German Finance Minister Scholz Tours South America in Bid to Bolster Lithium Supplies

  • 30-Jan-2023
  • Journalist: Jaideep

Chile: Chancellor Olaf Scholz is on a mission to secure more of the coveted Lithium needed by German automakers like Mercedes-Benz Group AG and Volkswagen AG for their electric-vehicle batteries. Chile is the world's second largest supplier of Lithium after Australia, with China currently taking most of its output. This weekend, Scholz met with Chilean President Gabriel Boric in Santiago to discuss securing a larger supply from Latin America for Germany - Europe's biggest economy.

Germany has announced plans to leverage its technological and environmental expertise to improve the extraction and processing of resources in Chile. The deal is seen as an opportunity for both countries, allowing Chile to benefit from Germany's ability to make production processes more efficient, while also having a reduced environmental impact. Additionally, Germany will work to provide terms that are more attractive than those offered by China.

Major developed nations like Germany are entrenched in a heated competition over increasingly scarce resource. Access to metals and rare earths is an essential element of the transition to cleaner and more advanced economies.

China has become the primary supplier or processor for many of these commodities, raising alarms among some of its rivals who fear Beijing could have an excessive amount of sway as a result.

German officials have been working to diversify their sources of fossil fuels since Russian President Vladimir Putin’s invasion of Ukraine. The warnings about Europe's reliance on Russia for energy needs are particularly relevant in Germany, which developed a strong dependence on energy imports from the country in recent decades. Chancellor Scholz's government has responded by speeding up efforts to reduce the country's reliance on these materials needed for economic stability.

On Saturday, Germany and Argentina signed a memorandum of understanding in Buenos Aires, allowing Berlin to gain access to the country’s abundant Lithium reserves. During a meeting with Argentinian president Alberto Fernandez, German Finance Minister Olaf Scholz voiced his opposition to Argentinian policies “which only serves the interests of that country that wants to process the commodities for themselves. “

On Sunday, China was identified as a competitor to Germany in the worldwide commodity market. “There are states that think that all raw materials come from China, but this is not true. Many raw materials in fact come for example from Argentina or Chile, get shipped to China, are processed there and then sold again,” Scholz spoke with a group of young Argentinians in Buenos Aires. “The question is: Can one not move the processing of these materials, which creates thousands of jobs, to those countries where these materials come from?”

Germany’s Finance Minister, Olaf Scholz, made a visit to Santiago, Chile on Sunday and expressed that the country is ready to enter the Lithium business with Latin American countries to build independence from China.

Chilean President Gabriel Boric declared his intention to reorganize the nation's Lithium industry. “We want to create a national Lithium company through various treaty mechanisms,” Boric said at the press conference in Santiago. “Chile has the right and the duty to participate in this industry.”

Chile is home to two Lithium producers — the US-based Albemarle Corp and Chilean firm SQM, of which China’s Tianqi Lithium Corp has a majority stake. Through evaporation of brine extracted from beneath an arid salt flat in Chile’s northern desert, the companies produce 90% of their Lithium carbonate which is then shipped off to Chinese and Korean battery makers.

In the Atacama Desert of Chile, a process used by mining companies SQM and Albemarle to extract Lithium from its abundant brine involves far less fresh water, chemicals, and energy than hard-rock mining. It also involves evaporating billions of liters of brine which has led to concerns of adverse effects on wildlife in the Mars-like landscape. To reduce evaporation and maintain productivity, SQM and Albemarle are exploring more selective or direct processes for extraction - which are yet to be commercially tested.

China is becoming increasingly dominant in the global supply of Lithium, a key component in modern batteries. With more than half of all refining and manufacturing capacity, China supplies Chile and Australia with the majority of the world's mines. This growing control has led to concerns about potential vulnerabilities in global supply lines as trade and political tensions increase. As a result, governments are beginning to reconsider their reliance on Chinese Lithium sources.

China is a great option for processing Lithium, due to its low construction costs and access to well-developed chemical engineering resources. Companies like SQM and Albemarle are among the many that have processing assets in China. On the other hand, it's twice as expensive to build refining capacity in countries such as Australia and the US compared to China, while South America is somewhere in between.

By 2030, the European Commission President Ursula von der Leyen expects that commodities like Lithium and rare earths will be more valuable than oil and gas. She predicted an increase in EU demand for rare earths, which are used to power electric motors, wind turbines, and portable electronics, of fivefold over the next decade.

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