On the edge of Chile's Atacama Desert, one of the world's largest lithium refineries is about to get even bigger.
Production manager Humberto Carvajal said owner SQM is preparing huge storage tanks and vats for a new processing line, which is expected to officially start construction next year. The $490 million project, which aims to produce more lithium hydroxide - a white sugar-like compound that powers electric car batteries - is SQM's latest bet in a highly volatile and still immature market.
SQM is pushing ahead with the expansion of its brine extraction and processing business, even as many of its peers cut spending and output in response to oversupply. Oversupply caused lithium prices to fall sharply last year.
For an industry reeling from painful price capitulations, SQM's unwavering approach is a double-edged sword. Expanding while buyers are still running down inventory is a strategy that could prolong the oversupply. But China, the world's second-largest oil producer, has backed its bullish demand outlook, preferring to stockpile unsold raw materials rather than scale back.
"We always produce at the highest level," Carvajal said at the Playa del Carmen plant, about 170 miles (270 kilometers) from the salt flats where SQM pumps lithium brine.
The conversion of the refinery into a massive 840-acre (340-hectare) complex reflects the emergence of lithium as a key material in the world's effort to wean itself off fossil fuels. Like the lithium market itself, the plant has more than tripled in size over the past few years. Further expansions will raise annual capacity from around 200,000 tonnes to 300,000 tonnes, making it the largest refinery in the world. This level of production is equivalent to the entire lithium market five years ago.
The refinery expansion also reflects the development of different segments of electric vehicles - from high-performance Teslas to affordable city cars - as well as Western efforts to loosen China's grip on the battery supply chain. Much of the recent investment is aimed at increasing hydroxide production, giving SQM greater flexibility in a rapidly changing market.
"Hydroxide is more expensive," Carvajal said. "But it's much better in terms of quality."
SQM's current mining contract expires in 2030. Its ability to reach 300,000 tonnes of capacity in Chile hinges on a proposed deal to hand over a majority stake in its brine assets to state-owned Codelco in exchange for extending its operations for another 30 years. SQM's biggest shareholders are Julio Ponce, the former son-in-law of Chilean dictator Augusto Pinochet, and China's Tianqi Lithium Corp. China's Tianqi Lithium is seeking more information about the Codelco deal before supporting any binding agreement.
At the heart of the negotiations with Codelco are efforts to reduce the environmental impact of brine and plant operations. About $2 billion has been earmarked for efficiency improvements, including the introduction of direct extraction technology to work alongside current evaporation methods. Squeezing more lithium out of less salt water is also gaining acceptance from local communities and battery supply chains that focus on environmental, social and governance issues.
Running at full speed during an economic downturn is nothing new for SQM. The company has been running at full capacity since it scaled back in the wake of the 2007-2008 global financial crisis. One reason is to make full use of state-allocated production quotas. As a major producer, China also has a responsibility to avoid supply shortages that undermine buyer confidence and encourage further development of alternatives to lithium batteries.
Growing market share is another reason. At current prices, some of SQM's higher-cost competitors are losing money. In the last round of earnings calls, some industry executives stressed the need for supply discipline.
"In a dynamic market like ours, growth companies must be able to adjust and adapt with disciplined decision making and focused execution," Kent Masters, CEO of top producer Albemarle Corp., said in February. In practice, for Albemarle, that means cutting costs, cutting jobs and scaling back expansion plans.
SQM has taken a more optimistic approach, anticipating a rebound in demand and planning to produce more lithium than it sells this year. Currently, its inventory is three to four months 'supply, according to Carvajal.
"It would be very good news to increase inventory in response to expectations beyond 2025," SQM Chief Executive Ricardo Ramos said on an earnings call last month. "Our strategy is to hold stocks and be ready to sell if the market needs it."
