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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 lithium hydroxide production capacity in Australia through a joint venture with Kidman resources that will mine and produce spodumene then convert the spodumene into lithium hydroxide. The project should boost profits in the next decade as the unit costs of the project should sit on the bottom half of the lithium hydroxide cost curve. SQM holds a joint venture stake in a low-cost brine resource in Argentina under development but agreed to sell its stake to Ganfeng lithium by the end of 2018.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 movements in commodity potash prices. 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, to gain market share that had fallen from new supply.