United States , Chile and China

How the EU-Chile trade agreement impacts the global lithium economy

Bnamericas Published: Thursday, December 29, 2022
How the EU-Chile trade agreement impacts the global lithium economy

The updated trade agreement between the EU and Chile contains chapters aimed at securing the European bloc's lithium and green hydrogen supplies in light of moves by China and the US that could hurt its battery sector and the energy transition.

Some 20 years after concluding the original EU-Chile trade deal, negotiations were wrapped up earlier this month on a new, more extensive Advanced Framework Agreement that cuts most trade tariffs between the two parties. It is expected to be signed in November 2023 and would go into force in 2024.

Chilean lithium, one of the key points covered in the new agreement, is crucial to meet the goals of the EU’s green pact. 

In 2020, some 80% of the bloc's lithium imports came from Chile, but “demand and competition for lithium will explode globally in the next decade. Reduced access to lithium threatens the future of EU battery production and could make the EU depend on other battery producers, such as China,” the European Commission wrote in an explainer on the agreement.

China controls 60% of global lithium and cobalt refining and 80% of world battery manufacturing capacity.

Under the agreement, Chile will provide the EU with access to raw materials like lithium and copper, clean fuels such as green hydrogen, and renewable energy.

Chile is the world's leading copper producer and the second-largest lithium supplier.

The trade agreement would also help cushion the negative effects of the US Inflation Reduction Act (IRA), which provides subsidies for renewable energies and electric vehicles from local players or countries that have a free trade agreement with the US – like Chile – leaving out European companies.

By 2030, the EU is expected to require 18 times more lithium than it currently uses and nearly 60 times more by 2050, Maroš Šefčovič, the EU’s vice-president for interinstitutional relations and foresight, said in a release.

For Chile, the agreement is expected to support economic growth, consolidate its international reputation as a mineral supplier and diversify its mining exports.

Excluding copper, Chilean mineral exports grew 115% year-on-year in January-November, with lithium carbonate shipments up 780%, or by US$6.24bn, according to a report by the department of international economic relations (Direcon).

The dominant producer in Chile, SQM, is on track to increase production from 180,000t/y of lithium carbonate to 210,000t/y by 2024, and lithium hydroxide output from 40,000t/y to 100,000t/y by 2025, it stated in its 3Q22 report.

SQM's market share in Asia is 93%, in Europe 5% and in North America 2%. In 2021, it sold 86% of its products in Asia, 8% in Europe and 1% in Latin America.

Albemarle processes lithium from the Atacama salt flats at La Negra, its only processing facility in Chile, that is currently undertaking an expansion to produce 85,000t/y of lithium carbonate for batteries.

Albemarle has six processing plants in Asia and only one in Europe. This agreement will move the destination of the Chilean lithium in the global market.

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