Core Viewpoint - Chilean Mining and Chemical Company (SQM.US) reported poor performance in Q2 due to weak lithium prices, but maintains a strong balance sheet and competitive production cost advantage, allowing it to absorb market weakness without significant credit deterioration [1] Financial Performance - Q2 revenue decreased by 19% year-on-year to 1 billion Reais [1] - EBITDA fell by 25% year-on-year to 308 million USD, with profit margin declining to 29.5%, a decrease of 2.4 percentage points year-on-year [1] - Lithium segment faced pressure, with stable sales of 53,100 tons (up 1% year-on-year), but revenue dropped by 33% year-on-year to 445 million USD [1] Market Dynamics - China may play a key role in stabilizing lithium prices in the short term, with plans to orderly clear 100,000 tons of lithium mica capacity this year [1] - If fully implemented, this could theoretically re-anchor marginal cost pricing at 20,000 USD/ton [1] - Despite execution pace depending on local factors, policy signals have made market shorts more cautious [1] Cost Structure - SQM has the lowest cash cost globally at approximately 4,000 USD/ton [1] - Even if prices rebound to the range of 12,000 to 14,000 USD/ton, the gross margin per ton can still maintain above 70%, indicating significant profit elasticity compared to higher-cost mines [1] Bond Ratings - The company received an "overweight" rating for its 34-year bonds, reflecting attractive valuation relative to peers and other Chilean assets [2] - The 29-year and 33-year bonds were rated "market weight" due to reasonable relative valuation [2] - The 50-year and 51-year bonds received a "underweight" rating as they do not provide sufficient spread to compensate for the additional term risk compared to mid-term bonds [2]

Group 1 - The largest lithium company in the world, SQM, is optimistic about the lithium market and plans to increase its lithium carbonate sales by 20,000 tons within the year [1] - Despite a 28% decline in global lithium prices in Q2, SQM remains committed to its expansion plans, with a 10% increase in lithium production at its local plants this year [1] - SQM completed its first batch of lithium hydroxide extraction with its Australian joint venture Kwinana in July, aiming for a production capacity of 50,000 tons by 2026, half of which will belong to SQM [1] - With a significant reduction in lithium production in China, SQM anticipates a 17% increase in global lithium demand for the year [1]

Core Viewpoint - The article discusses the investment potential of Sociedad Química y Minera de Chile (NYSE: SQM), highlighting its financial resilience and long-term value proposition for investors [1]. Company Analysis - The stock of SQM was previously trading at approximately $32.78, and a buy stance was maintained based on the company's strong financial fundamentals [1]. - The author emphasizes a focus on value companies with solid long-term potential, indicating a strategic investment approach [1]. Investor Insights - The author has over five years of personal investing experience and holds a PhD in Economics, which adds credibility to the analysis provided [1]. - The article aims to share knowledge and support individual investors through detailed analysis [1].

Group 1: Industry Insights - SQM reported a 28% decline in adjusted earnings to $307.9 million in Q2 due to falling lithium prices, which hit a multi-year low, but expects a price recovery driven by reduced production in China [1] - The global tablet shipment volume reached 39 million units in Q2 2025, marking a 9% year-on-year increase, supported by stable demand in China and EMEA regions [4] - The domestic lithium carbonate market experienced fluctuations, with a recent announcement from Jiangte Electric regarding the resumption of production at its subsidiary [6] Group 2: Market Prices - As of August 21, the price for battery-grade lithium carbonate is between 81,000 to 83,000 yuan per ton, while industrial-grade is between 78,500 to 79,500 yuan per ton [7] - The price for ternary materials ranges from 128,000 to 134,000 yuan per ton for single crystal 5 series and 146,000 to 151,000 yuan per ton for 8 series 811 type [8] - Phosphate lithium prices are stable, with power-type priced at 33,600 to 35,000 yuan per ton and energy storage-type at 32,600 to 33,200 yuan per ton [9] Group 3: Company Developments - BYD has launched a new line of lithium batteries for electric two and three-wheelers in partnership with JD Auto, offering eight products priced between 1,298 to 6,998 yuan [2] - Zhongwei New Materials signed a cooperation agreement with POSCO Future M to advance the production of lithium iron phosphate cathode materials [3] - Tianqi Lithium reported a net profit of 267 million yuan in the first half of the year, reflecting a year-on-year growth of 12.79% [13] Group 4: Battery and Energy Storage Market - The domestic lithium battery market remains stable, with global production expected to reach 2,100 GWh this year, and a slight increase in orders from second-tier battery manufacturers [15] - The domestic energy storage battery prices are stable, with a notable project in Inner Mongolia achieving a system price of 0.389 yuan per Wh [17] - New energy vehicle sales reached 244,000 units last week, showing a year-on-year increase of 13.10% [16]

Group 1 - The core viewpoint of the article highlights a significant decline in lithium carbonate prices, which have dropped approximately 70% over the past year, leading to a supply surplus in the market [1] - SQM's second-quarter revenue was reported at $1.04 billion, falling short of the expected $1.07 billion [1] - The net profit for SQM in the same period was $88.4 million, also below the anticipated $144 million [1] Group 2 - The low lithium prices have had a notable impact on SQM's performance, with an adjusted EBITDA of $308 million in the second quarter, which is lower than the expected $334 million [1] - SQM has indicated that the weak lithium prices have decreased the economic viability of some lithium projects [1]

Group 1 - The investment thesis indicates a potential turnaround in the lithium market prices, suggesting an opportunity for increased exposure in lithium investments [1] - The article highlights that there are early signs of a price recovery in the lithium market, particularly noted during the summer months [1] - The analyst expresses a positive outlook based on forecasts for a sustained increase in lithium prices, which may benefit companies involved in lithium production [1]

Financial Data and Key Metrics Changes - In Q2 2025, the company experienced a revenue decline of over 3% year-on-year due to lower lithium prices compared to earlier in the year [6][9] - The company expects yearly sales volume from Chilean operations to increase by at least 10% versus 2024 [8][9] Business Line Data and Key Metrics Changes - Iodine was the most profitable segment in Q2 with an adjusted gross margin of 57%, contributing over 50% to total company gross profit [9] - Sales volume for the Chile lithium division reached 51,700 metric tons in Q2, similar to Q2 last year, with expectations for Q3 sales to be at least 10% higher than Q2 [32][70] Market Data and Key Metrics Changes - Strong demand growth for lithium is noted, particularly from the EV sector in China and Europe [6][7] - Prices for lithium carbonate in China have been recovering, with expectations for Q3 prices to be higher than Q2 [32][33] Company Strategy and Development Direction - The company is confident in capturing strong fundamentals in the lithium market while maintaining solid results across all business segments [10] - The strategy remains focused on producing at full capacity and expanding in line with expected market growth [33] Management Comments on Operating Environment and Future Outlook - Management noted a change in market dynamics with recent price improvements and strong demand growth [6][8] - The company is optimistic about the iodine market, expecting solid fundamentals to continue despite supply constraints [20][51] Other Important Information - The Tijuana refinery is now complete and has delivered its first product on spec, with a ramp-up underway to produce 50,000 metric tons of lithium hydroxide annually [8] - The company is working on the Salar Futuro project, with environmental studies expected to be submitted next year [43][44] Q&A Session Summary Question: Midterm or long-term goals for SPN - The company aims to grow its SPN business by adding services and products while maintaining solid margins [12][14] Question: Expansion of Mount Holland - The expansion decision will not be made in 2025, with ongoing engineering studies and approvals [15][16] Question: Iodine price sustainability - Demand for iodine is expected to grow, but supply constraints may limit growth [18][20] Question: Mt. Holland mine economics - Current production costs are not reflective of long-term projections, but the company remains profitable [39][40] Question: Update on Codelco deal - The process with Codelco is moving positively, with expectations for completion in the coming months [54][66] Question: Current lithium inventory levels - The company expects to have close to 230,000 metric tons of lithium inventory, aligning with projected sales [69][70]

Financial Data and Key Metrics Changes - Revenues decreased by more than 3% year on year due to lower lithium prices compared to earlier in the year [7] - Lithium sales volumes from the Salar De Atacama were almost flat compared to last year, impacted by lower prices triggering contract floors [8] - The company expects yearly sales volume from Chilean operations to increase by at least 10% versus 2024 [9] Business Line Data and Key Metrics Changes - Iodine was the most profitable segment in Q2 with an adjusted gross margin of 57%, contributing over 50% to total company gross profit [9] - The specialty plant nutrition business remained stable, reflecting resilient demand across key markets [10] - Potassium volumes were lower as guided, but prices remained firm [11] Market Data and Key Metrics Changes - Strong demand growth for lithium is observed from EV and BEST sectors, particularly in China and Europe [7] - Lithium carbonate prices in China have been recovering, with expectations for higher sales prices in Q3 compared to Q2 [33] - The company anticipates that sales in the second semester of the year will be higher than the first semester and higher than the second semester of last year [33] Company Strategy and Development Direction - The company is confident in capturing strong fundamentals of the lithium market while delivering solid results across all businesses [11] - The expansion decision for Mt. Holland will not be made in 2025, with periodic reviews planned for the following year [16] - The company aims to maintain production at full capacity and expand in line with expected market growth [34] Management's Comments on Operating Environment and Future Outlook - Management noted a change in market dynamics with recent price improvements and strong demand growth [7] - The iodine market is expected to see solid fundamentals, with demand growth anticipated next year if capacity is available [20] - The company remains optimistic about the business outlook, citing strong demand and a positive price environment despite volatility [70] Other Important Information - The Tijuana refinery is now complete and has delivered its first product on spec, on budget, and on time [8] - The company is working on the Salar Futuro project, with environmental studies expected to be submitted next year [43][44] - The company is investing significantly to increase iodine supply to meet customer needs [51] Q&A Session Summary Question: What is the midterm or long-term goal for SPN? - The strategy involves growing volume and adding services and products to maintain a solid brand and pricing [14] Question: What is the current thinking on the Mt. Holland expansion? - The expansion decision will not be made in 2025, with ongoing engineering studies and approvals [16] Question: What will break iodine prices? - Demand is expected to grow, but supply constraints due to environmental restrictions may limit growth [52] Question: What is the current status of the deal with Codelco? - The process is moving positively, with expectations for completion in the next few weeks [66] Question: What is the current lithium inventory level? - The company expects to have close to 230,000 metric tons of lithium inventory, aligning with projected sales [68]

Financial Performance - SQM's Q2 2025 revenue reached US$1,043 million[7], gross profit was US$254 million[7], and net income totaled US$308 million[7] - Earnings per share stood at US$0.31[7] - Lithium LTM revenue reached $1,977 million[12], with a gross profit of $410 million[12] - Iodine LTM revenue reached US$985 million[23], with a gross profit of US$523 million[23] - Specialty Plant Nutrition LTM revenue reached US$946 million[33], with a gross profit of US$146 million[33] - Potassium LTM revenue reached US$217 million[40], with a gross profit of US$28 million[40] - Industrial Chemicals LTM revenue reached US$74 million[46], with a gross profit of US$28 million[46] Market Dynamics and Outlook - The global lithium market is expected to grow by approximately 17% in 2025[18] - SQM anticipates a sales volume growth of around 10% in the Lithium Chile division compared to 2024[18] - The company expects to sell approximately 20,000 tons of LCE for the International Lithium Division in 2025[18] - Global iodine demand growth is updated to less than 1% in 2025 compared to 2024[29] - SQM expects a market growth rate of around 4-5% in 2025 for Specialty Plant Nutrition[36] - Potassium sales volume for 2025 is expected to decline by 50% compared to 2024[42] Strategic Investments - Total Capex for 2025 is estimated at US$750 million, including maintenance[21] - Iodine and Nitrates total capex for 2025 is approximately US$350 million, including maintenance[31] Market Share - SQM holds approximately 17% of the global lithium chemical market[12] - SQM holds approximately 37% of the global iodine market[28] - SQM holds approximately 41% of the global KNO3 market[38] - SQM holds less than 1% of the global potash market[43] - SQM holds approximately 32% of the global industrial potassium nitrate market[49]

Market Movements - US stock index futures are all down ahead of the market opening, with Dow futures down 0.11%, S&P 500 futures down 0.08%, and Nasdaq futures down 0.16% [1] - European indices show mixed results, with Germany's DAX down 0.41%, UK's FTSE 100 up 0.26%, France's CAC 40 up 0.12%, and the Euro Stoxx 50 unchanged [1] Oil Prices - WTI crude oil is up 1.25% at $62.54 per barrel, while Brent crude oil is up 1.11% at $66.52 per barrel [2] Market News - Morgan Stanley reports that major tech stocks like Google, Amazon, Apple, Meta, Microsoft, and Nvidia are experiencing the largest underweight by actively managed funds in 16 years, suggesting potential for future gains as institutional funds may increase their holdings [3] - Citadel Securities' Scott Rubner predicts that retail investors' buying activity may slow down in September after a strong market performance in June and July, which typically marks a low point for retail participation [4] - Deutsche Bank questions US Treasury Secretary's call for a significant rate cut, asserting that current interest rates are reasonable based on traditional monetary policy models [4] Company News - Google faces potential forced divestiture of its Chrome browser as part of an antitrust ruling, marking a significant regulatory challenge [6] - Meta is restructuring its AI team into four independent groups to better leverage its recent talent acquisitions, aiming to accelerate its pursuit of "superintelligence" [7] - Target's Q2 net sales fell 0.9% to $25.21 billion, but exceeded market expectations, with adjusted EPS of $2.05, slightly above forecasts [8] - Lowe's Q2 revenue reached $23.96 billion, slightly above expectations, with adjusted EPS of $4.33, also beating forecasts [9] - Estée Lauder's Q4 sales fell 12% to $3.41 billion, with a net loss of $546 million, impacted by restructuring costs [10] - Baidu reported Q2 net profit of 7.322 billion yuan, with total revenue of 32.713 billion yuan, a 4% year-over-year decline [11] - iQIYI's Q2 total revenue was 6.63 billion yuan, with membership service revenue of 4.09 billion yuan [11] - Kingsoft Cloud's Q2 revenue grew 24.2% year-over-year to 2.35 billion yuan, with AI revenue increasing over 120% [11] - Futu Holdings' Q2 revenue rose 69.7% to 5.311 billion HKD, with net profit increasing by 105.2% [12] - SQM's Q2 core earnings dropped 28% due to falling lithium prices, but the company expects prices to recover in Q3 [12]