Lithium stocks, already sliding as prices dive for the key metal used in batteries, are taking another hit after Chilean President Gabriel Boric announced plans to nationalize the industry. SQM and Albemarle, which both have major lithium extraction operations in Chile, both fell in early Friday stock market action.
Chile ranks behind Australia as the second-biggest lithium producing nation. But Chile is No. 1 when it comes to lithium reserves, according to the U.S. Geological Survey.
Lithium Nationalization Plan's Big Questions
Boric sketched out his nationalization plan only in the broadest terms. He aims to seek approval by the Chilean Congress later this year, though it has stymied Boric's agenda on multiple fronts.
New contracts to mine lithium will be public-private partnerships with state control, Reuters reported. Existing contracts won't be canceled. However, Boric said he hoped the companies would be open to a state role even before expiration, according to Reuters.
Impact On Lithium Stocks SQM, ALB
SQM's contract expires in 2030, while Albemarle's mining rights in the Salar de Atacama brine deposits run to 2043.
SQM slid 5% to 74.01 in premarket trading, while ALB stock fell 2.7% to 187.80.
Albemarle told Reuters that the announcement would have "no material impact on our business" and that planning for further investment in Chile would continue.
Morgan Stanley analyst Javier Martinez De Olcoz said in a research note that the new regulatory framework was broadly in line with expectations. However, forthcoming "details matter" in gauging the impact, he said.
The uncertainty about a contract renewal has been something of an overhang for SQM stock. In 2022, SQM generated $10.7 billion in revenue, including $8.15 billion from its lithium operations. Meanwhile, SQM says its "contribution" to the Chilean treasury reached $5.06 billion, including $3.27 billion in lease payments and $1.79 billion in income taxes.
Lithium Prices Retreat
SQM's lithium revenue exploded 770% last year, far above the 55% increase in output, as lithium sales prices surged.
Lithium carbonate spot prices have plunged 70% from their November peak, but are still about double their level from two years ago.
In a Thursday note published before the news out of Chile, Deutsche Bank analyst Corinne Blanchard said she now expects a modest lithium surplus in 2023 amid a boost to expectations for Chinese output. In the medium to long term, she still sees a significant lithium supply shortage. Blanchard cut her price targets for buy-rated lithium stocks SQM (to 90 from 95), ALB (to 240 from 325) and Lithium Americas (to 30 from 36).
Ahead of Boric's nationalization announcement, lithium stocks had already slumped near 52-week lows. ALB stock has fallen 42% from its November peak, while SQM stock has fallen 33%.
