Latin America's geographic position, market structure and trade flows have left the region's lithium producers largely insulated from the side-effects of the war in the Middle East.
The global lithium market has not felt an immediate impact from the US-Israeli war with Iran, although second and third-order consequences could affect the industry if the conflict persists. Examples include rising diesel and seaborne freight costs, which underpin mining operations worldwide, and supply disruptions affecting sulphur, a key feedstock in some spodumene projects globally.
Those effects, however, are not expected to be pronounced in Latin America, as a combination of factors shield the region from the side-effects of the war.
Minimal effects from rising diesel prices
Rising diesel prices are the main worry, but operational impacts on local lithium producers remain minimal.
In contrast to regular mining operations — in which tens of thousands of litres of diesel are consumed each month — brine-based lithium projects draw most of their energy from the sun. Lithium Argentina (LAR), one of Argentina's leading lithium miners, said less than 2pc of its operating costs are tied to diesel and natural gas.
In Argentina, truck freight rates are a major component of operational costs for lithium producers because their projects are located up to 1,800km from Rosario and Buenos Aires, the country's main export hubs. Still, LAR's exposure to higher diesel prices since the Middle East war broke out remains under 5pc of its total operating costs, even including road freight from mine to port, according to chief executive Sam Pigott.
In Chile, diesel has risen sharply this week, but projects are also brine-based and located much closer to ports and local refineries.
Brazilian spodumene producers are more sensitive to fuel costs, given their heavy reliance on diesel. On 13 March, state-controlled Petrobras' wholesale diesel price rose by 11.5pc to 3.65 reals/l ($0.69/l or $2.62/USG) — a smaller increase, and lower absolute price than in other major lithium producing regions, such as China, Africa and Australia, curbing the impact on miners. Brazil's own diesel production, albeit insufficient to supply the entire domestic market, helps contain price surges.
Brazil imports about 40pc of its diesel, mainly from Russia and the US, whose supply has not been affected by the war and de facto closure of the strait of Hormuz. But buyers in other countries have started to seek out more Russian and US product after Washington waived sanctions on Russian oil, intensifying the competition that Brazilian importers face.
Still, flows are much less threatened than in Africa and Australia given Brazil's domestic output — even though further price rises may still materialise.
Diesel also underpins soda ash and other feedstocks for lithium production, which could eventually lift input prices. But that has not occurred so far.
"Our exposure is around what the diesel price is going to do, and if it forces higher input costs for us," Pigott said on 23 March. "So far, it seems minimal, if at all."
Small impact on freight
Shipping has felt indirect ripple effects from the closure of the strait of Hormuz worldwide, but Latin America's geographic position shields it from more intense shocks.
None of Latin America's lithium-related trade routes pass near Hormuz, meaning that neither US-sourced soda ash nor lithium chemicals and spodumene exported to Asia face insurance risk or war surcharges.
Still, container rates from Latin America to Asia have risen as the disruptions in and around Hormuz have tightened global container supply.
But the increase has been modest on a per-ton basis, limiting its effect on large shipments such as lithium exports. Chile alone used around 1,222 containers for lithium shipments in February, according to Argus calculations.
Argus-assessed seaborne freight rates between Argentina and Shanghai have risen by $18.50/t to $26.80/t since the war began, but the impact on fob Argentina lithium carbonate prices — less than 1pc against the current $19,090/t level — has been minimal.
Bunker costs in the Americas also climbed more slowly than in other regions. Bunker fuel premiums in Singapore relative to the US Gulf coast have soared to their highest in five years since the war started, as regions dependent on bunker imports began competing for fuel. Meanwhile, in Latin America, prices for marine gasoil (MGO) and very-low sulphur fuel oil (VLSFO) at key ports — including San Antonio in Chile, Santos in Brazil and Zona Comun in Argentina — were as much as $100/t below international market levels.
Sulphur shocks are also not a factor for Latin American lithium, as brine-based operations do not normally use it and Brazilian spodumene producers use electricity-powered dense media separation to concentrate their produce, not sulphuric acid or diesel-powered DMS as some of their counterparts do.
Together, these factors are keeping Argentinian, Brazilian and Chilean producers' exposure limited.
