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Chile plans to nationalize its huge lithium industry




  • Chile to create state-owned lithium company
  • State-owned company that controls the world’s largest lithium reserves
  • Copper giant Codelco will play a key role

SANTIAGO, April 21 (Reuters) – Chilean President Gabriel Boric said on Thursday he would nationalize the country’s lithium industry, the world’s second-largest producer of the metal essential in electric vehicle batteries, to boost the economy and protect the environment.

The shock move in the country with the world’s largest lithium reserves will eventually transfer control of Chile’s huge lithium operations from industrial giants SQM ( SQMA.SN ) and Albemarle ( ALB.N ) to a separate state-owned company.

That poses a new challenge for electric vehicle (EV) manufacturers trying to secure battery materials, as more countries seek to protect their natural resources. Mexico nationalized its lithium deposits last year, and Indonesia banned exports of nickel ore, a key battery material, in 2020.

Lithium-ion batteries are key components for most consumer electronics and electric vehicles. Companies are seeking alternative sources as the global lithium market faces shortages of raw material supply.

Mexico is also working with the governments of Argentina, Bolivia and Chile to create a lithium association so that the countries, which together account for more than half of the world’s reserves, can share their expertise in exploiting the mineral.

“This is the best chance we have to transition to a sustainable and developed economy. We cannot afford to waste it,” Boric said in an address broadcast nationwide.

Future lithium contracts will only be issued as public-private partnerships with government control, he said.

An attempt last year to revise the mining rights met with fierce opposition from the mining sector and was voted down.

The government would not terminate current contracts but hoped companies would be open to government participation before they expire, he said, without naming Albemarle and SQM, the world’s No. 1 and No. 2 lithium producers.

SQM’s contract is set to expire in 2030 and Albemarle’s in 2043.

SQM, formally called Sociedad Quimica Y Minera de Chile, and Albemarle supply Tesla Inc ( TSLA.O ), LG Energy Solution Ltd ( 373220.KS ) and other electric car and battery makers.

Albemarle said the announcement would have “no material impact on our business” and that it would continue talks to invest in further growth and use new technology in Chile.

SQM and China’s Tianqi Lithium Corp ( 002466.SZ ), the second-largest shareholder in SQM, did not immediately respond to Reuters requests for comment.

South Korean battery maker SK On, which has a long-term supply contract with SQM, said it would monitor developments and respond with a long-term view.

The announcement from Chile helped spark a rally in lithium prices in Asia in volatile trading on Friday, as it eased market concerns over excess supply triggered by a sharp decline in EV sales in China, the world’s largest auto market.

The most-traded lithium carbonate futures on the Wuxi Stainless Steel Exchange in China jumped 11% after falling nearly 11% earlier on Friday. Spot lithium prices have fallen more than 70% from a peak in November.

Reuters graphics

“When or if battery makers renew their contracts with lithium firms in Chile, contract conditions are likely to be more difficult than what they saw in the past when there was no government involvement,” said Cho Hyunryul, an analyst at Samsung Securities.

The move is likely to spur a shift in future investment in lithium to other countries, including Australia, the world’s largest producer, analysts said.

“Policy stability is very important for any mining project … Mining-friendly jurisdictions like Australia will be places where incremental funds are invested,” said Harsh Bardia, analyst at National Australia Bank’s private wealth arm JBWere.

Top Lithium Producers

CODELCO ROLE

Boric said state-owned Codelco, the world’s biggest copper producer, would be tasked with finding the best way forward for a state-owned lithium company and that he would seek congressional approval of the plan in the second half of the year.

Congress has been a check on many of Boric’s more ambitious proposals, scrapping a proposed tax reform bill in early March.

Codelco and state miner Enami will get exploration and production contracts in areas where there are now private projects before the national lithium company is formed.

A department will be dedicated to advancing technology to minimize environmental impacts, including favoring direct lithium extraction over evaporation ponds.

Private Summit Nanotech Corp, which develops technology for direct lithium extraction, welcomed the announcement.

Boric said the country would look to protect biodiversity and share mining benefits with indigenous and surrounding communities.

“Today we are presenting a national lithium strategy that is technically sound and ambitious,” the president said, adding that it would build “a Chile that distributes the wealth we all generate in a more equitable way”.

Countries with the highest lithium reserves

Reporting by Alexander Villegas and Ernest Scheyder; Additional reporting by Praveen Menon in Sydney, Heekyong Yang in Seoul and Siyi Liu in Beijing; Editing by Miyoung Kim and Sonali Paul

Our standards: Thomson Reuters Trust Principles.

Ernest Scheider

Thomson Reuters

Covers the future of energy and transportation, including electric vehicles and battery technology, focusing on lithium, copper, cobalt, rare earths and other minerals, policy, politics, etc. Previously covered oil and natural gas, including a stint in North Dakota’s Bakken shale oil patch.



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