SANTIAGO, May 7 (Reuters) - Chinese automaker BYD

and metals group Tsingshan are backing out of

multi-million dollar plans to build lithium cathodes plants in

Chile, a major producer of the battery metal, company and

government sources told Reuters on Wednesday.

The retreat by the two huge Chinese companies is a blow to

Chile's aim to develop more domestic processing of lithium, a

key metal for electric vehicle batteries. Chile is the world's

no. 2 lithium producer.

Tsingshan told Reuters it has withdrawn plans for a $233

million project to produce 120,000 metric tons of lithium iron

phosphate (LFP). Chile's national assets ministry told Reuters

that BYD filed an intent to withdraw its plans in January.

BYD, the world's biggest maker of electric cars, declined to

comment. BYD last year flagged delays to a planned $290 million

plant, which was expected to produce 50,000 metric tons per year

of LFP for cathodes.

Chilean newspaper Diario Financiero first reported the

scrapped investments.

Both BYD and Tsingshan's plans were part of a preferential

price deal to purchase lithium, awarded by the Chilean

government in an effort to spur investment in lithium-related

products within Chile.

A person familiar with the matter said the arrangement was

no longer attractive due to plunging prices for lithium on the

global market.

(Reporting by Daina Beth Solomon; Editing by Alexander

Villegas, Sarah Morland and Emelia Sithole-Matarise)