Yellen sends Chile friend request with visit to Albemarle (NYSE:ALB) lithium facility

Diplomatic trade trips can often be nothing more than a ribbon cutting ceremony or a photo op, but US Treasury Secretary Janet Yellen used a trip to Chile earlier this month to deliver a pointed message: work with us, not China.

Speaking at a lithium processing facility owned by American chemical firm Albemarle (NYSE:ALB) in the northern mining city of Antofagasta, Yellen promoted an approach she termed “friendshoring” that refers to the strategic strengthening of supply chains by working with trusted allies and partners.

“Parts of our key supply chains, including for clean energy, are currently overconcentrated in China,” she said. “This makes America more vulnerable to shocks in China, or whatever country dominates production, from natural disasters to macroeconomic forces, to deliberate actions such as economic coercion.”

Celebrating the twentieth anniversary of a free trade agreement between Chile and the US and a new bilateral tax treaty, Yellen pointed to $30 billion of American investment that flowed to the South American country in 2022. She highlighted Chile’s copper exports and large lithium reserves as pivotal to achieving US clean energy objectives. Despite market volatility, the American economist and former Federal Reserve chair said demand for copper would double by 2035, while demand for lithium would more than triple by 2030.

The fact that Yellen chose to deliver her remarks at an Albemarle facility is significant. Albemarle operates globally, including in China, where the cooling demand for electric vehicles has contributed to downward pressure on lithium prices, a critical component of EV batteries. Albemarle’s shares have declined almost 20% this year amid the market downturn, yet Yellen’s remarks underscore the US’s commitment to the EV market and securing vital lithium resources.

Chile’s largest trading partner is by far China, but the Asian economic giant is facing increasing concerns about its growth prospects as domestic demand stagnates and the US ratchets up efforts to bring manufacturing closer to home. Yellen’s friend request could represent a lucrative opportunity for realignment. 

Indeed, Chile need only look at Mexico’s recent economic growth, much of which is directly connected to the “nearshoring” going on there. The Federal Reserve Bank of Dallas said earlier this year that Mexico industrial production was picking up, and OECD says the country is well positioned to attract investment from companies looking to relocate operations.

Yellen’s friendship push with Chile also comes amid increasing geopolitical tensions in the region, with Russia exerting its power over Ecuador banana exports and the ongoing troubles connected to the political and economic situation in Venezuela. As Chile treads carefully in a global economy marked by polarization, Yellen’s invitation to a strategic pivot may be hard to overlook. Her comments also represent a long-term show of support for Albemarle.