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Morningstar | SQM will benefit from capacity expansions at its attractive low-cost lithium assets.

Through its access to high-quality mineral deposits, the Chemical and Mining Co. of Chile, otherwise known as SQM, is a large, low-cost producer of lithium, iodine, and nitrates used in specialty fertilizers.SQM’s crown jewels are its geologically advantaged lithium and caliche ore assets. SQM’s low-cost lithium deposits in the Salar de Atacama boasts the highest concentration of lithium globally and benefits from high evaporation rates in the Chilean desert. As electric vehicle penetration increases, we expect mid-double-digit annual growth for global lithium demand, one of the best growth profiles among commodities. SQM is a major supplier in the lithium carbonate market and should benefit from the higher capacity that it has built up in recent years. The company is also investing in additional lithium production capacity in Argentina and Australia, which should boost profits in the next decade as the unit costs of both projects are well below our long-term lithium price forecast of $8,500 per metric ton.SQM holds just under half of the market share in potassium nitrate, a specialty fertilizer used in high-value crops, including fruits and vegetables. Specialty potash demand should benefit from the shift in emerging market diets to higher-value foods. While specialty fertilizer prices tend to move in line with commodity potash prices, they have been less affected by the supply and demand balance of the potash market. SQM is also a small player in commodity potash.SQM is the world's largest producer of iodine, used in x-ray contrast media, pharmaceuticals, and LCD films. Global iodine demand has grown 3% annually over the past decade and should grow at this pace going forward as healthcare spending rises with aging populations. SQM is looking to increase its market share through a volume-over-price strategy, which has caused iodine prices to fall. The firm plans to continue this strategy through the expansion of its iodine capacity.