Hook and thesis
Sociedad Quimica y Minera de Chile (SQM) is my top pick to lead the next leg higher in lithium equities. The stock is trading at $72.45 and is sitting on a technical and fundamental pivot - lithium prices have shown signs of bouncing after supply disruptions in China and signs of tightening, while SQM has just completed the Kwinana refinery and trimmed near-term capex to protect margins. That combination of improving lithium economics plus operational optionality makes SQM a favored way to take directional exposure to higher lithium prices without putting all capital at risk in a pure-play miner.
Why the market should care
SQM is not just a lithium company - it is a diversified specialty chemicals group with meaningful exposure to fertilizers, iodine, potassium and industrial chemicals in addition to lithium and derivatives. The lithium segment remains the growth and sentiment driver: battery-grade lithium carbonate and lithium hydroxide command the industry’s highest margins and feed the EV and energy-storage supply chains. With a market capitalization of about $20.2 billion and a float of roughly 142 million shares, SQM is large enough to move with the cycle but still sensitive to lithium price moves - an attractive combination if pricing rebounds.
Business snapshot and why fundamentals matter
SQM operates across several segments - Specialty Plant Nutrients, Iodine and Derivatives, Lithium and Derivatives, Industrial Chemicals, and Potassium. That diversification acts as a natural hedge: while lithium swung the company’s profit dramatically in 2024-2025, other product lines provide cash flow stability. The company reported net income for the six months ended 06/30/2025 of $88.4 million, down 58.6% year-over-year, reflecting the recent low point in realized lithium prices and prompting management to reduce capex in 2025. Importantly, SQM completed the Kwinana refinery in Australia to produce battery-grade lithium hydroxide - a value-accretive asset when lithium prices improve because hydroxide fetches higher margins for battery makers.
How the current setup supports a trade
- Price action and technicals: The stock is trading around $72.45, near its 10-day simple moving average of $72.55 and slightly below the 20-day SMA of $77.12. The 50-day SMA is $72.85 and the 50-day EMA is $71.51 - overall this is a consolidation band, not a breakdown. RSI sits around 46.6, indicating neither overbought nor oversold territory and room for an upside move if momentum flips.
- Sentiment and positioning: Short interest has fallen from multi-million share levels in late 2025 to roughly 1.39 million shares as of 01/30/2026, suggesting the most aggressive bearish bets have been trimmed. Short volume remains meaningful on daily flows, but days-to-cover metrics are low, reducing the risk of a dangerous squeeze while leaving upside to a steady buy-on-improving-prices dynamic.
- Industry catalysts: Chinese regulatory moves and permit revocations have repeatedly produced spikes in lithium prices - for example on 12/17/2025 when revocation activity lifted Chinese lithium prices and sent related stocks higher. Supply interruptions such as those seen in 08/12/2025 and 09/10/2025 (CATL-related restarts and halts) can push spot prices up quickly, and SQM stands to benefit on both spot and contractual lift as offtake re-pricing occurs.
Valuation framing
At a market cap of about $20.2 billion and a trailing P/E of 39.7 and a P/B of 3.77, SQM looks premium on a trailing basis. That premium reflects two facts: the stock carries meaningful lithium optionality, and recent earnings were depressed by the lithium price slump. If lithium prices normalize higher, SQM’s earnings will spring back disproportionately because a large portion of costs are fixed and the new Kwinana hydroxide output is higher-margin. In other words, the high trailing P/E partly prices in the company's cyclical upside - but given the depressed earnings base in mid-2025, forward multiples can compress rapidly as earnings recover, making the current multiple more palatable.
Catalysts (2-5)
- Improving lithium spot prices driven by Chinese permit revocations or production halts - any sustained move higher in Chinese prices tends to lift global realized prices (recently triggered on 12/17/2025 and in August 2025).
- Volume and margin ramp at Kwinana refinery - higher hydroxide volumes improve realized pricing and product mix.
- Quarterly results showing sequential margin improvement and higher realized lithium prices (next earnings releases will be the proximate catalysts).
- Global EV and battery demand surprises - larger-than-expected vehicle production or AI/data-center battery storage demand would accelerate lithium tightness.
Trade plan - actionable entry, stop, target and horizon
Trade direction: long. Entry: $72.45. Stop loss: $66.00. Target: $86.00. Risk level: medium.
Horizon: mid term (45 trading days). I expect the trade to play out over the mid term because lithium prices and contract renego-tiations move on multi-week to multi-month cycles; 45 trading days gives enough runway for supply-side shocks or contract flows to translate into better realized pricing and for investors to re-rate SQM as a higher-margin lithium producer. If the stock approaches the target earlier, trimming into strength is prudent; if prices stall but the operational ramp at Kwinana is confirmed, consider extending to the long term (180 trading days).
Why these levels?
- The entry at $72.45 is effectively the current market price and offers immediate exposure with limited premium to the short-term moving average band.
- The stop at $66.00 sits below the 50-day EMA of $71.51 and is sized to limit capital loss in case lithium pricing continues to deteriorate or if the market re-prices SQM to the downside. It recognizes the company’s cyclicality while giving room for normal intra-day volatility.
- The target of $86.00 is near the 52-week high of $86.13 and reflects a rerating to levels seen when lithium pricing was stronger. That target equates to capturing a meaningful revaluation and improved earnings without chasing unrealistic multi-bagger outcomes.
Risks and counterarguments
- Price cyclicality - lithium is volatile. If Chinese production restarts broadly and quickly, spot prices could fall back and depress SQM’s realized prices. Example: CATL-related restarts in 09/10/2025 shook the sector and led to pullbacks.
- Execution risk - commissioning and ramping a new refinery always carries operational and timing risk. If Kwinana underperforms or experiences delays in delivering battery-grade hydroxide at scale, expected margin gains will be delayed.
- Regulatory and environmental risk - operations in Chile carry permitting and social license exposure. Any prolonged regulatory action or community disruption could constrain production growth and hurt the re-rating thesis.
- Valuation already reflects some upside - the trailing P/E near 39.7 and a P/B of 3.77 imply market expectations for recovery; if those expectations are already baked in, further upside requires stronger-than-expected price moves or outsized operational beats.
- Currency and commodity risk - SQM’s P&L is exposed to foreign exchange and input costs; unexpected currency moves or rising energy costs could compress margins even if lithium prices rise.
Counterargument: One reasonable counterargument is that the broader lithium market remains oversupplied on a structural basis in the near term due to capacity coming online globally and aggressive restarts in China. If that capacity growth outpaces EV battery demand, lithium prices could remain subdued and SQM's multiples would compress again - in that scenario, owning diversified producers with more conservative valuations could be preferable to SQM.
Conclusion - clear stance and what would change my mind
My stance: Buy SQM at $72.45 with a mid-term horizon (45 trading days). The combination of an improving spot backdrop, the operational leverage from the Kwinana refinery, materially lower capex and reduced short interest makes SQM the most pragmatic equity to own if lithium pricing rebounds. The stop at $66.00 limits downside if the cycle extends downward; the target at $86.00 captures the likely rerating to the 52-week highs observed during stronger pricing conditions.
What would change my mind: I would step aside or flip bearish if lithium spot prices show a clear, sustained decline with no supply disruptions (for example, large Chinese restarts that permanently lower prices) or if management issues a disappointing production or margin update from Kwinana. Conversely, stronger-than-expected hydroxide margins, larger contract repricings or a materially higher short-squeeze would make me more aggressive and potentially raise the target.
Key takeaways
- SQM provides high-quality lithium exposure with diversification benefits from fertilizers, iodine and industrial chemicals.
- Market cap around $20.2B, trailing P/E ~39.7 and P/B ~3.77 - a premium that can be justified by cyclical upside and the new Kwinana asset when lithium prices recover.
- Trade plan: Long at $72.45, stop $66.00, target $86.00, horizon mid term (45 trading days). Manage position size and trim into strength.
"SQM is not a pure play that will blow up or double overnight - it is a pragmatic lever on the lithium cycle with real diversification. Trade it with respect for the commodity's volatility and reward for optionality."
Tags: SQM, lithium, chemicals