Codelco will benefit from entry into lithium business, Moody's says

18th April 2024 By: Reuters

SANTIAGO - Chile's struggling state-owned copper giant Codelco will be able to diversify its business, improve cash flow and change its business profile with its entry into the lithium market, Moody's said on Wednesday.

Chile's government last year tasked Codelco with boosting state control of the country's lithium industry through partnerships with private companies.

Moody's says the electric vehicle (EV) industry will keep interest in lithium high despite the recent decrease in prices, which was partly due to increased production.

"Codelco is going to be a significant producer of two commodities that are crucial for the energy transition worldwide," Barbara Mattos, a corporate analyst at Moody's, said during a presentation.

She added that entering the lithium market wouldn't have credit implications for Codelco in the short-term, but the eventual need for capital for lithium initiatives could put pressure on its credit quality.

Moody's cut Codelco's ratingin October and put a negative outlook on the company, which is struggling with high debt and delays in key projects meant to improve production.

While debt is being used to finance these projects, Mattos said the company must continue its ambitious investment plan to be able to supply future copper demand.

"Chile has the world's largest reserves of copper and lithium, so the country has a very great potential to become a fundamental player in the energy transition," Mattos said.

Martina Gallardo, a lithium analyst for Moody's, said that while a surplus of lithium could lead to a further decline in prices for the rest of the year, she expects a supply-demand rebalance in 2025.

"Despite this short-term volatility, the long-term outlook remains positive," Gallardo said, adding that lithium demand could jump by 150% by the end of the decade and almost fourfold by 2050.