Olaf Scholz seeks in South America to counter the dominance of the Chinese regime in the lithium triangle

Gabriel Boric received German Chancellor Olaf Scholz at La Moneda Palace, in Santiago de Chile (Bloomberg) (Cristobal Olivares /)

Olaf Scholz is using his trip to Latin America to help Germany get additional supplies of lithium that auto giants such as Mercedes-Benz Group AG and Volkswagen AG need for the batteries of their electric vehicles.

Chile is the world’s second largest supplier of lithium after Australia, and China currently absorbs a large part of its production. Scholz, who met on Sunday with the Chilean president, gabriel boric, in Santiago, wants a larger share for Europe’s largest economy, according to people familiar with the plans. The foreign minister also met today with the president of Brazil, Luiz Inacio Lula da Silva.

Part of Germany’s strategy to incorporate Chile is to have more of the processing done locally and to help make extraction and processing more less harmful to the environmentsaid the people, who asked not to be identified because the discussions are private.

“There are States that think that all raw materials come from China, but that is not the case. In fact, many raw materials come from, for example, Argentina or Chile, and are shipped from there to China, where they are processed and then sold again,” Scholz said Sunday in Buenos Aires. “The question is: is it possible not to transfer the processing of these materials, which generates thousands of jobs in the countries from which these materials come?”

View of a lithium evaporation pool in the Salar de Atacama, Chile (REUTERS / Ivan Alvarado)
View of a lithium evaporation pool in the Salar de Atacama, Chile (REUTERS / Ivan Alvarado) (IVAN ALVARADO /)

green transition

Major developed nations like Germany they are competing hard for dwindling resourcesand access to metals and rare earths is crucial for the transition to cleaner and more technologically advanced economies.

In the global race for many staples, China has become the dominant supplier or processor, prompting warnings that the Beijing government is exerting undue influence.

Those warnings resonate especially in Germany, which in recent decades has been heavily reliant on fossil fuel imports from Russia. Since Vladimir Putin’s invasion of Ukraine, the Scholz government has been quick to diversify suppliers of the materials it needs to keep its economy running.

In Buenos Aires, Germany and Argentina signed a memorandum of understanding on Saturday that seeks to secure Berlin’s access to the country’s abundant lithium resources. After a meeting with the Argentine president, Alberto FernandezScholz spoke out against a policy “that only serves the interests of that country that wants to process basic products for itself.”

During his visit to the Chilean capital Santiago on Sunday, Scholz sent a similar message. Germany is ready to enter the lithium business with Latin America in a bid to gain independence from China.

Chilean President Gabriel Boric said he was determined to reorganize the lithium industry in his country, noting at the press conference that he wants to create a national lithium company through various treaty mechanisms and that Chile has the right and the duty to participate in this industry.

Alberto Fernández-Scholz, Chancellor of Germany (Photos: Casa Rosada)
Olaf Scholz met in Buenos Aires with Argentine President Alberto Fernández (Photos: Casa Rosada) (“MARIA EUGENIA CERUTTI”/)

Only two companies produce lithium in Chile: US-based Albemarle Corp. and local company SQM, in which China’s Tianqi Lithium Corp. has a stake of more than 20%. Both produce mainly lithium carbonate, more than 90% of which goes to Asia.

SQM and Albemarle extract large amounts of brine from beneath a salt flat located in the Chilean desert in the north of the country, and store it in huge evaporation ponds for a year or more. The resulting concentrate is converted to lithium hydroxide and lithium carbonate at nearby plants and shipped to battery makers in China and Korea.

As simple as it is cost-effective, the process uses far less fresh water, chemicals, and energy than hard rock mining. But the solar evaporation technique means billions of liters of brine are extracted and then vaporized in one of the driest places on Earth, which some say is a threat to wildlife such as the pink flamingos that inhabit in this Mars-like landscape.

There is an initiative to move to a more selective or direct mining process that would mean much less evaporation, and probably less production and profit. Both SQM and Albemarle are investigating such techniques, which have generally been poorly tested in commercial terms.

While Chile and Australia account for most of the world’s lithium extraction, China has more than half of all refining capacity to turn it into specialty battery chemicals.

The Chinese regime absorbs much of Chile's lithium production (Bandar Algaloud/REUTERS)
The Chinese regime absorbs a large part of Chile’s lithium production (Bandar Algaloud/REUTERS) (Bandar Algaloud/Saudi Royal Cour/)

There are growing concerns about Chinese dominance of refining and processing capacity for the material, as reliance on China is now seen as a vulnerability amid trade and political tensions that are prompting a rethink of global supply lines.

China is the least expensive place to process lithium due to lower construction costs and a great base of processed chemical engineering to fall back on. In Australia and the United States, the cost of building refining capacity is double, while South America is somewhere in between. Both SQM and Albemarle have processing assets in China.

Last year, the President of the European Commission, Ursula von der Leyenhe foresaw that commodities like lithium and rare earths will soon become more important than oil and gas.

Von der Leyen cited a forecast that, in the EU alone, demand for rare earths – used in products ranging from electric motors to wind turbines and wearable electronics – will increase fivefold by 2030.

(With information from Bloomberg / By Arne Delfs and James Attwood)

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