Sociedad Química y Minera de Chile - Q4 2020

Transcript

Operator (participant)

Good morning, and welcome to the SQM Fourth Quarter 2020 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Kelly O'Brien, Head of Investor Relations. Please go ahead.

Kelly O'Brien (Head of Investor Relations)

Good morning. Thank you for joining our fourth quarter 2020 earnings conference call. This conference call will be recorded and is being webcast live. Following this call, you will be able to access the webcast at our website, www.sqm.com. Our earnings press release and our presentation with a summary of the results has been uploaded to our website, where you can also find a link to the webcast. Speaking on the call today will be Ricardo Ramos, CEO, our CFO, Gerardo Illanes, and our Commercial Vice President of Lithium and Iodine of Asia Pacific, Felipe Smith. We will also be available to help answer any questions following the prepared remarks.

Before we begin, let me remind you that statements in this conference concerning the company's business outlook, future economic performances, anticipated profitability, revenues, expenses, or other financial items, anticipated cost synergies and product or service line growth, together with other statements that are not historical facts, are forward-looking statements as that term is defined under federal securities laws. Any forward-looking statements are estimates reflecting the best judgment of SQM based on currently available information and involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those stated in such statements, including our ability to successfully implement our Sustainable Development Plan.

Risks, uncertainties, and factors that could affect the accuracy of such forward-looking statements are identified in our public filings made with the U.S. Securities and Exchange Commission and in our earnings release issued last night. These forward-looking statements should be considered in light of those factors. We assume no obligation to update such statements, whether as a result of new information, future developments or otherwise, except as required by law. I now leave you with our Chief Executive Officer, Ricardo Ramos.

Ricardo Ramos (CEO)

Good morning. We thank you for joining the call today. As you know, 2020 began with uncertainty, but we are more than satisfied with the trends that we have seen in the markets in which we participate. The significant advances that we have made related to our Sustainable Development Plan and of course, the operational success seen throughout the year, especially related to lithium production. Before discussing the results in more detail, I'm proud to announce that we are the first lithium mining company in the world to join the Initiative for Responsible Mining Assurance, IRMA. For years, we have built a sustainable operation in an effort to protect the environment, our neighboring communities, and contribute to sustainable industries.

This is part of our commitment to a high level of transparency, seeking public responsibility of the objectives we have established related to environmental matters, sustainable operations and social responsibility. It is also linked to the role we play in the value chain of a strategic industry for human development, including the electric and sustainable mobility markets, renewable energy and sustainable farming. I've said this before, and I will reiterate again, our dedication to the goals of our Sustainable Development Plan is paramount, and we look forward to sharing continued advances related to it in the future.

Looking back at 2020, there are a lot of positive things to mention, starting with our lithium carbonate production, which surpassed 70,000 metric tons in the year, exceeding our objective for the year related to volumes, cost, and quality of the products that we have been producing and selling, allowing us to increase our market share and expand our customer base. As a result of this, our sales volumes in 2020 were over 43% higher than sales volume reported last year, reaching a company record. Additionally, in the fourth quarter, our sales volume reached almost 26,000 metric tons, over 134% higher than sales volumes recorded during the same period last year. This was part of our plan and continues to be part of our strategy going forward.

As I said last night, it is a clear sign that we are prepared to continue to grow rapidly and support the strong demand growth in the lithium industry. Our new lithium carbonate expansion is moving forward as scheduled, and we expect to reach 120,000 metric tons by the end of this year, and 180,000 metric tons at the end of 2023. In addition to Chile, the investment for the Mount Holland Lithium project was approved last month. The updated feasibility study confirms an expected initial production capacity of 50,000 metric tons of battery-grade lithium hydroxide, with first production coming online during the second half of 2024, if all necessary permits are received as anticipated.

We believe we are one of the lowest cost producers of lithium and anticipate this project will also be competitive position at the cost curve. While lithium is an exciting market and offers many growth prospects, I would be remiss if I did not mention the other opportunities that we were able to take advantage, all during 2020. In the industrial chemical business line, which represent about 9% of the gross profit of the company last year, mostly related to sales volumes of more than 160,000 metric tons of solar salts, of which over 66,000 metric tons were delivered during the fourth quarter of 2020.

In 2021, we expect to deliver close to 200,000 metric tons of solar salts, and we believe that we are prepared to satisfy the market needs with annual volumes of over 200,000 metric tons of solar salts going forward. Many of you have noted, rightly so, that the iodine market was impacted by the global pandemic in 2020. We believe that the total market demand decreased approximately 9%. However, we're optimistic that we will see market recovery during 2021 as the impact of the pandemic fades away, mostly led by the X-ray contrast media, LCD, and pharmaceutical market. We hope to increase market share during the year, and we are confident that demand growth going forward will require new capacities like the one we announced last December.

Again, while there are a lot of positive news to share about 2020, it was a year met with various challenges, most of which we are able to overcome as a result of the effort and dedication of our team, collaborators, and neighboring communities. The well-being of everyone will remain our priority, and I want to thank each and every person for the accomplishment and the results we were able to achieve in 2020.

Kelly O'Brien (Head of Investor Relations)

Operator, with that, we will turn it over to questions.

Operator (participant)

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster, and the first question will come from Joel Jackson with BMO Capital Markets. Please go ahead.

Joel Jackson (Managing Director and Equity Research)

Hi, good morning. Ricardo, you know, we've seen a dramatic turn in the lithium market in the last six months. Spot prices are up in China and around the world. Inventories look a lot lower, outright tight. Your commentary last night in the release was that you could see higher lithium prices in the first half of the year. Could you expand on that? Like, wouldn't you have to see very strong price increases in the first half of the year now? And maybe talk about any changes you're seeing right now in, you know, how lithium customers want to transact, do contracts, price products, et cetera.

Ricardo Ramos (CEO)

Hi, Joel, good to know about you. But yes, we are relatively optimistic about prices in lithium. That's right. But what we are observing, of course, we think that average prices this year should be higher than last year as an average prices. However, you, if I'm not wrong, you use the word strong price increase, if I'm not wrong. We don't foresee a strong price increase as we probably foresee five or six years ago in a short period of time. That's why we prefer to be more conservative about that. Prices are gonna be better, are gonna be higher than last year, but we don't expect like strong price increase. But as you know, Felipe is with us now, and Felipe, maybe you want to add something about this specific situation of the pricing in lithium?

Felipe Smith (Commercial VP Lithium and Iodine APAC)

Yes. No, I would like, hello, Joel. I would like to add perhaps to what Ricardo is saying, the fact that, the market is still very volatile. So, we have seen in the past months, very rapid decreases and increases of price. So being in such an early stage of the year, I would prefer to be cautious about, what the market price will be over the coming months. The only thing that, we feel will happen is that, our price should be higher than 2020, but, the level I cannot comment now.

Joel Jackson (Managing Director and Equity Research)

Okay, a couple more questions. Okay, so, you know, when you put out your sustainability targets or plan, I think in October, you talked about now extracting less brine and producing less potash, having less potash for merchant sales. When I look at your outlook for 2021, you're talking about similar potash merchant potash sales in 2021. You're talking about NOP sales being up, and you're doing really well in lithium production. So is this where you're not extracting less brine this year, or are you producing more material now, better yields from the ponds while extracting less brine?

Ricardo Ramos (CEO)

Okay, Joel, first, it's important to say that we're very proud of the technology and research and development advances in the Salar. That's clear. Today, we can produce more with fewer brines, and we hope to continue improving that way. We believe that in the long term, we will be able to produce 180,000 metric tons of lithium carbonate per year, with 50% of the brines we use in 2020. In the same way, we hope to increase our deals in the extraction of potash. However, as we have said previously, the lower extraction of brines will affect the potash production capacity in the long term.

Anyway, if you go to the 2021, I think it's important to try to focus in this year specifically. We project sales volume for potash close to 10% higher than the previous year. It means that we are using some of our inventories. We're improving our deals and our production capacity. But in the long term, it's important to consider that even though we have been able to increase our total production of lithium carbonate, we will not be able to increase in the same way the production of potash, and probably the total potash production will be reduced in the long term.

Joel Jackson (Managing Director and Equity Research)

Okay. My last question will be on iodine. So what I think is very impressive is obviously with all the things that happened with COVID and the macro, you saw a large iodine, you know, sales volume decline in 2020, 2020. But your per ton costs were a lot lower. Can you talk about that? Were there things that you did, is it just accounting? How were you able to get per ton costs lower, despite, you know, much lower volumes?

Ricardo Ramos (CEO)

Yeah. It's important to consider that we have been working for, I don't know, three or four years, maybe more, in different initiatives to reduce our costs in every single business line. As you may know, we produce in the same process from the caliche iodine and nitrates. We share the cost, and we are proud to say that both costs are going in the right direction. Even though nitrates is more difficult to reduce the cost, we have been able to reduce our costs in the iodine [in the past]. That's right, and we are very proud about it. But again, we have a lot of challenge about cost in the short term. The exchange rate in Chile is one of them.

The high price of copper is a second one because it means that the labor market of different contractors in the north of Chile is gonna be more expensive, probably this year than what used to be. But we have a very good experience, and we have a very good track record in order to reduce our costs, increase our productivity. And we're working very hard to overcome to be able to maintain a very low cost position, even though these two situations that I already mentioned to you, the exchange rate flat, the high cost of the labor and high cost of the contractors in the north of Chile because the copper price. But again, we're very proud about the cost, and we expect to continue the same trend in the future.

Joel Jackson (Managing Director and Equity Research)

Okay, thank you very much.

Operator (participant)

The next question will be from Ben Isaacson with Scotiabank. Please go ahead.

Ben Isaacson (Managing Director)

Thank you very much, and good morning, everyone. Congrats on a difficult 2020. First question is on SPN. If I read it correctly, I think you said that the market increased by 5% and you guys had volume down, maybe half a percent or so. Can you split that up between NOP and the rest of the SPN business? And do you expect to lose market share or gain market share in 2021 in both SPN and the NOP within SPN?

Ricardo Ramos (CEO)

Okay. I don't think it's a big difference between the different products we have in SPN. I think the main reason of 2020, that you already mentioned, is that if you review our sales per quarter, you can notice that our sales volume were really affected during the first half of the year. Third quarter and fourth quarter, our volume sales were high. Why first half was so bad? Because it was in the middle of the COVID-19. And for us, considering SPN positioning the market, the first half of the year is a very important period of the year. And that's why we were really affected at the beginning of the process.

If you consider the trend of the third quarter and fourth quarter, it is so positive that we think that it's reasonable to expect that our sales volumes for the year 2021 will be higher than 2020. And the second point that I wanna notice is that if you consider the margins per ton in 2020, even though the volumes were slightly lower than 2019, the margins per ton were higher. This means that we have been able to improve our market conditions and improve our margins in the different markets where we participated in the year 2020 as compared to 2019. I expect to continue this trend in 2021. I repeat again. I think that 2021, in volumes for Specialty Plant Nutrition, including potassium nitrate and other fertilizers in the Specialty Plant Nutrition business line, will be higher than 2020.

Ben Isaacson (Managing Director)

Thank you for that. In terms of the Mount Holland project, congrats on the approval of that. Can you just... I haven't looked at Wesfarmers to see if they've put out any numbers, but can you talk about your decision to approve that project? What are the kind of assumptions that you're using in terms of margins or prices, and what type of return are you looking for?

Ricardo Ramos (CEO)

We prefer not to share what is our long-term expectation of the price of volumes of the lithium business. We have different scenarios, and we use different scenarios in our evaluation. In every single scenarios we put on the table, it was a good project. That's why we are very excited about the project in Mount Holland. As you know, we are very positive about the future of lithium business. We think this business in 2025, demand will be in excess of 800,000 metric tons. We think that Mount Holland will be, that's the most important issue, in the first point of, in the first quarter of the cost curve at the world level. It means, I think Mount Holland is a very good project of production of lithium hydroxide from spodumene.

It is a low-cost project, no doubt about it. We have a very good partner with partners. We think that we have a lot of opportunities to continue to grow with them in the future. Again, the most important thing is a growing market out there, and we strongly believe in the growth of the lithium market. The second key point is that we think we're a really competitive project in Mount Holland. Means that we are gonna be in the first 25% or 30% of the cost curve at the world level. This is the most important factor to keep in mind in order to move forward with this project.

Ben Isaacson (Managing Director)

Last question for me. Your capital is gonna be fairly tied up over the next few years as you expand in lithium. But when you think a little bit further out, I mean, you guys are gonna generate a lot of cash. How do you plan on using that cash, say, in kind of three, four, or five years from now? Do you expect to continue investing in projects to maintain your market share in lithium? Do you think there'll be a change where you start to return capital to shareholders through higher dividends or buybacks? How do you kind of think about capital allocation once all of the current expansions are complete?

Ricardo Ramos (CEO)

As we speak, we're working in the next step of production capacity and new projects around the world, and you're right, it means we are thinking about new projects all the time. I don't think that Mount Holland is the last project we are gonna develop outside Chile. I think it will be a lot of opportunities where we can capture good opportunities to do business, and we're working on it now. We think that we can grow again and again in the nitrate and iodine business. We have a know-how and knowledge of the lithium business that is very important for us, and we think we can move forward with that in the long term.

As I mentioned, I want to mention to you that now we are working at studying, we are reviewing that something, a potential increase in our lithium hydroxide production capacity, and we expect to inform the market whenever we are ready, the amount, but I expect to move from 30,000 metric tons-60,000 metric tons in the short term, in the medium term, sorry, and we're working these kind of projects now.

Means we have very many different alternatives to do. And of course, as you mentioned before, we as a company, we have a very high dividend policy so far. It means we, it's up to the board, it's up to the shareholders' meeting, what is the dividend policy, but so far, SQM usually pay high dividends to their shareholders. It means some of the cash flow we generate is used in order to pay dividends. That's something important, and it's part of the company policy in the past.

Ben Isaacson (Managing Director)

Great. Thank you very much.

Operator (participant)

The next question will be from Javier Martinez with Morgan Stanley. Please go ahead.

Javier Martinez (Managing Director)

Thank you. Hi, Ricardo Ramos. So let me take advantage of that question, too. So talking about new plans for the future, no? Maybe you can update us a little bit on the, on this next capacity increase that you have in Atacama, focus on lithium hydroxide, no? Maybe a little bit of information, updated information on the timing, volumes, cost of production, no, if you are able to share something with us.

Ricardo Ramos (CEO)

Yeah. As you may know, we're really busy now because we are moving from 70,000 metric tons. Now we are producing more than 70,000 metric tons. We are very proud about it, but we're moving to 120,000 metric tons, and we expect to be ready at the end of this year. It means it's not a minor expansion. It's moving from 70,000 metric tons, that's really today is more than 80,000 metric tons, but moving 40,000 metric tons-50,000 metric tons increase is like a huge new project in the world, and we're working as we speak very hard in order to be ready from the day number one, producing all the production, the 120,000 metric tons full quality at the end of this year. But it's not enough. As you know, we are moving from 120,000 metric tons-180,000 metric tons.

It means an additional 60,000 metric tons capacity at the end of 2023, 2022, sorry. That's a lot of work. 2023, sorry. And that's why we do expect to have a lot of things to do, and we are really busy about that. But if you consider that we are moving to 120,000 metric tons-180,000 metric tons of lithium carbonate, and the lithium hydroxide market is growing, it's growing probably more than the lithium carbonate market, even though we have a significant advantage in lithium carbonate, we have been very successful in order to reduce the cost and to be very effective in the production of lithium hydroxide. That's why, for me, 30,000 metric tons, that is the expansion we are moving now. We are moving from 15,000 metric tons-30,000 metric tons.

It's not enough. That's why we are working with our team, production team and development team now, in order to, as fast as we can, present to the market a project to move forward in the lithium hydroxide increased capacity. That's why I'm thinking in the first stage will be something close to sixty thousand, and probably, I'm thinking in the long term, I probably want to go to the ninety thousand metric tons capacity in lithium hydroxide. Means using a portion of what we are using lithium carbonate to use lithium hydroxide or to have additional production. These are the things we're reviewing today, but we want to have the full flexibility to, even though considering the 180,000 metric tons, to have more lithium carbonate or more lithium hydroxide, to have the flexibility, market flexibility and business flexibility.

This is the first, the second, the most important new project we are working now. And of course, 180,000 metric tons is just a first stage. I want to review, if it is possible, to move forward to a 200,000 metric tons or 220,000 metric tons capacity in Chile. That's something we are reviewing now. I don't expect to have a news about that in the short term, but it's something we are reviewing, that will be very important. But the lithium hydroxide facility is gonna be after the lithium carbonate capacity expansion, probably my next or our next big project. And of course, we expect to be very successful in Australia with Mount Holland. And as you know, Mount Holland is a great project. And the first stage of the Mount Holland is the 50,000 metric tons capacity.

But there's no reason why to stop there. If the project goes in the right direction, and I'm quite sure it's gonna go in the right direction, we can move in Mount Holland to 100,000 metric tons. It's something that we have to discuss and to review with our partner from Wesfarmers, but we are very excited, both of us, to complete the first stage of the project in 2024. It means to be at the 50,000 metric tons, and if everything goes in the right direction, to move forward to something close to the 100,000 metric tons. Means we have a lot of things to do in the lithium, and we expect to do it in a really short period of time.

Javier Martinez (Managing Director)

Ricardo, so it's quite impressive the way you are increasing volumes, no? That was obviously the highlight of the quarter, no? 50% up, quarter-over-quarter, no. So with this, you're moving the company to a new level, no? And with that scale, I guess that makes more sense to invest more in technology, you know, and technology to allow you to be not only the leader, but also to continue to be the low cost of production, you know?

And so that's exactly what I want to understand. So how technology may change your position in the cost curve, if you don't want to talk about absolute levels, but maybe relative levels in the cost curve for both carbonate and particularly hydroxide, you know, where maybe you are a little bit less competitive today, you know? So how, where are we in that process? So are we at the beginning of potential improvements in your cost curve, in your cost of production, or there is a lot of things that will happen as you gain scale? You know, that's a framework for that would be very useful.

Ricardo Ramos (CEO)

First, thank you, Javier. First, you have to consider the following: We are so proud of our technology, capacity, and our R&D people. If you consider at the beginning of less than a year ago, we had a lot of problems to reach the 70,000 metric tons and a lot of problems to reach the quality, at the beginning of the expansion to 70,000 metric tons. Now, we're producing in the same facility more than 7,000 metric tons per month. That's the first two months of this year. It means the same facility that was designed for 70,000 metric tons is producing more than 80,000 metric tons. Second, the whole production is full quality. This is completely commercial quality. These, those two factors are due to the quality of our people, the R&D, the technology capacity.

Second point, in the Salar de Atacama, we announced, because we, after reviewing all our process, improving our process, being very effective in our process, we publicly announced our internal commitment, not required by the government or authorities. It was SQM commitment to reduce up to 50% in the long term of the lithium, the brine extraction in the salar, and at the same time increase our production from 70,000 metric tons-180,000 metric tons. Means there's a lot of development in the technology, a lot of R&D involved in this, in this decision. Third, lithium hydroxide. We wait maybe just a little bit more than six months to announce a new expansion, because we're looking forward for significant improvements in our lithium hydroxide production process. We think that we will announce an expansion from 30%-60%.

That will be very, very low cost. We are very proud that the new announcement, the new thirty thousand metric tons, it means increase from fifteen to thirty thousand that we're working now, will be better than the original fifteen thousand. But we think that we are working very hard in technology and research and development in order to supply very low cost, high quality hydroxide. Keep in mind that we are gonna be producing in the short term, hundred and twenty thousand metric tons per year, and our target is to be 100% full quality of the hundred and twenty thousand, commercial quality of the hundred and twenty thousand metric tons production capacity. That's a lot of R&D, a lot of technical development behind these, these goals.

Javier Martinez (Managing Director)

Thank you, Ricardo. Much appreciated.

Operator (participant)

The next question will be from Cesar Perez-Novoa with BTG Pactual. Please go ahead.

César Pérez-Novoa (Managing Director and Senior Equity Analyst)

Yeah, good afternoon. Congratulations on your fourth quarter report. Well done job, considering 2020 unprecedented circumstances. My question to you relates on prevailing market dynamics. You mentioned that you're currently operating on a monthly run rate of 7,000 tons at your lithium plant, aiming to exceed over 80,000 tons by 2021, which is a meaningful jump versus 2020. Could you please walk us through what segments drive this growth, specifically of EVs and masses volume, and/or if other industries drive this growth as well. Some breakdown would be greatly appreciated. And perhaps as a follow-up, when integrating the 70,000 carbonate line into the new 120,000 line, should we expect some downtime at any level? Would you hold any inventory to cover any possible shortfall? Timewise, when would this take place, you know? Thank you.

Ricardo Ramos (CEO)

Hi, Cesar. First, as you know, we expect to produce in a year in excess of 180,000 metric tons. As we mentioned before, we expect our volume sales to be close to 25%, maybe more, I don't know. 25% in volumes as compared to the previous year. It means that we expect sales to be something higher than 80,000 metric tons. It means sales volumes and production will be quite similar in 2021. We don't expect to use inventory. We have inventory in order to if we need it. But keep in mind that we expect and we're very close to reach the 120,000 metric tons capacity.

It means we don't expect to have a problem to accomplish our market goals in the medium term, because we're very close to the 120,000 metric tons and we are very close to the 180,000 metric tons capacity. We have the inventory. That's why, from the point of view of having the capacity to supply the market, we are very proud that we have. Second, from a logistics and commercial point of view, I think the track record of the fourth quarter is amazing. I mean we were able to sell in one quarter, 26,000 metric tons, means we have the capacity at the logistics, in a very complex logistics environment, commercial, logistics, production, supply, everything to sell in one quarter, 26,000 metric tons.

It means that we are more than prepared to one hundred thousand metric tons per year in terms of the capacity of the organization to sell this product. Everything in quality, everything delivered to the customer and so on. That's why we're in a very strong position for our sales volume with respect to this year and the next year. I will ask Felipe to give more color about what you expect, Felipe, about where the market is growing now and what are your expectation about that?

Felipe Smith (Commercial VP Lithium and Iodine APAC)

Okay. Hello, Cesar. Well, actually, we are very convinced about the fundamentals of the lithium market. The main driver of the growth that we expect over the next 5-10 years will definitely be the EV market, and this we are seeing it today. Actually, in twenty twenty-one, we expect sales of electric vehicles to be around 40% higher than in twenty twenty.

And our estimation is that the growth of sales of electric cars over the next 5 years will be in the range of 30%-32% per year, which is a very, very strong growth. This, of course, is the main driver, but we are also seeing in the smaller sales a very good development in the recent time. We see that also, looking ahead, those particular applications will have a good growth, not as fast probably as the car, but also significant. So, this is the main reasons why we are quite convinced of the business of lithium for the future.

César Pérez-Novoa (Managing Director and Senior Equity Analyst)

All right. Fair enough, gentlemen. Thank you very much.

Operator (participant)

The next question will be from Susan Sumoto with Bank of America. Please go ahead.

Isabella Simonato (Managing Director)

Hi, good morning, everyone. This is actually Isabella. My question is on the chemicals business. We did see a big jump on the volumes, but we saw also a contraction in margins, as we could estimate here. Can you just give us a little bit more color on this business? How do we think about it in 2021 in terms of top line and margins? Thank you.

Ricardo Ramos (CEO)

Hi, Isabella. You should consider that what we call industrial nitrates today is mainly the most important business, the product. There is solar salts, means the product we use for the energy storage system, and we have a contract with the customers in the Middle East that was 160,000 metric tons during the year 2020. We expect to be very close to 190,000 tons with the same customer at the same price environment for the year, because the long it's a very old contract we have with him in the year 2021. That's why we do expect to have similar margins. The only things we have to consider is if there's any change in the cost of production.

We're working very hard to improve our deals and so on, in order to maintain and to overcome this pressure of the cost that I already mentioned before. But I think it's reasonable to expect similar margins in per ton in 2021 as compared to 2020. But keep in mind that volumes, it will be slightly higher, from 160,000 metric tons-290,000 metric tons just in the solar salts business, and probably a very small increase, close to 4,000 metric tons in the normal industrial nitrates business. That's why in total, I think the volumes will be increased close to 34,000 metric tons in 2021 as compared to 2020. And keep in mind, the Solar Salts is a mix between sodium nitrate and potassium nitrate, a specific high quality mix that is used in the solar energy storage process.

Isabella Simonato (Managing Director)

Okay, thank you.

Operator (participant)

And the next question will be from P.J. Juvekar with Citigroup. Please go ahead.

PJ Juvekar (Research Analyst)

Yes, good morning, Ricardo. You know, last year you built inventories in lithium, and I think you mentioned earlier that you still have inventories left. Can you just talk about sort of order of magnitude on inventories? And you also mentioned that you've improved your quality of the product with R&D. Can you talk about how much of your product today, lithium, is battery-grade versus non-battery-grade? Thank you.

Ricardo Ramos (CEO)

First, we have all our inventories commercial quality, means we have different clients with different quality requirements, and we have inventories for them, for their needs. And all my inventory, more than 95% of the inventory is fully commercial quality. And that's, that's the first point to be very clear about that. Second, about the total inventory, even though we don't disclose the total inventory of the company, we maintain inventories in lithium and lithium carbonate, close to six months of sales.

PJ Juvekar (Research Analyst)

Okay, that's helpful. And, you know, what we are hearing is there is regionalization of supply chain happening in lithium. You know, Europe is building its own supply chain, Asia, and maybe, in the future, in the U.S. So how much of your product goes to China today, and do you anticipate selling more into Europe in the future?

Felipe Smith (Commercial VP Lithium and Iodine APAC)

P.J., maybe I can answer to the question. I would say that during 2020, we were able to recover our market share in China, and we feel that we have reached a reasonable level, which is more in line with the market total demand share of China. So I don't know if this answers your question.

PJ Juvekar (Research Analyst)

Yeah. Do you anticipate selling more into Europe in the future? Thank you.

Felipe Smith (Commercial VP Lithium and Iodine APAC)

As I said before, we are very committed to the industry and to support the growth of the industry, independently on where this demand will take place. Of course, we are considering and preparing ourselves for scenarios in which you will have more demand of lithium, either in Europe or in North America. We do not see a big challenge. Actually, due to the business in nitrate that we have today, we have already established in Europe a very strong network of warehousing, same as in the U.S. Remember that we sell more than nine hundred thousand tons of nitrate, so we are prepared to handle big volumes in different markets. I'm not particularly concerned about the building up the supply chain to Europe or the U.S.

PJ Juvekar (Research Analyst)

Okay, thank you so much.

Operator (participant)

Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Kelly O'Brien for any closing remarks.

Kelly O'Brien (Head of Investor Relations)

Thank you for participating in our earnings call. We look forward to having you join us in the future. Have a good day.

Operator (participant)

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.