Lithium: Lower prices a key factor in driving Chilean lithium supply down the cost curve in 2020

The latest analysis from Roskill’s Lithium Cost Model Service shows the strong cost position of SQM’s and Albemarle’s Chilean brine operations in 2020. This is highlighted below by the shift in the position of these operations (in orange) between the 2018 and 2020 cost curves. In addition to the beneficial impact of the devaluation of the Chilean peso (which to date in 2020 is some 20% weaker versus 2018), and perhaps of more significance, has been the decline in royalty payment obligations to Corporación de Fomento de la Producción (CORFO) which are highly geared towards lithium prices.

Lithium compounds cost curve, 2018 versus 2020

From 2017, CORFO introduced a new royalty structure for the operations in the Salar de Atacama, Chile which lifted the production cost base of these operations significantly. These royalties are payable on an adjustable scale, with payments of 40% on lithium carbonate prices above US$10,000t. As a result, the drop in lithium price has seen these companies’ royalty payments half between 2018 and 2020 and these companies have seen themselves fall from mid-curve producers to the bottom of the cost curve.

Chilean producers have not been the only ones to benefit from a change in cost position caused by falling lithium prices and currency devaluation. During the same period, Argentinian producers have witnessed drops in export duties as the Argentine Peso drops exchange value to the US dollar (as discussed here).

Roskill’s NEW Lithium: Outlook to 2030, 17th Edition report was published in August 2020 and includes full analysis of the impact of COVID-19 on supply, demand and prices, as well as profiles of the main producers. Click here to download the brochure and sample pages for the report, or to access further information.

Roskill’s Lithium Cost Model Service is designed to provide miners, financial institutions, governments, and other industry stakeholders with an in-depth understanding of the costs involved throughout the lithium supply chain; for more information, click here.

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This article was written by Oliver Heathman. Please get in touch below if you wish to discuss further:

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