Prepared remarks
Good day, everyone, and thank you for standing by. Welcome to SQM First Quarter 2026 Conference Call. Please be advised that today's conference is being recorded. Now it's my pleasure to hand the conference to Megan Suitor with Investor Relations. Please proceed.
Good day, and thanks for joining SQM's earnings conference call for the first quarter of 2026. This call is being recorded and webcast live. Our earnings press release and the accompanying results presentation are available on our website where you can also find a link to the webcast. Today's participants include Mr. Ricardo Ramos, Chief Executive Officer; Mr. Gerardo Illanes, Chief Financial Officer; Mr. Pablo Altimiras, CEO of the Iodine and Plant Nutrition Division; Mr. Pablo Hernandez, Vice President of Strategy and Development of Novandino Lithium; Mr. Andres Fontannaz, Commercial Vice President of the International Lithium Division; and Mr. Max Vial, Head of Studies of the International Lithium Division. Before we begin, please note that statements made during this call regarding our business outlook, future economic performance, anticipated profitability, revenues, expenses and other financial items, along with expected cost synergies and product or service line growth, are considered forward-looking statements under U.S. federal securities laws. These statements are not historical facts and are subject to risks and uncertainties that could cause actual results to differ materially. We assume no obligation to update these statements, except as required by law. For a full discussion of forward-looking statements, please refer to our earnings press release and presentation. With that, I will now turn the call over to our Chief Executive Officer, Mr. Ricardo Ramos.
Good day, and thank you for joining us today. We reported strong results for the first quarter of the year, reflecting a strong performance across our key business lines. The first quarter of 2026 also marked an important milestone for SQM and for Chile as our partnership with Codelco through Novandino Lithium 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. We are operating at full capacity, delivering strong operational and financial results while continuing to invest in future growth and production expansion. Importantly, during the first quarter alone, Novandino Lithium generated more than $530 million in contributions to the Chilean state through payments to CORFO, taxes and transfers to local governments. We believe this demonstrates the scale of value this operation creates and the meaningful role it plays in supporting Chile's long-term economic development. Starting our business analysis with lithium, total sales volumes in the first quarter increased by 25% year-over-year, reaching approximately 69,000 metric tons of lithium carbonate equivalent across our operations. Based on our current estimates, global lithium demand could exceed 1.9 million metric tons of lithium carbonate equivalent this year, while market dynamics continue to suggest a tight supply-demand balance. As a result, we have increased our lithium sales volume guidance for the year and now expect total lithium sales volumes to grow by approximately 15% compared to 2025. Given current market conditions, we also believe average realized price in the second quarter could be higher than those reported in the first quarter. In Chile, Novandino Lithium delivered solid first quarter sales volumes, and we expect volumes to continue increasing quarter-over-quarter. In parallel, we continue advancing in the Salar Futuro project and expect to begin the environmental permitting process in the coming months. In our International Lithium division, operations in Australia also delivered strong results. Mount Holland and the concentrator are operating at full capacity, while we continue advancing in the ramp-up of Kwinana refinery, which is expected to be fully operational during 2027. Moving to our Specialty Plant Nutrition business line, we are also increasing our sales guidance for the year. We now expect sales volumes to grow by approximately 10% compared to 2025, driven by reduced potassium nitrate exports from China, which have created supply gaps in international markets. We believe SQM is well positioned to help provide the supply the market needs. In iodine, we delivered a strong quarter, and we expect this trend to continue into the second quarter, as the spot transaction prices have continued to increase, particularly in Asian markets. For the full-year, we continue to expect sales volume to be broadly in line with last year or slightly higher, while remaining focused on operating at maximum capacity. At Nueva Victoria, the seawater pipeline is currently under commissioning and is expected to support future production capacity growth. Overall, we continue to observe supportive market conditions across our key business lines, and we believe SQM is well positioned to continue delivering solid results and creating value for our shareholders. With that, I will now turn the call back to the operator for the Q&A. Thank you.
Questions and answers
Our first question, it comes from Joel Jackson with BMO Capital Markets.
It's Evan on for Joel. Just have a couple here. So the first one is on the lithium price movement. So does the movement over the last year make SQM feel more bullish or the same about mid-cycle pricing?
Hey Joel, Pablo Hernandez speaking. So I'll refer to our pricing if this helps answer your question. In Q1 2026, our average sales price was roughly $18 per kilo, which was substantially higher than the $10 per kilo we reached in Q4 2025. Our realized prices remain mainly linked to the pricing indexes. Consequently, of course, we expect our sales prices in Q2 2026 to be higher than what we had in Q1 2026. We are still in a very high volatility price scenario, so it's difficult to predict prices beyond Q2.
And also, how does SQM plan to deploy windfall free cash flow this year, driven by the higher lithium prices and higher earnings? In the past, you've done special dividends. Should the market expect this again?
This is Gerardo speaking. Yes, we finished the first quarter with higher cash and cash equivalents than what we had at the end of last year, mainly because of higher prices of lithium, higher prices of iodine, 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 and other obligations. We are constantly assessing opportunities to distribute dividends. In the past, we have done that. But in this quarter, we have not taken any decision so far.
Our next question comes from Ben Isaacson with Scotiabank.
I just have three questions. The first one is on the SPN business. You have announced an increase in your guidance for a 10% growth in volume versus about 2% to 3% before. You've talked about really taking share away from China in Asian markets. Can you just provide some color as to what's going on in China that's causing them to focus more on their domestic market? And how sustainable do you think this is? Second, we've had elevated iodine prices for quite some time. If you go back, maybe 12 years ago, when prices were at similar levels, it didn't last that long and we saw supply coming to market and then prices dropped. What gives you the confidence that we won't see an acceleration in iodine supply over the next two to three years that will disrupt this pricing environment? And the final question is on Salar Futuro. Can you remind us what the CapEx spend looks like and the timing of the outflow? And given inflationary pressures — whether due to the war, tariffs, or general inflation — many projects have seen CapEx increases. Can you discuss what impact inflation may have on Salar Futuro and how that could impact returns?
Ben, Pablo Altimiras is speaking. Yes, that's right. We intend to increase our volumes by 10%, as you said. This is mainly related to increasing potassium nitrate sales. As you know, by the end of March, China suspended exports of potassium nitrate abroad. That allowed us to go to markets where we normally are not present. That opened an opportunity to put more volume in the market, and that mainly explains our growth. Regarding what's going on in China, it's difficult to predict. In China today you see that it's not the only restriction on that product, potassium nitrate; there are other products that are restricted. So it's not easy to see what will happen in the future. However, in the meantime, we have the opportunity. We are well prepared because we have the installed capacity, inventories and our supply chain worldwide ready if the market needs more potassium nitrate. Regarding iodine, first of all, if you try to compare the market today with the market 10 or 12 years ago, it's very different. The market today is much larger than before and it's not easy to compare. Also, the participation of different applications has changed. For example, you have much more importance of X-ray contrast media today than before. So you have changes in the market. Also, what we have seen is that marginal projects are not there in the same way; when they arrive, they are normally higher cost than before. That also puts pressure on the price structure. Today, we are confident because of supply and demand. In Q1, we saw very strong demand. We believe that the market grew more than 3% in Q1. We believe the market will grow about 3% this year. In the meantime, the supply is not there, so we believe conditions support these price levels.
Ricardo Ramos speaking. As you may know, we expect to file the environmental study for Salar Futuro in the next few months, probably before the end of the third quarter. We are assessing now what the total investment will be. Our first estimate is in the range of $3 billion investment in Salar Futuro. You are right that there is a lot of uncertainty in the world in terms of costs, the pricing of raw materials and other inputs. We don't have a full understanding of how long it will take to resolve the issues that we are facing today, especially because of the war. Inflation is an issue, but inflation also is affecting the prices of our different commodities. If total investment is affected by inflation, pricing of the different products that we sell worldwide like iodine and lithium will also be affected by inflation and will increase accordingly. That's why we do not expect the project will be negatively affected in terms of the return profile. We think it's going to be an extremely good project. We are very proud of the new technology that we will implement. We are doing things well in the Salar de Atacama as we speak, and we are moving as far as we can. The environmental study and the environmental review of a project like that take some time. We think that during 2029 we will have the final approval; that's what we expect. We will start investment in the Salar Futuro project during 2030. Everything is according to our original plan with Codelco. I think we are just a little ahead in the plan because we have been working very hard together. I think everything is moving in the right direction.
Our next question is from the line of Corinne Blanchard with Deutsche Bank.
Can you talk about the lithium volume outlook raise? You're now targeting 15% up year-over-year, which would bring you almost close to 300 kilotons. Can you first talk about the cadence? Are we seeing that increase already starting in 2Q? Or is it more of a second-half story? And then are those volumes coming from production, or are you also offloading some of your inventory?
Pablo Hernandez speaking. We're expecting strong sales volumes in Q2 2026. We hope to surpass the sales volume of Q1 2025 by more than 10%, hitting a record volume for any past calendar quarter. We continue maximizing our sales volume as we have consistently done over the years, following our decision to operate at full capacity and expand in line with anticipated market growth, ensuring we're always prepared to meet our customers' needs. Aligned with that strategy, we feel confident that we will successfully allocate in the market the additional production that we expect to achieve this year, which is going to be over 270,000 metric tons coming from Salar de Atacama. So there is significant appetite for lithium units in the market.
Sorry, I wanted to go on. Two questions maybe. Spodumene price in Mount Holland: I think if you compare versus some of your peers, you have a much lower price. Can you comment on the driver and the why here, and how you view that for the rest of the year? And then quick another question: I want to go back on capital allocation. Gerardo, you mentioned you haven't yet decided if it's going to be special dividends. If it's not special dividends, what are you going to do with the cash?
This is Andres Fontannaz from International Lithium speaking. Regarding your question on spodumene price, the difference between our realized price for concentrate and the quarterly average of some of the indexes is mainly explained by two factors. First, you have the market volatility during the last few months. For example, in December you saw prices around $1,300 per ton, then in March prices were more than $2,000 per ton. The realized price for any given producer depends on the timing of the negotiations and the shipments within that price cycle. Second, spodumene shipments are not continuous or evenly distributed month-to-month. When you combine a strong price recovery with the lumpy nature of shipments, you can see some difference between the reported realized prices and the quarter average of some market benchmarks. From a commercial standpoint, we remain comfortable with our positioning as we continue to optimize both the timing and flexibility between spodumene and downstream hydroxide sales.
Christine, this is Gerardo. Regarding your question about capital allocation, there are a few things to consider. First, given what Pablo just mentioned about higher volume sales from Salar de Atacama and with these price levels, our payments to CORFO, the government of Chile, and local communities will be higher than last year and probably higher than the first quarter in the upcoming quarters. So we will have a strong need for cash to comply with these obligations. Second, we have a high CapEx program. We are expanding capacity in Chile and working on initiatives in the operations as well as in the International Lithium division. And of course, we have a dividend policy that considers payments of dividends at the year-end, approved at the shareholders' meeting and paid right after. In the past, we have made interim dividend payments when we saw the opportunity. This year, we are assessing that. This is just the first quarter of the year. The Board will reconvene and discuss opportunities, and if appropriate, interim dividends will be paid. Otherwise, we will see a final dividend paid at the end of the fiscal year.
One moment for our next question. It comes from Isabella Simonato with Bank of America.
I have two. First, could you give a little more detail about taxes paid in the quarter? The effective tax rate was higher than usual, so why did that happen in the quarter? Second, back to the SPN business: you said you are more optimistic about sales and share gains, and pricing of fertilizers in general has been a theme given the war. Can you comment on how you see prices evolving throughout the year?
Isabella, Gerardo speaking. Regarding the taxes we pay, it's important to consider that within the tax line we have the corporate income tax that we pay in Chile, which is 27%, along with the taxes we pay abroad, which vary by jurisdiction but average around 30%. On top of that, we pay a mining tax in Chile. This mining tax is a function of the profitability of the business: the higher the profitability, the higher the bracket you fall into. Profitability is calculated based on total revenues from exports of products from Chile and the costs of those products, excluding the payments we make to CORFO. With the higher lithium prices we saw during the first quarter, the profitability of the lithium business went up. Because of that, the lithium mining tax that was accrued during the first quarter of this year is higher than in the past.
Pablo Altimiras speaking. Regarding your question about the specialty fertilizer business, we are optimistic about price trends. As we explained, today we have some supply gaps because of the situation in China. On top of that, the war is affecting raw materials and other fertilizers related to our potassium nitrate business. One example is the price of potassium sulfate, which is growing and supports potassium nitrate price trends. We are optimistic and believe prices will continue increasing in the next quarters.
Gerardo, can you give us a ballpark for how to think about mining taxes as a rate? I noted it was something between 8% to 10% and wanted to double check.
Of course. All of this is public information and how it's calculated can be found in public records. The mining tax rate ranges between 0% and 14%. Currently, based on the profitability of the business, it is between 11% and 12% of the profit we get from the lithium business, excluding CORFO payments.
Our next question comes from Emerson Vieira with Goldman Sachs.
I have two questions on Mount Holland. First, when do you expect to proceed with the expansion, given the news that the expansion was recently approved by regulators? What's the timing for the Mount Holland expansion? And second, what is the cost that the operation is running at right now? Also, any ballpark CapEx for the expansion would be helpful.
Thanks, Emerson. Andres Fontannaz speaking. Regarding the expansion, we continue executing the plan and expect to present the Mount Holland expansion for the Board's review and decision early in Q3 2026. Permitting is progressing well and is currently under a public review period. At this stage, we do not have access to see if any appeals have been lodged, but once the appeals period officially closes at midnight on May 28, we will request confirmation of whether any appeals were submitted. In parallel, we remain focused on sustaining full capacity operations at the existing mine and concentrator. Regarding cost, we do not comment on the specific cost for that operation. On CapEx, we are working on the detailed plan and it will be presented to the Board. For next year, what is considered is $200 million, which would be the SQM share for 2027.
Our next question comes from Juraj Domic with LarrainVial.
I have two questions. First, on cash cost excluding depreciation and payments, we saw a significant improvement in lithium and a weaker performance in iodine. What should we expect for the rest of 2026? Second, in previous calls you mentioned that BESS application accounts for around 20% of total lithium demand. What would you say is the BESS share so far in 2026?
Regarding operating cost, as a consequence of continued efficiency and improvement processes together with economies of scale from increased production levels, we have consistently been able to reduce costs, and we expect 2026 costs to be lower than in 2025. This is aligned with our production strategy of increasing production at low cost. We are focused on increasing production and improving efficiencies to lower unit costs.
Juraj, Max Vial speaking. Regarding the BESS participation in lithium demand, we expect BESS to account for around 30% of overall lithium demand in 2026.
Juraj, regarding the iodine cost increase, first, I would note the increase is not extremely large, but there are explanations. First, we are producing quite a bit of volume this year; we intend to produce more than 15,000 metric tons of iodine. That means we are using some marginal facilities that have higher costs. Second, we are in the ramp-up of María Elena, which means we have some specific ramp-up costs. Third, because of the war, the cost of some raw materials, mainly fuel, which is very important for our mining activity, has increased. Those are the reasons. However, as always, we are working on different initiatives to control the cost increase.
Thank you so much. Ladies and gentlemen, this will conclude our Q&A session and conference for today. We want to thank everyone for participating. You may now disconnect.