Feature: Mexico may squeeze itself out of global lithium rush

Mexico's nationalization of its untapped lithium resources has created uncertainty in the global hunt for new sources of the battery metal and could end up costing the country.

The country hosts the 10th-largest lithium resource globally at 1.7 million mt, according to the US Geological Survey.

In April, Mexico passed a law to nationalize its lithium, paving the way for the establishment of a state-owned lithium company called Litio para Mexico, or Lithium for Mexico, four months later on Aug. 23 through a decree issued by President Andrés Manuel López Obrador. The cash-strapped government hopes that taking control of its lithium can pay for new spending, but it has so far released few details on how far it will intervene in the market or how private companies can participate in the country's lithium sector.

Analysts told S&P Global Commodity Insights this uncertainty may prevent Mexico from becoming an important lithium producer at a time when the world is scrambling for new supplies amid rising demand for electric vehicles.

"A lack of clarity regarding the operations of the state-owned lithium company ... will likely delay the creation of a profitable lithium industry in Mexico," Cecily Fasanella said in an email. Fasanella is the program coordinator at the Mexico Institute of Washington-based think tank Woodrow Wilson International Center for Scholars.

The missing information

Litio para Mexico is expected to hold the exclusive rights to exploit the country's lithium resources. The company is scheduled to start operations within the next six months, but the government has yet to establish rules on how it will manage existing concessions and hand out new concessions.

The president also vowed that lithium exploration in Mexico would only be used for national development, joining the new wave of resource nationalism sweeping Latin America. Mexico is working with Argentina, Bolivia and Chile, countries that make up the so-called Lithium Triangle in South America, to form a lithium association where they can collaborate on developing new technologies to exploit the commodity.

López Obrador has not entirely dismissed the possibility of partnering with the private sector, given the country's lack of experience in the lithium sector, but miners have little sense of how they would be allowed to operate.

Private sector peeved

Allowing Litio para Mexico to dominate the domestic industry would likely deter private companies from investing.

"If the state-owned lithium company has a strong monopoly with little regulatory oversight, private sector investors will likely be discouraged from entering this multibillion-dollar market," Fasanella said.

In April, some business groups, including the Mexican branch of the International Chamber of Commerce and the Canadian Chamber of Commerce, flagged the law's potential conflict with Mexico's global trade obligations.

The groups said Mexico is party to certain trade pacts that prohibit new restrictions on sectors that were not previously reserved to the state.

Fasanella expressed doubts about whether, without the help of the private sector, Litio para Mexico could commence mining activities before the end of López Obrador's term in 2024, given the state of the country's finances.

Mexico needs foreign expertise. Lithium is mainly produced from brines and hard-rock deposits using conventional methods, but Mexico's lithium is typically found in clay deposits, for which extraction technologies are still being developed.

"This industry is capital intensive and requires innovative technology," Miguel Angel Marmolejo Cervantes, a professor at the Autonomous University of Nuevo León in Mexico, said in an email.

Albemarle, Allkem and Livent, all of which have invested in other Latin American countries, did not respond to requests for comment.

The exception

When López Obrador signed the law taking control of domestic lithium, he called for a review of all lithium concessions that were previously granted, including one owned by an unnamed Chinese company. China-based Ganfeng Lithium had also just taken complete control of the Sonora project, the world's 14th-largest lithium project based on primary reserves and resources, and Mexico's largest, according to S&P Global Market Intelligence data.

In June, López Obrador softened his stance on Ganfeng, saying the government will respect the company's Sonora project. The company did not respond to S&P Global's request for comment.

The possible delay in Mexico's lithium development could hamper an already tight lithium market that faces a supply deficit for the years to come. The global supply gap for lithium carbonate equivalent is expected to reach 39,000 mt by 2026 from a projected surplus of 1,000 mt in 2022, according to Market Intelligence forecasts.

S&P Global Commodity Insights reporter Karl Decena writes for S&P Capital IQ Pro. S&P Global Commodity Insights is owned by S&P Global.