With the acceleration of the era of electric vehicles, lithium mines are becoming more and more important, even replacing crude oil and becoming a new industrial blood. This also makes Chile's vast lithium salt mines a vital national resource for the country.

On April 20, Chilean President Gabriel Boric said he would nationalize the country's lithium industry and that future contracts for lithium mining would only be awarded to state-controlled public-private partnerships. He emphasized that for projects of strategic value to the country, Chilean state-owned enterprises must occupy a controlling position in public-private partnerships.

Shares in Albemarle Corporation, the world's largest lithium producer, and SQM fell sharply after the Chilean government announced plans to nationalize lithium mines.

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The price of lithium salt in many Asian countries rose for a short period of time, and then erased the gains. Many companies and industry research institutions have stated that the Chilean government's lithium strategy may not have a significant impact on global lithium salt supply in the short term.

According to CNBC analysis, in addition to controlling lithium mines in Chile, the Chilean government is also committed to investing in the downstream processing of the battery supply chain. Strengthening the control of lithium mines in a country with large lithium resources may prompt downstream companies to seek more alternative resources. It is also important to ensure the safety of the electric vehicle supply chain in the future.

Challenges for the future electric vehicle supply chain

Chile is the world's second largest lithium producer and the third largest lithium resource country in the world. It once dominated lithium production for a long time.

According to the United States Geological Survey (USGS), the world's proven lithium reserves were about 89 million tons, of which Chile is second only to Bolivia and Argentina, with lithium reserves of 9.8 million tons. According to data from the Central Bank of Chile, Chile's lithium carbonate exports reached nearly $7.8 billion in 2022, an increase of 777% over 2021.

The Chilean Mining and Chemical Industry Group and the American Albemarle Group jointly own the mining rights of the world's largest lithium salt lake, Chile's Atacama, and Chile authorizes these two private companies to mine lithium resources through a concession development contract.

In 2022, Chile produced a total of 213,000 tons of lithium carbonate equivalent lithium salts, accounting for 27.5% of global production that year. Among them, the current annual lithium salt production capacity of the Carmen project operated by Chilean Mining Chemical Company is 180,000 tons of lithium carbonate equivalent. Its mining contract is expected to expire in 2030, while the mining contract of Albemarle is expected to expire in 2043.

CNBC quoted experts from the Economist Intelligence Unit as saying that the Chilean government’s decision to nationalize lithium may “provide private companies with more opportunities than under the existing framework” and allow private companies to have stronger participation capabilities, but the Chilean government’s strengthened environmental protection and decisions to communicate more with local communities may lead to an increase in the cost of producing lithium in Chile.

It is worth noting that although some analysts believe that the impact of Chile's mining reform measures is limited in the short term, it is undeniable that Chile's current construction and preparation projects may be affected by this strategy, and the long-term strategies of lithium upstream and downstream enterprises may also change accordingly. .

Reuters quoted Samsung Securities analyst Cho hyunyul as saying that when battery makers renew contracts with lithium battery companies in Chile, contract conditions involving government participation may be stricter than in the past. In addition, some analysts believe that Chile's move may prompt future investment in lithium mines to shift to Australia and other major lithium mining countries, affecting Chile's long-term lithium mine supply.

Reuters further pointed out that after Mexico nationalized lithium mines and Indonesia banned the export of nickel ore, a key battery material, Chile's plan to nationalize lithium mines in particular poses new challenges for electric vehicle makers:

The Chilean government's move has brought challenges to global electric vehicle manufacturers, and the move by the country with large lithium resources to strengthen lithium mine control may also prompt downstream companies to seek more alternative resources.