The Peter Zeihan Podcast Series - Chile Plans to Nationalize Its Lithium Industry || Peter Zeihan

Episode Date: May 8, 2023

With the demand for lithium growing, Chile is making moves to nationalize its lithium industry. This isn't just another money grab; it's a move to take control of the production process and move along the value-add chain. Full Newsletter: https://mailchi.mp/zeihan/chile-plans-to-nationalize-its-lithium-industry

Hey everybody, Peter Zine coming to you from Snowy Colorado, and today we're going to talk about some of the changes in the lithium market that are going on because of the Chileans. Now, the Chileans are one of the world's two largest producers, with Australia being the other one, and most of the lithium that Chile produces comes from basically brine. They dissolve a number of things that they mine in brine pools, and then it becomes more concentrated, and that concentrate is then shipped out. Well, the Chileans have now announced that they have plans in printouts. progress to nationalize the entire sector so that the state will have a majority share in every

single holding. Now, in a lot of sectors when countries, especially in Latin America, nationalize things, that's a code word for I'm just going to steal this all and strip it of parts and melt it down and make as much money as I can and leave nothing behind. That's not how the Chileans work. The Chileans are looking to take control of more of the production process. Now, they have done this before with the copper market about 50 years ago. Instead of having international companies come in and mine all the copper, they went in and they nationalized it and took it over and ran it themselves. Now, nationalization is not expropriation. Nationalization means you pay the people on the other side a decent price for what you're taking. Expropriation means you just

take it and they get nothing. One of the problems that Chileans had 50 years ago is they discovered when they successfully took it over and ran all the mining themselves, they were dealing with the exact same companies internationally who would then buy the ore and smelt it into metal and go on. So, while yes, the Chileans did take control of their own minds, and at least the base materials were still produced in Chile by national companies, they missed out on a lot of the important value add where the real money is. And the reason the Chileans are thinking of doing this with lithium now, it's not that they haven't learned, is that they've seen someone else do something that might actually work better.

A few years ago, the Indonesians, who were the world's largest producers of nickel ore, banned the export of nickel ore. Not necessarily nationalized, but they forced the production of processed nickel within their own borders. So they, instead of necessarily taking everything from themselves, they forced industrial plant to be built in Indonesia in order to supply international markets. Nickel, like with lithium, is a very important product and anything that is going to involve mass electrification and EVs and batteries and all that good stuff. The Chileans have made it very clear, very publicly, that they're taking their inspiration for this round of nationalization. from the Indonesians. So we're going to see a lot of investment in industrial plant in the Chilean desert,

the Atacama, where most of this stuff comes from, to turn the raw lithium not just into concentrate, but into lithium metal. And who knows? Down the line, they may even get into battery production of the cells, although that's a problem for another five years or ten years from now. Winners and losers. Now, the biggest winners obviously are the Chileans themselves. The process of turning raw lithium into concentrate and then onto metal is not particularly sophisticated, but it is a very sophisticated, value-added product and it's something the Chileans have always been aiming for. I have no doubt that they can do it, especially if they get a little help from foreign investors. The biggest losers are at the top of the list, the Chinese. The Chinese have spent a huge amount of effort in the last

decade or two in building massive processing capacity for copper and for lithium in China and then just importing the raw product, and Chile has arguably been the biggest loser from that. Well, the lands are now taking some of that back. And if they have even moderate success with lithium, you can bet you're asked they're going to do the same thing for copper as well, which is going to leave all that industrial plant in China stranded without supplies. Now, if you're like me and you think that China's going down, or if you're a more traditional economic nationalist and you just don't like the idea of trusting a genocidal dictatorship for your raw material supplies, this is actually a really good thing for most of the world, especially for the United States.

We've known that we need to massively increase the industrial plant and especially the processing capacity for a lot of these green tech materials on a global basis because it's too concentrated in China. Well, the Chileans are kick-starting that process for lithium, and I have no doubt that in a year or three, they're probably going to do the same thing for copper. We need to see this happen in a lot more places. So is nationalization a naughty word? Yeah, maybe. But that doesn't mean that it can't benefit everyone except for the Chinese over the long run. All right, that's it for me.