752.T  is "working to secure stable
supplies of battery materials, through such steps as directly
sourcing raw materials and diversifying sourcing channels", said
a spokeswoman, declining to comment on specific regions.
    In February, a delegation of dozens of Japanese companies
toured Argentine provinces that are home to most of that
country's lithium reserves. 
    
    THE REAL PRIZE
    Chinese companies have aggressively pursued supply
elsewhere, inking several deals with mine developers in
Australia, Canada and Africa in the past year.  urn:newsml:reuters.com:*:nL2N1N517B 
    In Chile, however, the Chinese have struggled to get a
significant foothold in the lithium industry, leaving an opening
for others.
    Authorities in Chile balked when Chinese lithium giant
Tianqi moved to purchase a coveted 32 percent stake in Chile's
SQM, the world's lowest cost producer. Chile development agency
Corfo filed a complaint with anti-trust regulators to block the
sale.
    Now Tianqi is talking to Chile's top anti-trust prosecutor
about the yet-to-be-inked deal  SQM.N   SQM_pb.SN   urn:newsml:reuters.com:*:nL1N1QW02D.
    Such a deal would be "nerve-wracking for Korean and Japanese
companies" who have long-standing arrangements with the
producers like SQM, said van Alphen, of Wealth Minerals. These
relationships would be rocked if Tianqi purchased even a
minority stake in the top producer. 
    South Korean battery maker Samsung SDI  006400.KS  and
metals supplier Posco have committed to building a battery
materials plant in Chile in exchange for securing lithium at a
discount from SQM and U.S.-based Albemarle  ALB.N , the
country's two biggest producers.
    "Why stick a cathode facility in Chile? It is likely to be
more expensive than in Korea or China or Japan. It is all to do
with security of supply," said Robert Baylis, managing director
at ‎consultants Roskill Information Services in London.  
    The real prize, according to a source with knowledge of the
transactions, is a toehold in Chile's lithium industry and the
possibility for eventual expansion.   
    Chile has proven particularly hard to court, prioritizing
access and increased production quotas for SQM and Albemarle and
more recently, state miner Codelco.  urn:newsml:reuters.com:*:nL2N1QR20U  urn:newsml:reuters.com:*:nL1N1PC2D6   
    The country has also been closely guarding entry of new
miners, encouraging companies to do business with known
entities. Yet investors are watching a handful of smaller deals
in the lithium triangle which could hint at potential openings
in Chile for newcomers seeking reliable physical assets. 
    Topping those deals is Salar Blanco, a project controlled by
Lithium Power International of Australia and Canada's Bearing
Lithium, which in March secured a rare Chilean export permit.
    There are also opportunities in Argentina and Canada where
companies can jump on investments if they move swiftly.
    "If you look at the emerging low-cost lithium chemical
projects such as Cauchari, Sal de Vida (Argentina), and Nemaska
(Canada), China has limited participation," said Joe Lowry, an
independent industry consultant who worked for U.S.-based
lithium producer FMC Corp  FMC.N .

 (Additional reporting by Ju-min Park and Jane Chung in Seoul,
Luc Cohen in Buenos Aires, Makiko Yamazaki in Tokyo; Editing by
Amran Abocar and David Gregorio)
 ((dave.sherwood@thomsonreuters.com; +56 9 9138 1047, +56 2 2370
4224; Reuters Messaging:
dave.sherwood.thomsonreuters.com@reuters.net))