Chile is diversifying its economic opportunities by expanding its lithium market.

Changing global market dynamics have led to an increasing demand for lithium. A critical field of ongoing development is battery power storage technology, which is vital to everything from mobile devices to electric vehicles. Lithium batteries are lightweight and can store energy efficiently. These batteries will be critical in the transition to green energy. Thus, the price of lithium has rocketed.

Chile possesses large quantities of lithium, with the northern Andes region holding significant deposits. In fact, the country boasts 9.2 million tons of reserves, over one-third of the world total.

One cost-effective technique for extracting the metal involves evaporating brine. Northern Chile’s Atacama Salt Flat accounts for over 70% of global output in terms of lithium extracted from brines.

The changing dynamics of Chile’s copper industry

This is not the first time Chile has been a mining powerhouse. Throughout its modern history, Chile has relied on a sizeable copper mining industry, which spurred Chile to become the middle-income economy it is today. Chile now produces nearly a quarter of the world’s copper, and the industry contributes around 10% of the country’s GDP. Chuquicamata in the Atacama Desert is one of the world’s largest open-pit copper mines.

The National Copper Corporation of Chile (CODELCO), founded in 1976, oversaw the mining boom. CODELCO is still a state-owned copper company today.

Chile’s copper industry has witnessed a recent decline in production due to aging mines, declining ore grades and increasing production costs. Despite dominating the national economy and world supply, the copper industry does not provide a suitable environment for foreign investment.

The national lithium strategy

Lithium is now replacing copper as the most attractive investment destination in Chile.

Chile has been keen to take full advantage of its natural resources and has accordingly prepared a National Lithium Strategy. The Chilean government website describes the strategy “to incorporate capital, technology, sustainability and value addition, in harmony with local communities.” At the moment, production is concentrated in the hands of limited companies, but the state is looking forward to expanding the sector.

The strategy aims to focus on public-private partnership, allowing a newly formed National Lithium Company to guarantee a stake for the state whilst allowing private companies to contribute technological know-how and expertise.

The National Lithium Company will eventually retain control over all projects in the country, but there is plenty of space for private sector actors to work with them and reap the rewards. State copper company CODELCO and state mining company ENAMI will be interim state representatives while the National Lithium Company is created. Although copper remains largely controlled by the state, Santiago will allow more private competition in the lithium market.

Downstream benefits

Abundant lithium in Chile, makes it well placed to benefit from all the tech opportunities at its doorstep. The country has a solid manufacturing base that could pivot towards either battery production or electric vehicle assembly. It has incredible potential for both photovoltaic solar and wind energy, due to near-constant sunny conditions in northern Chile and plenty of elevated areas with significantly windy conditions. This means that increased battery production in-country can be immediately put to good use.

The country has an excellent educational system by regional standards and a highly innovative business environment. Chile has a strong pool of engineers and skilled workers. Chile’s number of graduates exceeds the number of job openings, resulting in a competitively priced workforce.

What happens next?

The future of the Chilean market appears bright. The country is blessed with an enormous reserve of the world’s third most in-demand metal. Lithium industries in Chile are growing rapidly as a diversification option to provide extra security for the economy. The industry will not only have robust exports but also incubate new sectors and energy supplies.

For canny investors with an eye to the future, the lithium sector in Chile is deemed to be profitable in the future. Rewards are practically guaranteed in the short to medium term. Longer-term prospects also look extremely reliable. The experience and continuing success of CODELCO indicates how the state will behave in the lithium sector. The government looks to retain control over the direction and environment of the sector while allowing private enterprises to invest, compete and profit.

[Asmita Adhikari edited this piece.]

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.