Lithium: Changes in export duty spark concern for Argentine producers

Orocobre Olaroz brine operation, Argentina

Lithium producers in Argentina are watching closely for signs of an increase to export duty that could raise their cost profiles, as the Argentine Peso (ARS) continues to fall.

The ARS has consistently dropped in value since the 1990s, prompting consistent reactionary measures over the last 20 years. One such example, in the country’s recent economic turmoil, is the temporary export duty brought into effect in September 2018 by the Argentine authorities. This placed a tax, levied in ARS for every US dollar of export value, on a suite of products, including lithium. In practice, the duty applies a levy of 3 or 4 ARS (dependent on product) for every US dollar value of exports on an FOB basis and was originally expected to be removed by 31 December, 2020. When brought in, the duty was applied to all products in the Mercosur tariff schedule and included lithium carbonate and hydroxide, thereby raising the cost profiles of Argentine producers. What is important to note is that the original legislation capped export duty payments at a maximum of 4 ARS.

However, as lithium prices, and more so the Argentine peso, have continued their downward trajectory, export duty payments have fallen on a US dollar per tonne of exports basis. At the end of 2019, the maximum cap of 4 ARS to the dollar was removed (likely as a result of the currency devaluation), giving the Argentine government the platform to raise export duties to match with prior levels on a dollar basis. In addition, the end date for the removal of the levy was extended by a year to the 31 December, 2021. Producers worry that an increase may follow.

Export duties at Argentine producers (US$/t LCE)

Source: Roskill
Notes: Orocobre produces lithium carbonate at its Salar de Olaroz integrated brine facility, located in Jujuy province. Livent produces lithium carbonate at its Salar del Hombre Muerto brine facility as well as lithium chloride at its separate (but integrated) Güemes plant, located in Catamarca and Salta provinces, respectively.

Roskill View

When the original export duty was brought into effect, Orocobre and Livent, the only two Argentine lithium producers, saw their cost positions rise as the export duty added to their current cost base. However, as the ARS has continued to drop in value, these payments have reduced, as have the cost profiles of both companies. For these producers, the concern going forward is the probability that export duties will be raised and their cost profiles will increase again.

Of the two producers, Orocobre would be most impacted by higher export duties. In its Q2 2020 results, the producer reported average lithium carbonate realised prices of US$3,913/t and a cost of sales of US$3,920/t at its Olaroz brine operation. In the same period, Orocobre reported an export duty of US$151/t and US$940,000 in COVID-19 shutdown related costs, bringing its total cost to US$4,445/t – above its realised price.

The likelihood of export duties being raised seems probable given the removal of the cap, although the new rate and when it will be introduced is difficult to determine. Compounding the issue is the fact that the unofficial ARS exchange rate is far lower than the official value; the official exchange rate ARS-US$ is 67.6 and the unofficial rate is 114.5 (40% lower). This disparity betrays the likelihood for a significant drop in the official ARS rate over the coming months so the two align, a fact that may motivate Argentine authorities to pre-emptively set the export duty higher to accommodate the drop.

Roskill’s NEW Lithium: Outlook to 2030, 17th Edition report will be published soon and will include full analysis of the impact of COVID-19 on supply, demand and prices, as well as forecasts out to 2030. The report will also include profiles of the main producers. Click here to download the brochure and sample pages for the report, or to access further information.