The supply of critical minerals such as lithium currently outstrips demand. On some estimates prices of lithium have dropped between 35-40% since 2023, resulting in financial challenges for mining projects in Latin America. When global demand does surge, as anticipated to meet decarbonisation goals, there is a risk that the supply rate will not be able to meet the world’s needs.
It is therefore necessary to diversify supply chains and increase global resilience in order to mitigate the risks of potential supply chain disruption, distorted pricing and market control by any single actor. Latin America predominantly exports raw critical minerals, with most countries at present limited to the extraction phase of the value chain. This is viewed as a systems-based problem and as such a systems-based solution is needed to support these countries meet their ambition to move up their value chains and compete with other markets.
This would entail progressing from extraction to production of battery-grade materials such as precursor cathode active material (PCAM) and cathode active material (CAM), with longer-term aspirations like manufacturing electric vehicles (EVs). Significant investment is required in the region to achieve this, as is regional working to attract industry participation. The resources available in each country differ, as do their approaches to critical minerals, and as such the challenges required tailored strategies for their national circumstances.
Possible options discussed that would help secure future supplies include:
- Upstream industry highlighted the challenge caused by the current low-price environment. Although solar evaporation ponds are viable even in price lows, the extraction of other minerals such as graphite and rare earth elements (REEs) in Brazil is challenging, which undermines efforts to increase domestic supply and diversify global supply chains. It was suggested that governments could do more to address this challenge; in particular, the increase in defence spending and focus on understanding sensitive supply chains could support mechanisms such as price floors.
- The pricing gap is also a challenge for exploration projects which are unable to secure equity funding. There was a proposal for a ‘critical minerals fund’ which would help spread the risk when financing nascent stage projects. Possible host organisations referenced were UN agencies or the Mineral Security Partnership. The fund could support the development of midstream and manufacturing capabilities in Latin America, financed by Western governments who are increasingly interested in clean energy value chains, and delivered by joint-ventures with local companies. Other forms of financial support suggested also included governments setting a minimum price floor.
- The participants considered that the UK could send stronger signals to Latin America if it wishes to collaborate on the critical minerals supply chain. For instance, subsidise or promote EVs that contain Latin American critical minerals or bring in something like the EU Battery Passport system that states the country of origin and associated level of ESG standards. The EU-Latin America Partnership on Raw Materials was referenced as a positive example in this space. Institutional mechanisms between governments such as letters of intent, or Memorandums of Understanding, can be mechanisms by which to build trust.
- Representatives from Latin America also called for UK technology companies to invest in the region. They also noted the importance of western companies taking the time to build sufficient trust with stakeholders across civil society, industry and government. The UK can harness its role as an ‘honest broker’ and global convenor to achieve this.
- The UK can leverage its experience in drafting critical mineral, industrial and battery strategies to build these relationships, particularly in countries in Latin America who are developing or have not yet developed their own.