energy insights

Mexico Locks Down Lithium Reserves as Prices Spike

A handful of international players are competing for the biggest piece of the pie in a global rush for lithium reserves, and Mexico has just responded by slamming the door on the private sector.

Mexico’s government passed a law in April that officially nationalized its lithium industry, placing the country’s resources under government control.

As the main ingredient to the lithium-ion batteries needed to power millions of electric vehicles around the world, lithium has exploded in value, reaching more than $76,000 per metric ton in March, which is nearly six times what it sold for a year ago.

Mexico’s new mining law recognizes lithium as a heritage of the nation, and designates the metal as a strategic mineral that cannot be granted for exploitation by private corporations through concessions, licenses, contracts or permits.

Mexican President Andrés Manuel López Obrador celebrated the mining reform on April 20, saying the new law would protect Mexico’s lithium resources from appropriation by any foreign country, company or corporation because the resource belongs to the people – in theory of course.

Mexico is not a major lithium producer, but its 1.7 million metric tons of reserves are enough to rank the country 10th largest in the world, according to the U.S. Geological Survey. And those reserves have already attracted attention from one the lithium industry’s biggest powers, China.

Recently acquired by the Chinese for $420 million, Bacanora Lithium has mining development already underway in Mexico’s northwest region, which is expected to produce 35,000 metric tons of lithium per year, starting in 2023. It is the only lithium mine in Mexico, but the new law has cast doubt on the future of the foreign contract, especially after the president pointed to the project as a target for government review. Those actions could prompt legal disputes associated with investor rights, industry watchers say.

Will other countries follow?

Meanwhile, South American countries Chile and Bolivia appear to be heading down the same path, placing rigid restrictions on outside access to lithium reserves.

A government assembly in Chile is considering a measure that would nationalize the country’s lithium reserves, considered by experts to be among the largest in the world, with more than 9 million metric tons. Chile is one of the world’s largest lithium producers, second only to Australia.

The proposal drew immediate backlash from opponents. Diego Hernández, president of the Chile’s National Mining Society called the idea barbaric and said there are clear and obvious legal errors. The measure targets both companies and resources, which would have a major economic and legal impact in Chile, he said.

“Given the world’s globalization, I would expect affected companies to resort to treaties to defend their legitimate interests,” Hernández said.

Bolivia is another country struggling with what to do with its world-class lithium resources of 21 million metric tons. Considered to be the world’s largest, Bolivia’s lithium reserves are largely untapped because of technical, geological and political challenges.

"Bolivia could be a big player, but right now it is not in the building," said Christopher Ecclestone, a mining strategist at London-based Hallgarten & Company. However, Bolivia is moving quickly to get into the game with high hopes of becoming a leading producer some day.

To make matters worse, Mexico is now pushing for a coalition with Bolivia, Chile and Argentina to create a lithium version of OPEC, which would control over half of the world’s lithium reserves.

Impact on global supply closely watched

As governments jockey for position, they are watching global demand for lithium-ion batteries continue to skyrocket, creating a market that is ripe with fortune. While electric vehicles accounted for just 4% of global car sales last year, sales are expected to grow to more than 30% by 2030, experts say.

That rapidly increasing demand will only put more pressure on an international lithium supply chain that is already facing significant issues, says Wolfgang Bernhart, a partner at global consulting firm Roland Berger.

The war in Ukraine, ongoing political uncertainty in South America and increasing tensions between the U.S. and China can lead to even higher EV battery prices. That could erode demand for EVs and delay a global transition away from carbon fuels, Bernhart says.

So, amid this global rush for lithium reserves, there are plenty of questions in the air – none bigger than “Where are we going to get enough lithium to power millions of EVs?”

Of course, no one knows how these geopolitical developments may end. The roads some countries are traveling could bring them to prosperity or they could leave the EV industry with a lithium shortage or vehicles too costly for potential buyers.

We may be seeing the first energy crisis of the electric vehicle era, which could be avoided if lithium could be developed safely and securely here in the U.S.