Sociedad Química y Minera de Chile (SQM), or SQM, can now expand its production at one of the biggest sources of lithium, thanks to an agreement announced late Wednesday with a Chilean economic development agency. But the potential broadening of supply — which comes as automakers focus more on electric vehicles with lithium batteries — hit SQM and especially other lithium plays Thursday.
X The agreement with the agency, Corfo, ends a years-long spat over SQM's royalties related to that location, Salar de Atacama, a massive salt flat in Chile that also holds some of the world's largest supplies of lithium. The government alleged that SQM had been underpaying royalties connected to its lease on that location, and said the company had run afoul of environmental rules, according to Reuters.
Under terms of the deal, SQM, among other things, would have to make higher lease and royalty payments, take steps to improve its corporate governance and environmental-control measures and put money toward research and development in areas close to that land.
The company will also have to offer part of its lithium production "at a preferential price" to some producers that may eventually work in Chile.
Sociedad Química y Minera de Chile is a fertilizer giant, but it's one of several stocks seen as a lithium play amid strong demand and prices.
SQM fell dipped 0.9% to 59.02 in the stock market today after tumbling intraday to 56.51 undercutting its 50-day line. Shares have sold off since closing Friday at 63.90.
Other lithium plays were harder hit. Albermale (ALB), the world's largest producer of lithium, plunged 7.1% to 117.91, though off session lows of 112.54. Albermale crashed through its 200-day moving average, the first time it's undercut that key level in nearly two years. FMC Corp. (FMC) retreated 3.9%, but ended near the best levels of the day FMC, which dropped below a buy point on Tuesday, crashed through its 50-day moving average Thursday, hitting its worst intraday levels since late September.
Global X Lithium and Battery Tech ETF (LIT), whose top holdings include those three stocks, pulled back 3.75%. Global X Lithium, commonly known as LIT, tumbled through its 50-day line after dropping below a buy point Tuesday.
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SQM's deal comes as automakers like Ford (F) plow more money into electric vehicles, whose batteries are composed partly of lithium. Toyota (TM) plans to take a 15% stake in Orocobre, an Australian lithium producer, following similar moves for by other car companies.
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