Report Highlights

Market Overview

Chile holds the world's largest lithium reserves — approximately 9.3 million tonnes of lithium metal equivalent, representing 36% of identified global resources — concentrated in the Salar de Atacama, one of the most productive lithium brine evaporation environments on earth. SQM and Albemarle, the two largest lithium producers globally by revenue, both operate large-scale lithium carbonate and hydroxide production facilities at the Atacama, with production costs of USD 3,000–5,000/tonne lithium carbonate equivalent — the lowest-cost lithium production of any primary method globally. Chile's natural resource endowment gives it a structural cost advantage in lithium supply that is unlikely to be eroded by any competing source within the 2032 forecast period, regardless of direct lithium extraction (DLE) technology advances in other brine locations.

Chile's lithium sector underwent a fundamental policy shift in 2023 with President Boric's announcement of a National Lithium Strategy that designates lithium as a strategic resource and mandates Codelco (the state copper mining company) participation in new and renewing lithium concessions. The strategy — which requires state participation of 50%+ in new lithium mining contracts — has introduced sovereign uncertainty that has delayed Albemarle's contract renewal negotiations and created investor concern about the terms under which new lithium capacity will be developed. The policy direction is toward value-added processing in Chile — lithium hydroxide rather than carbonate, and ideally cathode active material or battery cell manufacturing — a goal shared with Australia and other resource-rich nations seeking to capture more supply chain value rather than exporting raw materials.

Key Growth Drivers

Global EV demand is the fundamental lithium demand driver, with battery demand growing from approximately 700 GWh in 2024 to a projected 3,000–4,000 GWh by 2032 — a demand increase requiring approximately 1.5–2 million tonnes of additional annual lithium chemical supply in the period, of which Chile is positioned to supply 20%–30% through expanded production. The Global Battery Alliance's Responsible Sourcing Battery Passport framework — requiring ESG and supply chain provenance disclosure for batteries sold in the EU from 2026 — creates a documentation and sustainability compliance requirement that Chilean lithium producers are addressing through water management improvement programmes at the Atacama, where brine extraction impacts on flamingo habitats and indigenous community water rights have generated ESG controversy.

Market Challenges

Water resource constraints at the Salar de Atacama are the most acute operational challenge — brine extraction reduces freshwater availability for the Atacama's indigenous Atacameño communities and threatens the flamingo and vicuña ecosystems that have indigenous cultural significance and UNESCO biosphere reserve protections. Regulators and courts have imposed extraction volume limitations on SQM's operations following legal challenges from indigenous communities, creating production ceiling constraints that new brine capacity cannot overcome without resolving the water management controversy. Chile's new lithium strategy's state participation requirements have created investment uncertainty — Albemarle's contract negotiations for renewal beyond 2030 have been protracted, delaying investment commitments in new processing capacity and DLE pilot programmes that would enable more water-efficient extraction.

Emerging Opportunities

Direct lithium extraction (DLE) technology deployment at the Atacama is the most significant near-term opportunity — DLE processes extract lithium from brine without large evaporation ponds, recover 85%–90% of lithium (versus 40%–50% for conventional evaporation), return brine with reduced lithium content to the salar, and reduce water consumption by 80–90% relative to conventional operations. Codelco's partnership with SQM for the Atacama DLE programme — agreed under the national lithium strategy framework — is the most significant DLE commercialisation project globally, with USD 1+ billion investment planned for DLE implementation by 2030. Success of DLE at Atacama scale would both expand Chile's production capacity beyond current extraction volume limits and resolve the water management controversies that threaten the long-term social licence for brine lithium extraction.

Market at a Glance

Leading Market Participants

• SQM is the world
• Albemarle
• Codelco
• BYD Chile
• Lithium Americas' Pastos Grandes project in Argentina

Regulatory and Policy Environment

Chile's 2023 National Lithium Strategy is the overarching policy framework, requiring state participation in new and renewing lithium contracts and mandating value-added processing in Chile as a contract condition. CORFO administers lithium production contracts and imposes water extraction quotas, lithium pricing mechanisms (including Atacama extraction levies that fund regional development), and ESG compliance requirements. Environmental permits for Atacama lithium operations are governed by Chile's Servicio de Evaluación Ambiental (SEA), with indigenous community consultation requirements under ILO Convention 169 creating legal obligations that have resulted in extraction volume restrictions. Chile's proposed Royalty Minero legislation — proposing mining royalties of up to 35% on lithium sales — has created investment uncertainty pending final legislative outcome.

Long-Term Outlook

Chile's lithium market will remain the world's lowest-cost primary lithium production source through 2032, with DLE technology deployment enabling production expansion beyond current water-constrained limits. Total Chilean lithium chemical production is projected to reach 500,000–700,000 tonne/year LCE by 2032, representing 20%–25% of projected global demand. Value-added processing — whether hydroxide refining, cathode precursor, or battery manufacturing in Chile — will advance under the national lithium strategy framework, but the timeline for industrial-scale downstream processing depends on attracting the foreign direct investment that the state participation requirements and royalty uncertainty have complicated. Chile's long-term competitive position is secure at the resource level; the policy and investment framework will determine how much of the supply chain value it captures.