Corfo opens dispute with Albemarle on lithium sales

By Martim Facada
Published: Tuesday, 23 October 2018

Chilean development agency Corfo has applied to the ICC for an interpretation of its contract with lithium producer Albemarle.

The Chilean national economic development agency, Corfo, which owns the lithium-rich Salar de Atacama, has opened a dispute with United States-based lithium producer Albemarle to seek an interpretation by the International Chamber of Commerce (ICC) of a contract between the two.

The contract between Corfo and Albemarle was signed in April 2017. It says that Albemarle would have to sell as much as 25% of its lithium production from Atacama at a preferential price to another company or companies willing to invest in the production of value-added lithium materials in Chile.

Corfo made a call for such investors in May 2017. This resulted in a shortlist published on March 9 this year from which Corfo selected Molymet, Samsung SDI and Sichuan Fulin Industrial Group. They will be permitted to buy as much as 25% of Albemarle’s lithium output, which totals 20,000 tonnes per year at the moment, at preferential prices.

Corfo has a similar agreement with Chile-based lithium producer SQM, which shares the Salar de Atacama with Albemarle.

The three investor companies are expected to put $754 million into Chile and to create more than 650 new jobs once their projects start. No time-frame was specified for this, however, and Fastmarkets understands that none of this investment has yet been made.

But the Corfo-Albemarle dispute could put these investments at risk.

Corfo-Albemarle disagreement

The disagreement between Corfo and Albemarle concerns the level of the preferential prices, and began as a formal legal process on October 17, after months of conversations.

"After several months of talks, we have not reached an understanding [with Albemarle] regarding a definition of the preferential price for 25% of its lithium production, which has the objective of kick-starting the value-added industry in Chile," Corfo said in press release on Wednesday October 17.

"We firmly believe that Albemarle’s proposal is not adjusted to the contract terms, [and does] not respond to the promotion of a value-added industry in [Chile]," the agency added. "As [required] by the government from the first day, Corfo assiduously monitors whether the contracts associated with lithium are fulfilled, and will not allow any breach that harms the interests of all Chileans."

Fastmarkets made several attempts to contact Corfo representatives for further comment, but had not been successful at the time of publication.

Sources within the lithium industry told Fastmarkets that the dispute started because Albemarle’s interpretation of "preferential prices" would exclude any sales to its own subsidiaries, because of the lower prices at which Albemarle sells to them. The inclusion of such sales in the definition would mean that the preferential price would be much lower.

Although Albemarle did not comment on its interpretation of "preferential prices," Eric Norris, president of Albemarle’s Lithium Global Business Unit, told Fastmarkets that "per our contract with Corfo, Albemarle pays commissions of up to 40% on the final sales prices paid by its customers, not the value used for related company transfers."

Norris went on to say that "we regret that we have to [go through] this arbitration due to the substantial differences between the obligation defined in our contract with Corfo and the summoning and awarding of production at a preferential price made by this agency. We have confidence in our position."

According to the former vice president of Corfo, Eduardo Bitran, who promoted the original contract, the agreement specified that Albemarle would have to sell 25% of its production in Chile at a preferential export price, and this included the prices at which Albemarle sells material to its subsidiaries in the US and Germany – which are the lowest prices achieved by the company.

Bitran negotiated the agreement with Albemarle before stepping down on March 9 this year after a change in the Chilean government.

"Corfo did an exhaustive study of the prices of lithium sold from Chile by Albemarle and SQM, by working with Chilean customs, and it was concluded that Albemarle is selling lithium compounds at 25-35% discounted prices to the US and Germany, compared with other Albemarle sales and its competitor SQM," Bitran told Fastmarkets.

Bitran said that some of the sales between Albemarle Chile and its subsidiaries in the US and Germany would have a price as low as $7,000 per tonne and that, under the terms of the contract, Molymet, Samsung SDI and Sichuan Fulin would have to benefit from a similar preferential price if that is Albemarle’s lowest export price from Chile.

Fastmarkets assessed the contract price of lithium carbonate, min 99%, technical and industrial, ddp Europe and US, at $14.50-17.50 per kg on September 26. This was down month on month from $16-18 per kg.

Fastmarkets assesses the market price and updates it month by month, but company transfer prices are lower than the market level and are excluded from our assessments.

Lower company transfer prices are typical of the lithium market and other metal and mineral markets where corporations have assets in different territories.

Albemarle production expansion in Chile

In related negotiations, Corfo will allow Albemarle to increase its lithium quota in Chile to as much as 140,000 tonnes per year of lithium carbonate equivalent (LCE) by 2043 from 80,000 tpy in January 2017.

At the same time, Corfo established in January 2017 a progressive commission system payable to the Chilean state that would go as high as 40% for material sold at a price of more than $10,000 per tonne. This was a condition for the expansion of Albemarle’s production.

This increase in production is expected to happen without extracting more brine from the Salar de Atacama, but instead by introducing new technology to improve lithium extraction from the same volume of brine.



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