CPhI 2018: Market looks to SQM to ensure adequate iodine supply in 2019

By Michael Greenfield, Michael Greenfield
Published: Friday, 12 October 2018

Concerns over water supplies, and sales that exceed production, have made market participants worry that the already-tight iodine market could move into undersupply unless SQM, the world’s largest producer, boosts its capacity utilization.

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 supplies.

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 utilization.

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 demand.

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 event.

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 2019.

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.

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