Executive Summary / Key Takeaways

• Sociedad Química y Minera de Chile S.A. (SQM) demonstrated financial resilience in the first half of 2025, reporting a net income of US$226.0 million, a significant turnaround from a loss in the prior year, despite a period of lower lithium prices.
• The company's diversified portfolio, particularly its Iodine segment, proved a robust profit driver, contributing over 50% to consolidated gross profit with an adjusted gross margin of 57% in Q2 2025.
• SQM is strategically expanding its lithium production capacity, with the Kwinana refinery in Australia now operational and targeting 25,000 tons of attributable battery-grade lithium hydroxide by the end of 2026, alongside a projected 10% growth in Chilean lithium sales volumes for 2025.
• The long-term investment thesis is underpinned by SQM's cost leadership in lithium extraction, its commitment to sustainable and innovative technologies like Direct Lithium Extraction (DLE), and strategic partnerships such as the Codelco joint venture, which is expected to close in September or October 2025.
• While lithium price volatility and an ongoing SEC inquiry present near-term considerations, SQM's strong balance sheet and diversified revenue streams position it to capitalize on the accelerating global demand for clean energy materials.

A Global Player in Essential Materials

Sociedad Química y Minera de Chile S.A. (SQM), founded in 1926, stands as a global leader in the production of essential chemicals for diverse industries, including health, nutrition, renewable energy, and technology. Headquartered in Santiago, Chile, the company's extensive history, particularly its over three decades of experience in the lithium market, has shaped its current strategic focus on a diversified portfolio, cost leadership, and continuous capacity expansion. SQM's operations span lithium and derivatives, specialty plant nutrition (SPN), iodine and derivatives, potassium, and industrial chemicals, positioning it uniquely within the dynamic global materials landscape.

The broader industry is currently characterized by robust demand for electric vehicles (EVs) and energy storage systems, driving significant growth in the lithium market. Concurrently, the iodine market experiences tight supply and healthy consumption, while the fertilizer sectors, including SPN and potassium, demonstrate stable demand and price resilience. SQM's foundational strength lies in its access to the rich brine resources of the Salar de Atacama in Chile, which boasts the highest concentration of lithium globally and benefits from high solar evaporation rates. This natural advantage, combined with integrated operations, forms the bedrock of its competitive position.

Technological Edge and Sustainable Innovation

SQM's core competitive advantage is deeply rooted in its proprietary brine-based lithium extraction technology, which leverages the unique environmental conditions of the Salar de Atacama. This process, which involves pumping brine into evaporation ponds to concentrate lithium chloride, utilizes approximately 97.4% solar energy, resulting in a very efficient process with a notably small carbon footprint. This method offers a significant cost advantage and contributes to SQM's position as one of the lowest-cost lithium producers globally.

The company is actively pursuing advanced technological differentiators to enhance sustainability and efficiency. SQM has committed to an innovation roadmap for water-neutral lithium production in Chile, incorporating advanced evaporation technologies, Direct Lithium Extraction (DLE), and seawater adduction combined with a desalination plant. The Salar Futuro project, a joint venture with Codelco, aims for more efficient and sustainable production, targeting approximately 250,000 metric tons of lithium carbonate per year from its first stage, with a potential to increase to 300,000 metric tons by 2038, while reducing brine pumping by half of the original authorization and eliminating the use of inland waters. SQM has evaluated over 70 DLE technologies, with two currently undergoing pilot testing, aiming to select one or more by next year to further boost output to an annual range of 280,000 to 300,000 metric tons of lithium by 2060. These initiatives are critical for investors as they solidify SQM's long-term competitive moat, enhance its environmental credentials, and promise sustained cost leadership and expanded production capacity in a resource-intensive industry.

Beyond lithium, SQM also holds patents in Chile and the United States for its iodine prilling process, which refines solid iodine using a melting and prilling method. This technological expertise contributes to the high quality and market positioning of its iodine products. The company's R&D efforts extend to a corporate venture capital fund launched in 2022, specifically to promote new lithium-related technologies in areas like recycling, water, and electromobility, further demonstrating a commitment to innovation across its value chain.

Competitive Landscape and Strategic Positioning

SQM operates within a highly competitive global landscape, facing both direct and indirect rivals across its diverse business segments. In the lithium market, key direct competitors include Albemarle Corporation (ALB), which also utilizes brine extraction in Chile and Nevada but has a broader global footprint including hard-rock deposits. SQM's cost leadership, derived from its high-concentration brine resources and solar-powered evaporation, provides a significant advantage over competitors, allowing it to maintain profitability even in challenging price environments. While Albemarle is actively advancing DLE technologies and developing high-purity lithium hydroxide directly from brine, SQM's extensive pilot testing of DLE solutions and its Salar Futuro project underscore its commitment to maintaining a technological edge in sustainable extraction.

In specialty plant nutrition, SQM competes with agricultural sciences companies like FMC Corporation (FMC) and Nutrien Ltd. (NTR). FMC focuses on crop protection and plant health with a robust synthetic chemistry portfolio, while Nutrien is a leading global provider of crop inputs like potash and phosphates. SQM's strategy in SPN involves growing by adding services and NPK-based blends, aiming to maintain its brand and pricing power. SQM's integrated production processes and focus on high-purity products offer a qualitative advantage in niche applications, differentiating it from more volume-driven approaches. However, rivals like FMC and Nutrien often demonstrate faster product innovation in agrochemical formulations and broader distribution networks, respectively.

SQM's diversified portfolio, including its strong iodine business, provides a buffer against volatility in any single commodity market. The company's strategic decision to reduce potassium production to prioritize high lithium content brines and value-added SPN products further optimizes its resource allocation. Barriers to entry in SQM's core industries, such as high capital requirements, complex regulatory approvals, and access to prime mineral resources, favor established players like SQM, strengthening its market share defense.

Financial Performance and Operational Momentum

SQM's financial results for the first half of 2025 reflect a period of dynamic market conditions, particularly in the lithium sector. The company reported total revenues of US$2,079.3 million for the six months ended June 30, 2025, a decrease of 12.6% compared to the same period in 2024. Second-quarter 2025 revenues totaled US$1,042.7 million, down 19.4% year-over-year. This revenue decline was primarily driven by lower lithium market prices, which impacted contract volumes by hitting lower limits.

Despite these headwinds, SQM achieved a net income of US$226.0 million for the first six months of 2025, a significant turnaround from a net loss of US$655.9 million in the prior year. Second-quarter net income was US$88.4 million, a decrease of 58.6% from Q2 2024.

Gross profit for the six-month period was US$558.3 million, representing a margin of 26.8% of revenues. A one-time impact of approximately US$50 million on the cost of sales in the second quarter of 2025 resulted from a new three-year union agreement.

The Iodine and Derivatives segment emerged as a standout performer, contributing 50.8% to SQM's consolidated gross profit for the first half of 2025 and achieving an adjusted gross margin of 57% in the second quarter. Iodine revenues increased by 3.3% for the six-month period, driven by strong prices (up over 9% year-on-year to US$71.5 per kilogram in Q2 2025) amidst tight market conditions and robust demand from X-ray contrast media applications.

The Lithium and Derivatives segment, while facing price pressures, saw sales volumes increase by 13% for the six months ended June 30, 2025, reaching 108.10 thousand metric tons. Its adjusted gross margin for Q2 2025 was 21%. Specialty Plant Nutrition revenues remained stable, with a slight increase of 0.9% for the six-month period, reflecting resilient demand and strong prices. The Potassium segment experienced a significant 47% decrease in sales volumes for the first half of 2025, a strategic reduction to prioritize lithium production, though average realized prices increased by 23% year-on-year.

SQM maintains a strong balance sheet, providing the financial flexibility to support its ambitious growth capital expenditure program. The company's current ratio stands at 2.92, indicating robust short-term liquidity.

Outlook and Strategic Growth Initiatives

SQM's management expresses a positive long-term outlook for the lithium industry, anticipating a recovery in prices from current "unsustainable" levels. Global lithium demand is projected to grow by 17-20% in 2025, reaching over 1.4 million metric tons, primarily driven by EV and BEV adoption in China and Europe. SQM expects its own lithium sales volumes to grow at a similar rate in 2025.

Key growth initiatives include:

• Chilean Lithium Operations: Sales volumes from Salar de Atacama are expected to grow by approximately 10% compared to 2024, with a significant recovery anticipated in the second half of 2025.
• International Lithium Division (Mt. Holland/Kwinana): SQM has updated its full-year 2025 sales guidance for this division to approximately 20,000 metric tons of Lithium Carbonate Equivalent (LCE). The Kwinana refinery, a joint venture with Wesfarmers, completed construction in July 2025 and is undergoing an 18-month ramp-up period, targeting a full capacity of 50,000 tons of battery-grade lithium hydroxide per year (25,000 tons attributable to SQM) by the end of 2026. The decision on the Mt. Holland expansion will be reviewed in 2026, considering market conditions and project progress.
• Salar Futuro Project: This transformative partnership with Codelco is progressing, with the environmental study submission anticipated in the first half of 2026. Project approval is expected around early 2030, with significant capital expenditure deployment commencing in the second half of 2030 and continuing through 2031-2033. The Codelco joint venture itself is expected to finalize in September or October 2025.
• Iodine Expansion: SQM reaffirms its iodine sales guidance for 2025 at levels similar to 2024, with stronger demand growth foreseen for 2026, driven by X-ray contrast media, LED/LCD screens, and nylon. The company is investing in new production sites and a seawater pipeline, expected to be ready in the second half of 2026, to bring additional capacity to the market.
• Capital Expenditures: Total CapEx for 2025 is projected at approximately US$1.1 billion, with US$550 million allocated to Chilean lithium operations, US$200 million to international lithium, and US$350 million to Caliche operations. Over the 2025-2027 period, total CapEx is estimated between US$3.1 billion and US$3.8 billion, predominantly for growth initiatives, with maintenance CapEx averaging US$250-280 million annually.

Risks and Considerations

While SQM's outlook is largely positive, investors should consider several key risks. Lithium price volatility remains a significant factor, as demonstrated by the impact on Q2 2025 revenues. The ongoing SEC investigation into SQM's business operations, compliance program, and allegations of potential FCPA violations, while being actively cooperated with, introduces regulatory uncertainty. The Codelco joint venture, despite its strategic importance, faces political "noise" in an election year and requires antitrust approvals, including from Chinese regulators. Furthermore, as a resource-dependent company, SQM is exposed to environmental regulations and potential technological gaps compared to some rivals, which could affect its operational scale and market share. The substantial capital expenditure program, while largely funded by a strong balance sheet, could necessitate external financing if market conditions deteriorate significantly.

Conclusion

SQM stands as a compelling investment proposition, strategically positioned at the nexus of the global energy transition and essential industrial materials. The company's diversified portfolio, anchored by its highly profitable iodine business and resilient specialty plant nutrition segment, provides a robust foundation amidst the dynamic lithium market. SQM's core investment thesis is built upon its unparalleled cost leadership in lithium extraction, driven by its unique Chilean brine resources and continuous technological innovation, including the adoption of DLE.

The successful ramp-up of the Kwinana refinery and the strategic Codelco partnership are pivotal in extending SQM's lithium production capabilities and solidifying its long-term market presence. While short-term lithium price fluctuations and regulatory scrutiny present challenges, SQM's strong financial health, proactive capacity expansions, and commitment to sustainable practices underscore its ability to capitalize on the accelerating demand for critical materials. The company's technological roadmap, focused on efficiency and environmental stewardship, reinforces its competitive moat and ensures it remains a key enabler of the clean energy future.