Iodine market participants have been querying
SQM’s ability to supply the market in 2019, with
the company’s sales continuing to exceed
production volumes and amid concerns about the
company’s ability to secure necessary water
Chile-based SQM holds the major share of the market for
iodine, and has supplied more than 35% of global production so
far in 2018. If it should fail to produce enough material,
market participants fear that a resulting iodine shortfall
would drive prices upward.
Other producers could step in but only after a delay to
ramp-up their output.
There are significant doubts about whether SQM can secure
the water it will need to produce enough iodine to meet demand,
one producer told Fastmarkets IM on the sidelines of this
year’s CPhI Worldwide pharmaceuticals industry
exhibition in Madrid on October 9-11.
For every kilogram of iodine that is produced, around 3-4
tonnes of rock must be blasted and then leached with two tonnes
of water. This makes adequate water supply a critical part of
consistent iodine production.
At the CPhI event, a source close to SQM acknowledged that
there had been a problem with access to fresh water supplies,
but said that it had now been resolved.
In January this year, the Chilean
government ordered SQM to close temporarily some of its seven
water extraction wells because there were issues over the
monitoring of water quality.
This dispute between SQM and the government has been
recently settled, however.
Market participants widely believed that SQM would produce
around 9,000 tonnes of iodine this year but would sell 13,000
tonnes, with the difference being made up from stockpiles.
This would mean a production shortfall of 4,000 tonnes so
far this year. And because SQM’s stocks have been
reducing over the past three years, this could mean problems
for the market in the near term.
But Fastmarkets IM estimates that SQM will produce
11,000-12,000 tonnes of iodine this year, although this was not
confirmed by the source.
The company should produce as much as 14,000 tonnes of
iodine in 2019, after the completion of a capacity expansion
program in the second half of this year.
One market analyst believes that SQM entered the calendar
year with as little as 800 tonnes of stock, but also said that
there was no evidence of where it would source the additional
water supply that would be needed to ramp up capacity
But it was revealed earlier this year that an agreement
had been reached with Chilean economic development agency
Corfo that would allow SQM to increase production without
pumping more brine from the areas where it operates.
Iodine producers typically aim to hold enough stock for four
months of sales, but Fastmarkets understands that SQM normally
holds a longer position. This is so that it has the ability to
react to unexpected changes in the balance of supply and
SQM’s stock levels had fallen because it was
making up market shortfalls after other producers closed down
at a time of low prices.
SQM has been recording sales higher than production in order
to retain its market share, and it is on track to sell around
13,000 tonnes in 2018, which would be a record high, the same
source close to the company told Fastmarkets IM at the
The added capacity gained with this year’s
expansion will be used to replenish the company’s
stock levels. Their reduction over the past three years has
created concerns among market participants about what might
happen should the company with the largest market share falter
and cause the market to become undersupplied.
SQM reduced its production due to the issues over water extraction in the Salar de
Llamara in Chile.
This coincided with the market enduring a period of depressed prices that
had lasted since 2016. This had forced some companies to take
capacity offline. SQM then filled the supply gap from its
stocks, and this is what has shortened the
company’s current stock position.
But SQM’s stocks are still higher than
"historic levels," a distributor based in India said.
And a source based in North America said: "We
don’t know whether SQM is filling its
[stock-holding] capacity. We will have to wait until 2019 to
see if it can do that. There could be a shortage in 2019 but it
will depend on SQM’s stock position."
Other producers aside from SQM have capacity that is not
being utilized and they could return to the market should this
be needed, but there would be a delay in getting iodine into
buyers’ hands because of the unavoidable time that
it would take to ramp-up idled capacity.
Chile-based produced Cosayach, for example, currently
produces around 4,000 tonnes per year of iodine, Fastmarkets IM
understands, but it has no plans to raise its output until
there is a clearer understanding of SQM’s
production targets for 2019.
Other companies are hesitant about bringing capacity back
online while there is still uncertainty about prices due to the
doubts about supply.
The source close to SQM said that he would be surprised if
prices did not rise to $28 per kg during the first quarter of
Fastmarkets IM’s latest price assessment for iodine, spot, min 99.5%, was $25.50-27.00
per kg on Thursday October 11.
The price has risen from $23-25 per kg in early January
2018, and from $18.50-21.00 per kg at the start of 2017.