The government of Mexico has nationalized its lithium reserves.
The country’s President, Andrés Manuel López Obrador, has signed a decree that gives Mexico’s energy ministry responsibility over its lithium reserves.
This move could have immense consequences for the global lithium market.
Here’s what happened and what it means.
Mexico Started Nationalizing Its Lithium Industry In 2022
The push to bring the country’s lithium reserves under state control started last year.
In April 2022, the country passed a law to nationalize its lithium.
The goal of that move was to profit from the ongoing lithium bull market… and fill the government treasury with lithium profits and extra tax revenue to sponsor its spending programs.
As the global economy transitions from fossil fuels to clean sources of energy, lithium demand is skyrocketing.
And in 2022, the world started running short of the metal.
Lithium-ion batteries, which are widely used in electric vehicles, were one of the most powerful drivers of this shortage.
Total battery capacity deployed on the world’s roads in the first half of 2022 was 79% higher than a year ago. It totaled 195.5 GWh.
This surge drove a 76% year-over-year spike in lithium carbonate equivalent (or LCE) usage.
In other words, EV batteries remain the primary demand-side catalyst for lithium.
The Mexican government has been observing this trend… and decided that nationalizing the country’s vast lithium reserves would be the best way forward.
Mexico’s lithium resources, at about 1.7 million tons, are the world’s 10th-largest.
There are 36 lithium projects operated by 11 companies.
Ten of these companies are headquartered outside of Mexico.
And that was what the country’s government didn’t like.
What Does It Mean?
In short, this nationalization is bullish for the price of lithium.
Mexico now has a state-owned enterprise, Litio para Mexico (or “lithium for Mexico”), that will be in charge of lithium exploration and production.
The goal of creating it, as we said above, was to ensure that the country would benefit from the long-term lithium bull market.
But the opposite could happen.
First, Mexico will not be a desirable trading partner for its Western counterparties, such as the US and Canada. An abrupt nationalization could go against international trade and investing laws. Lawsuits from the companies that are already present there would follow and haunt the country’s lithium industry for years.
Second, the newly created state-owned company may be slow to respond to market conditions. Unlike its nimble privately owned peers, this government-owned conglomerate may be inefficient and unprofitable.
This would undermine the whole purpose of nationalization: to create a viable industry that would supply the government of Mexico with steady cash flow.
Third, the global lithium shortage would only become worse because of the potential production delays from Mexico.
And fourth, this move benefits US- and Canada-owned lithium miners.
The US government is looking to find ways to secure the local supply of critical minerals, including lithium.
The latest move by the Mexican government will make it more difficult to find a viable and efficient source of supply for the United States’ lithium needs.
While the United States accelerates the multi-billion-dollar investment push related to its Inflation Reduction Act, it also finds itself in a position where there may not be enough lithium to make sure that its clean-energy targets are met. And Mexico has just put the future of its lithium industry in jeopardy.
Where will the world’s largest economy look next for lithium supply? Our guess is that US- and Canada-based suppliers of the metal are on the US government’s radar.
They should also be on yours.
Thank you for your loyal readership,
The Financial Star team