SQM (SQM) Q1 2026: Lithium Volumes Surge 25% as Atacama Partnership Drives Expansion
SQM’s lithium sales volumes jumped 25% YoY, reflecting the first full quarter of the Novandino Lithium partnership with Codelco and highlighting the company’s expanded role in Chile’s strategic lithium sector. Improved pricing, robust specialty plant nutrition growth, and ongoing cost discipline underpin management’s confidence in raising volume guidance across multiple segments. With lithium market tightness and capacity expansions underway, SQM is positioning itself for continued volume-led growth, though capital allocation and cost inflation remain key watchpoints.
Summary
- Lithium Supply Acceleration: Atacama partnership and international ramp-up fuel double-digit volume growth.
- Specialty Plant Nutrition Tailwind: China export curbs open new markets, driving higher guidance.
- Capital Demand Rises: Elevated cash needs for state payments, taxes, and expansion projects shape payout flexibility.
Business Overview
SQM, a Chilean chemicals and mining company, generates revenue from lithium, specialty plant nutrition, iodine, and industrial chemicals. The company’s core segments are lithium (used in batteries and energy storage), specialty plant nutrition (fertilizers like potassium nitrate), and iodine (used in medical and industrial applications). SQM’s operations span Chile and international assets, with major growth driven by lithium extraction in the Salar de Atacama and global expansion projects.
Performance Analysis
First quarter results highlight a material inflection in lithium, with sales volumes up 25% year-over-year to roughly 69,000 metric tons of lithium carbonate equivalent. This surge reflects both operational execution and the impact of the Novandino Lithium partnership with Codelco, which contributed over $530 million to the Chilean state in the quarter through taxes and royalty payments. Management raised full-year lithium volume guidance to 15% growth over 2025, citing market tightness and full-capacity operations across Chile and Australia.
Specialty plant nutrition volumes are now expected to grow 10% in 2026, revised up from earlier low-single-digit expectations, as China’s export restrictions on potassium nitrate create supply gaps in key export markets. Iodine delivered another strong quarter, with spot prices rising, particularly in Asia, and full-year volumes expected to be flat or slightly up.
- Margin Dynamics: Higher lithium and iodine prices, combined with volume growth, drove higher profitability and a step-up in mining taxes paid.
- Cash Position: Elevated cash balances were quickly offset by substantial dividend payouts and state obligations, highlighting ongoing capital intensity.
- Cost Structure: Lithium unit costs declined due to scale and efficiency, while iodine costs rose modestly due to ramp-up and higher fuel expenses.
Overall, SQM’s fundamentals reflect robust demand, operational leverage, and disciplined cost management, though capital allocation decisions and inflationary pressures remain in focus for investors.
Executive Commentary
"The first quarter of 2026 also marked an important milestone for SQM and for TILI, as our partnership with Codelco through Novandino Lidio completed the first full quarter of operations. This partnership represents much more than a business combination. It reflects a long-term commitment to responsibly developing Salar de Atacama lithium resources while creating value not only for our shareholders but also for the country and local communities."
Ricardo Ramos, Chief Executive Officer
"We finished the first quarter with a higher cash and cash equivalent than what we had at the end of last year, mainly because of higher prices of lithium, higher prices of iron, higher prices of nitrates. But you have to consider that right after that, we paid dividends, 50% of the net income of last year, We also have to make payments to Corfo and other payments that are tax-related payments and others. We are constantly assessing opportunities to distribute dividend. In the past, we have done that, but at this quarter, we have not taken any decisions so far."
Geraldo Allanes, Chief Financial Officer
Strategic Positioning
1. Atacama Partnership and Domestic Expansion
The Novandino Lithium joint venture with Codelco marks a strategic realignment, giving SQM a strengthened position in Chile’s lithium market and aligning the company with national resource priorities. The partnership is delivering both operational scale and political capital, as evidenced by substantial state contributions and a focus on responsible resource development.
2. International Growth and Capacity Ramp-Up
Full-capacity operations in Australia’s Mount Holland and the ongoing ramp-up of the Quinana Refinery indicate SQM’s commitment to global diversification. The company plans to present the Mount Holland expansion for board review in Q3 2026, with $200 million in 2027 capex earmarked for its share. This international footprint mitigates Chile concentration risk and positions SQM to capture global lithium demand.
3. Specialty Plant Nutrition: Share Gains from China’s Export Policy
China’s suspension of potassium nitrate exports has allowed SQM to move aggressively into new markets, leveraging installed capacity and global supply chains. The company’s ability to rapidly redirect volumes demonstrates operational agility and underscores the strategic value of its specialty plant nutrition business, which is less exposed to lithium price volatility.
4. Cost and Capital Allocation Discipline
Management stressed improved lithium cost structure through efficiency and scale, while also acknowledging rising costs in iodine due to ramp-up and fuel inflation. Capital allocation priorities include dividend distributions, state obligations, and high capex for both Chilean and international projects. Dividend flexibility is constrained by these competing cash demands.
5. Technology and Sustainability Investments
The upcoming Salar Futuro project is positioned as a next-generation, sustainable lithium operation, with a $3 billion capex estimate and environmental permitting commencing soon. Management expects inflation to impact both input costs and end-product pricing, aiming to preserve project returns despite global cost pressures.
Key Considerations
This quarter’s results reflect a business at the intersection of resource nationalism, global supply chain disruption, and energy transition demand. Investors should weigh SQM’s operational execution against macro and policy volatility, as well as the company’s ability to deploy capital efficiently.
Key Considerations:
- Lithium Demand Outstripping Supply: Management expects global demand to exceed 1.9 million metric tons in 2026, providing a strong backdrop for volume-led growth.
- State Payments and Taxation: Substantial and rising obligations to the Chilean state, including mining taxes and Corfo royalties, impact free cash flow and limit payout flexibility.
- China Fertilizer Policy Creates Opportunity: Temporary export restrictions allow SQM to capture new market share, but sustainability of this advantage is uncertain.
- Inflation and Project Capex: Salar Futuro and Mount Holland expansions face inflationary pressures, with management betting that commodity price inflation will offset input cost increases.
- Cost Structure Divergence: Lithium costs benefit from scale, while iodine faces temporary headwinds from ramp-up and energy inflation.
Risks
Key risks include global lithium price volatility, regulatory and tax uncertainty in Chile, and execution risk on large-scale expansion projects. Inflation and geopolitical disruptions could materially impact capex and returns, while China’s export policy reversals may erode specialty plant nutrition gains. Dividend policy remains subject to fluctuating cash obligations and future board decisions.
Forward Outlook
For Q2 2026, SQM guided to:
- Higher average realized lithium prices versus Q1
- Further sequential growth in lithium and specialty plant nutrition volumes
For full-year 2026, management raised guidance:
- Lithium sales volume growth of approximately 15% YoY
- Specialty plant nutrition volume growth of approximately 10% YoY
Management highlighted several factors that will shape results:
- Continued market tightness and strong demand for lithium and iodine
- Ongoing cost discipline and capacity utilization at maximum levels
Takeaways
SQM’s Q1 2026 results reinforce its status as a volume-driven leader in lithium and specialty chemicals, with the Atacama partnership and international expansions underpinning growth. However, capital allocation, state obligations, and cost inflation will define the pace and quality of shareholder returns.
- Volume-Led Growth: Lithium and specialty plant nutrition drive near-term upside, supported by favorable market dynamics and operational execution.
- Capital and Cash Flow Balance: Dividend and capex flexibility are increasingly shaped by state payments and expansion needs, making capital discipline paramount.
- Watch for Execution on Major Projects: Salar Futuro and Mount Holland expansion outcomes will heavily influence SQM’s long-term competitiveness and returns.
Conclusion
SQM delivered a quarter of strong operational leverage and market-driven tailwinds, but the path forward will be shaped by disciplined capital allocation, project execution, and the durability of current pricing and policy trends. Investors should monitor progress on expansion projects and evolving state partnership dynamics as key drivers of future value.
Industry Read-Through
SQM’s results signal ongoing lithium market tightness and the strategic value of resource partnerships in politically sensitive jurisdictions. China’s fertilizer export restrictions are creating temporary opportunities for global producers, but also highlight the fragility of supply chains. For the broader chemicals and mining sector, the interplay between government policy, inflation, and energy transition demand will continue to drive volatility and capital allocation decisions. Companies with diversified supply, strong local partnerships, and operational flexibility are best positioned to capture upside in a rapidly evolving landscape.