Chile/Corfo Salar

Albemarle Multiplies Its Payments to Corfo for Lithium in the Salar de Atacama

In three months, the American company paid the Chilean Treasury US$ 376 million, half of what it contributed in all of 2022. Measured per ton of lithium carbonate, between January and March 2023 Albemarle paid even more than SQM. Corfo explains the rise in that amount, six times more than in the same period of 2022, by "a significant increase in its average sales prices." 

Last year, the balance was far in favor of SQM. According to Corfo, the Chilean company paid a total of US$ 3,069 million to the state agency for the lease of its assets in the Atacama salt flat, from where it extracts lithium and has a contract until 2030. Albemarle, according to Corfo, paid US$ 777 million in that same year. Thus, the amount paid by Albemarle was 25% of what SQM reported to the state agency. But production was, proportionally, even more different: SQM declared sales of 158 thousand tons of lithium carbonate last year, while Albemarle reached 53 thousand tons. 33%. This disproportion between sales and royalty payments was explained at the time by Albemarle and Corfo with the same argument: the rental fee is set based on sales prices and not production. "The proportionality of the rents paid to Corfo depends on the sale of products and not production, therefore, it is relevant to indicate that this proportionality is a factor that depends exclusively on the average prices at which companies sell their products to their final customers," Corfo explains to Pulso. 

But the equation was reversed this year, in favor of the American company, according to the figures officially entered by Corfo. Albemarle continues to produce the equivalent of a third of what SQM sells, which has more hectares in operation than its competitor in the largest lithium brine deposit in the world. The American company sold 12,800 tons between January and March 2023, versus SQM's 37,400. 34%. But now it paid Corfo more than half of what SQM paid: US$ 376 million from Albemarle, versus SQM's US$ 670 million (see infographic). In total, 56%. With simple arithmetic, while Albemarle paid Corfo almost US$ 30 thousand for each ton sold, SQM gave the Treasury US$ 18 thousand. According to the 2018 contract renegotiation, both companies pay a scale of contributions that rises to a marginal rate that exceeds 40% when the price of the ton exceeds US$ 10 thousand. 

What changed from one year to the next? The prices at which Albemarle sells improved. This is how Corfo explains it, consulted about this difference, to Pulso. "During the first quarter of 2023, Albemarle's commission payments increased 6 times compared to the same period in 2022. This increase is mainly explained by a significant increase in its average sales prices in the period, unlike its average prices in the previous period." 

The American company responded the same: "Albemarle has developed long-term strategic alliances with the main companies in the electric vehicle supply chain. We have successfully moved from fixed prices to index-based pricing, so, as we announced last year, our prices increased significantly, generating greater income for the country." 

Thus, what was a problem last year is now an attribute: for Albemarle, contracts at static values ​​began to expire and it has been renewing them at variable prices. The company admitted it last December: "Our prices are increasing substantially, but with a delay compared to the spot market," said Ignacio Mehech, VP of corporate affairs and country manager of Albemarle. 

"This price depends on the way each company markets its products: A large part of SQM's volumes are spot sales while Albemarle's are through contracts," explains Corfo. But that is also changing. And SQM is taking its production to long-term contracts, but at market prices. Battery and electric car manufacturers want to ensure an essential supply for the future. And SQM and Albemarle are in the middle of the race.

Price dynamics

In 2021, SQM's average sales prices were US$14,000 per metric ton. In all of 2022, they jumped US$52,000, with a peak of US$59,000 in the last quarter. They have already fallen in the first quarter of 2023, but they are still attractive: US$51,000. Part of that explains Albemarle's good first quarter, which has 90% of its prices at variable price contracts, but which are marked by the immediately preceding quarter: thus, the jump in revenues and payments to Corfo in the first quarter of 2023 is explained by the spectacular last quarter, when, as a reference, spot prices rose to US$88,000. 

Until the first half of last year, SQM reported that 70% of its sales volumes had variable prices, 15% were in renegotiation and another 15% were contracted at a fixed price. The firm stopped reporting that in its following reports. It is commercially sensitive information. But it has been active in seeking long-term contracts. This year it sealed a pact with the American Ford, for an unreported volume. The second, announced this week, with LG, to supply 100 thousand tons of lithium carbonate and hydroxide between 2023 and 2029. According to its reports, in 2022 it had a client that represented 19% of its lithium sales. SQM did not identify that supplier, but Pulso confirmed that it would be the Chinese ByD, the car manufacturer that this year agreed with Corfo to install a plant in Antofagasta, using part of SQM's production quota that the Treasury can allocate to third parties. 

Albemarle also has long-term agreements, mainly with car manufacturers such as Ford, Mercedes Benz and Tesla. The funny thing is that the new contracts are set at variable prices, depending on how the growing value of lithium evolves.

Albemarle Chile salar table