Chile Announces Plan to Nationalize its Lithium Industry, Creating State-Owned Company to Control World's Largest Reserves

Chile's President Gabriel Boric has announced plans to nationalize the country's lithium industry, which is the world's second-largest producer of the metal used in electric vehicle batteries. This move aims to boost Chile's economy and protect the environment by transferring control of its vast lithium operations from industry giants SQM and Albemarle to a separate state-owned company over time.

This decision presents a fresh challenge to electric vehicle manufacturers who are scrambling to secure battery materials, as more countries look to protect their natural resources. Last year, Mexico nationalized its lithium deposits, and Indonesia banned exports of nickel ore, which is a key battery material, in 2020.

Boric stated that future lithium contracts would only be issued as public-private partnerships with state control. The government will not terminate current contracts, but hopes companies will be open to state participation before they expire, without naming Albemarle and SQM. The contracts for SQM and Albemarle are set to expire in 2030 and 2043, respectively.

Albemarle said the announcement would have "no material impact on our business" and that it would continue talks on investing in further growth and using new technologies in Chile. SQM was not immediately available for comment. South Korean battery maker SK On, which has a long-term supply contract with SQM, said it would monitor the development and respond with a long-term view.

The move is likely to spur a shift in future investment in lithium to other countries, including Australia, the world's biggest producer, according to analysts. Boric said state-owned Codelco, the world's largest copper producer, will be tasked to find the best way forward for a state-owned lithium company, and he would seek approval from Congress for the plan in the second half of the year.

Codelco and state miner Enami will be given exploration and extraction contracts in areas where there are now private projects before the national lithium company is formed. A division will be dedicated to advancing technology to minimize environmental impacts, including favoring direct lithium extraction over evaporation ponds.

The announcement by Chile did not trigger a reversal in lithium prices, which have plunged more than 70% from a November peak due to weakening EV demand in China, the world's biggest auto market. The most-traded lithium carbonate futures on the Wuxi Stainless Steel Exchange in China fell 3.4% as of 0618 GMT on Friday.

Boric said the country would look to protect biodiversity and share mining benefits with indigenous and surrounding communities. "Today we present a national lithium strategy that's technically solid and ambitious," the president said, adding it would build "a Chile that distributes wealth we all generate in a more just way."