Despite the industry's cold winter, lithium mining giant SQM is expanding production against the trend

On March 22, it was reported by the media that the downturn in the lithium industry has not affected the expansion plans of lithium mining giant SQM. SQM's production manager, Humberto Carvajal, revealed that the lithium refining plant in the Atacama Desert will be expanded, with construction set to begin next year. The project will involve an investment of $490 million to produce more lithium hydroxide.

Carvajal stated that the recent investments are mainly aimed at increasing the production of lithium hydroxide, allowing SQM to be more flexible in the rapidly changing market:

Although lithium hydroxide is more expensive, it performs better in terms of quality.

Media analysis pointed out that after a year of downturn, the lithium industry as a whole has entered a cold winter recently. Overseas lithium companies have generally reduced production or cut back on investments to cope with the decline in lithium prices. However, SQM has intensified its expansion in the brine extraction and processing field. This move has both advantages and disadvantages: expanding capacity may exacerbate the oversupply situation in the lithium mining industry, but as the world's second-largest lithium producer, SQM is more willing to stockpile inventory rather than reduce its scale, showing optimism about the future demand for lithium.

SQM's expansion plan will increase its capacity from 200,000 tons to 300,000 tons, potentially making it the world's largest lithium refining plant. This capacity level is equivalent to the total global lithium market production five years ago.

In addition, SQM's operating contract in the Atacama region was originally set to expire in 2030. SQM is currently negotiating with the state-owned company Codelco to transfer the majority of its brine assets to Codelco in exchange for a thirty-year extension of the operating agreement:

The new operating company, in which Codelco will hold the majority stake, will begin operations in January 2025. It will assume SQM's current contract until the original expiration date of December 2030, then transition to a new contract until 2060. Codelco will share profits from the beginning, and starting from 2031, Codelco's share of profits will increase to 50.01%.

SQM stated that negotiations with the Chilean National Copper Corporation (Codelco) regarding the lithium mine are progressing smoothly, with both parties conducting audits of assets, operations, and contracts. As part of the joint venture, SQM will transfer its rights to the Maricunga gold mine to Codelco, a transaction that does not require shareholder approval.

In the negotiations with Codelco, reducing the environmental impact of brine extraction and factory operations has become a key issue. Approximately $2 billion will be invested to improve efficiency, including the introduction of direct extraction technology as a supplement to the current evaporation method. Efforts to extract more lithium from less brine have been welcomed by the local community and the battery supply chain concerned with environmental, social, and governance (ESG) issues.

SQM is more optimistic about the demand outlook for electric vehicles and lithium mining. According to Carvajal, their inventory is maintained at three to four months of supply.

SQM CEO Ricardo Ramos stated at last month's earnings conference, "Having additional inventory is good news, enabling us to meet expected market demand from 2025 onwards. Our strategy is to maintain inventory and be ready to sell when market demand arises." ”