* Shareholders will vote for new SQM board on Friday in Santiago
* Some call for resignation of chairman and Pinochet aide Ponce
* Canada's Potash Corp yet to make decision on nominees
* SQM is top global supplier of lithium, iodine
By Rosalba O'Brien and Felipe Iturrieta
SANTIAGO, April 22 (Reuters) - The future of Chile's SQM, the world's biggest producer of key battery ingredient lithium, hangs in the balance this week as the chairman faces demands to resign and a new board is elected.
SQM , also an important supplier of iodine and other chemicals, was privatized in the 1980s under then-dictator Augusto Pinochet. His son-in-law at the time, Julio Ponce, bought up stakes that made him a billionaire and chairman of the firm.
But shortly after an insider-trading probe last year that saw Ponce and others fined by the regulator, the company has become mired in a fresh scandal over illicit campaign financing, largely of Pinochet's right-wing party the UDI.
The scandal has convulsed the political and business elite in Chile and already claimed the scalp of Patricio Contesse, SQM's chief executive, who was fired last month for refusing to cooperate with authorities.
Now it threatens to unseat Ponce himself.
On Friday, shareholders will vote on the composition of the eight-member board, triggered by the resignation of three representatives of Canadian shareholder Potash Corp, who stepped down in anger at SQM's handling of the situation.
SailingStone, the largest shareholder of SQM's actively traded ADRs, called last month for Ponce to exit too, saying his continued presence was "inappropriate."
Many in the market concur, particularly given the around 20 percent decline in SQM's value since the scandal broke in February.
"Most agree it is not Ponce's style to leave the board ... On the other hand, Ponce himself must surely recognize the positive impact to SQM (and his personal net worth) if he were to exit," said Scotiabank analyst Ben Isaacson.
One shareholder with knowledge of the company told Reuters that Ponce could step down from his role as chairman as a gesture but continue on the board.
It is not clear what will happen on Friday, with nominees able to be announced right up to the meeting. Potash Corp said it has not yet made a decision on whether it will nominate anyone.
SailingStone has nominated Canadian lawyer and former securities regulator Edward Waitzer, a market favorite likely to win support and replace the current minority shareholder representative, who is allied to Ponce.
The only other nominee to date is Dieter Linneberg, a Chilean academic specializing in corporate governance, nominated by Ponce. He will likely replace Contesse's son, widely expected to step down from the board given his connections to the former CEO. (Additional reporting by Euan Rocha in Toronto; Editing by Ted Botha)