Why SQM’s Higher Lithium-Demand Forecast Does Not Eliminate Oversupply Risk
$Sociedad Quimica Y Minera De Chile SA(SQM)$’s record lithium volumes and stronger pricing produced a substantial second-quarter earnings beat. The company also raised its estimate of global lithium demand, but planned multibillion-dollar investment means shareholders still need demand growth to absorb expanding industry supply.
SQM reported second-quarter results on August 19. Adjusted EBITDA reached $1.32 billion as lithium sales volumes exceeded 84,000 metric tons and prices improved. Its investor materials show quarterly revenue of approximately $2.47 billion. SQM’s official second-quarter materials contain the release, presentation and webcast.
Management now expects global lithium demand to exceed 2.1 million metric tons in 2026, up from its prior estimate of approximately 1.9 million. It expects third-quarter prices to remain broadly in line with the first-half average, volumes to stay near second-quarter levels and production costs to remain below 2025 levels. Reuters’ August 19 results analysis details the forecast and cost commentary.
The bullish case is no longer limited to electric vehicles. Grid and data-centre operators increasingly use battery energy-storage systems to balance intermittent renewable generation and peak electricity demand. That broadens lithium consumption beyond passenger-car sales. SQM also benefits from large brine resources, operating experience and scale, which can protect cash generation better than higher-cost producers when prices weaken.
The company plans roughly $3 billion of investment from 2026 through 2028. About 60% is intended for Nova Andino, its Chilean venture with state miner Codelco, with the balance split between iodine and plant nutrition and international lithium projects. The longer-term Salar Futuro project could require another $3 billion over seven years once approved. Successful execution could extend production and reserve life.
The same spending creates the bearish case. Lithium is a commodity: rapid demand growth does not guarantee high prices when SQM, Australian miners, Chinese converters and emerging producers all add capacity. Technology changes could reduce lithium intensity, while Chilean permitting, environmental constraints and state-partnership governance can delay projects or change economics. A large capital programme undertaken near a favourable point in the cycle can destroy value if supply expands faster than consumption.
SQM’s US-listed shares gained 1.3% to $75.38 on August 19 after trading between $72.50 and $77.44. The retreat from the high leaves $77.50 as immediate resistance; $72.50–$73 is support. A sustained breakout would be more persuasive if accompanied by further earnings-estimate increases rather than lithium-price enthusiasm alone.
Given the tight $72.50–$77.50 range, I would avoid chasing calls before confirmation. A reasonable setup would be a 30–45 DTE bull put spread below support, such as selling the $70 put and buying the $65 put, provided SQM continues to hold above $72.50. If price instead closes decisively above $77.50, a $77.50/$85 call debit spread could offer cleaner upside exposure.
The evidence leans moderately bullish because record volume, stable near-term pricing, lower costs and a higher demand forecast reinforce one another. The view would be invalidated by lithium prices resuming a sustained decline, storage demand disappointing, project spending overrunning budgets or new industry supply overwhelming volume growth. This is personal opinion for education and is not financial advice.
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