Chile’s President Gabriel Boric said on Thursday he would nationalise the country’s lithium industry, the world’s second-largest producer of the metal essential in electric vehicle batteries, to boost its economy and protect its environment.

The shock move in the country with the world’s largest lithium reserves would in time transfer control of Chile’s vast lithium operations from industry giants SQM and Albemarle to a separate state-owned company.

It poses a fresh challenge to electric vehicle (EV) manufacturers scrambling to secure battery materials, as more countries look to protect their natural resources. Mexico nationalised its lithium deposits last year, and Indonesia banned exports of nickel ore, a key battery material, in 2020.

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

“This is the best chance we have at transitioning to a sustainable and developed economy. We can't afford to waste it,” Boric said in an address televised nationwide.

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

An attempt last year to overhaul mining rights faced fierce opposition from the mining sector and was voted down.

The government would not terminate current contracts, but hoped companies would be open to state participation before they expire, he said, without naming Albemarle and SQM, the world’s number 1 and number 2 lithium producers respectively.

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 EV and battery manufacturers.

Albemarle said the announcement would have “no material impact on our business” and it would continue talks on investing in further growth and using new technologies in Chile.

SQM and China’s Tianqi Lithium Corp, the second largest shareholder of 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 the development and respond with a long-term view.

The announcement by Chile helped spark a lithium price rally in Asia in volatile trade on Friday, as it eased market concerns over excess supply triggered by a sharp slowdown this year in EV sales in China, the world's biggest 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 plunged more than 70% from a November peak.

“When or if battery makers renew their contracts with lithium firms in Chile, contract conditions would likely become more difficult than what they saw in the past when there was no state 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 biggest producer, analysts said.

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

CODELCO ROLE

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.

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

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 minimise environmental impacts, including favoring direct lithium extraction over evaporation ponds.

Privately held Summit Nanotech Corp, which is developing direct lithium extraction technology, welcomed the announcement.

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”.