Chile’s President Gabriel Boric has announced a plan to nationalise the country’s booming lithium industry.

The move will bring the world’s second-largest lithium production industry under state control.

Chile’s lithium production increased by 38% in 2022 compared to the previous year. Approximately 30% of global lithium production comes from Chile, only exceeded by Australia.

Boric stated: “Any private company, whether foreign or local, that wants to exploit lithium in Chile must partner with the state. […] This is an opportunity for economic growth that will be difficult to beat in the short term.”

The President was keen to stress how nationalisation might help to mitigate the environmental effects of lithium mining, including reducing water consumption in mining. He said: “These salt flats are not just lithium, they are people, they are communities, they are water in the desert […] They are the home of cultures thousands of years old.” Part of this comes with a pledge to favour emerging mining technologies, such as direct lithium extraction (DLE), over more polluting methods such as evaporation ponds. In DLE, lithium is extracted from the brine directly instead of allowing the water to evaporate away from the lithium. This can require more water, which can affect groundwater systems and damage biodiversity.

Chile nationalised its copper industry in the late 60s and early 70s, eventually forming Codelco, the world’s foremost copper producer. The government plans to task Codelco with pushing lithium nationalisation forward while forming a state lithium company in the long run.

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Will Chilean lithium struggle?

Plans to form a singular nationalised lithium company may struggle due to congressional divides. Nationalisation will require absolute majority support from both the upper and lower houses of Chilean congress. There are, however, 13 different parties sitting in the upper house and eight more in the lower house. That these parties range across the political spectrum poses an obstacle for Boric to garner unified support. At least the long-lasting nationalisation of the country’s copper industry showcases the potential in the move.

There are also worries that mining firms’ objections to Chilean state-ownership may hamper returns.  Analyst Jordan Roberts at commodity price reporter Fastmarkets NewGen’s said: “There may be some hesitation investing in Chile’s lithium space until further details have been released, and companies are confident on stability and confidence in how the public-private partnerships will operate.”

Many of Chile’s miners would be tempted to uproot their operations for Australia Australia. The world’s biggest and third-biggest lithium producers’ more trade-friendly perception might see them swallow much of Chile’s market share.

In February, Mexico handed control of its own lithium nationalisation effort to its energy ministry. Mexico started nationalising its lithium in 2022, and it has since seen progress stall. There is promise in a collaboration between Advance Lithium and Mexico’s LitioMX, but talks remain ongoing.

Boric conceded that current mining contracts will not be terminated, but hopes that the companies would be open to collaboration with the state during their duration. Boric also stressed that future contracts will only occur as state-controlled public-private partnerships.