SANTIAGO, Chile: The world's second largest producer of lithium, Chile, is set to nationalize its lithium industry to boost its economy and protect its environment, according to the government.

Chilean President Gabriel Boric's 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.

This poses a fresh challenge to electric vehicle (EV) manufacturers scrambling to secure battery materials, as more countries look 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.

"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.

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 No.1 and No.2 lithium producers.

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.

The announcement by Chile did not trigger a reversal in lithium prices, which have plunged more than 70 percent from a November peak due to weakening EV demand in China, the world's largest auto market.

"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 largest producer, analysts said.

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.