Sociedad Química y Minera de Chile S.A. (SQM) Q4 2020 Earnings Call Transcript

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Sociedad Química y Minera de Chile S.A. (SQM -0.46%)
Q4 2020 Earnings Call
Mar 4, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the SQM Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]

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 a 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 reflect -- 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. And 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 -- Chief Executive Officer

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 reportability of the objectives we have established related to environmental matters, sustainable operation and social responsibility.

It is also linked to the role we play in the value chain of the strategic industries for human development, including the electric and sustainable mobility market, renewable energy and sustainable farming. I have 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 objectives for the year related to volumes, costs 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, we had over 43% higher than the sales volumes reported last year, reaching a Company record. Additionally, in the fourth quarter, our sales volume reached almost 26,000 metric tons over 134% [Phonetic] higher than sales volumes reported during the same period last year. It was -- 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 investments for the Mt. 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 complete 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 of 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 known, as I believe 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 are 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 markets. 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, but the 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 of and every person of the accomplishments and the results we were able to achieve in 2020.

Kelly O'Brien -- Head of Investor Relations

Operator, with that, we'll turn it over to questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question will come from Joel Jackson with BMO Capital Markets. Please go ahead.

Joel Jackson -- BMO Capital Markets -- Analyst

Hi, good morning. Ricardo, 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 increase in the first half of the year now and maybe talk about any changes you're seeing right now and how lithium customers want to transact contracts, price products, etc.?

Ricardo Ramos -- Chief Executive Officer

Hi, Joel, and 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're seeing that average prices this year should be to higher than last year as an average prices. However, you -- if I'm not wrong, you used the word strong prices increase, if I'm not wrong. We don't foresee a strong price increase that we probably foresee five years or six years ago in a short period of time. That's why we prepared to be more conservative about that. Prices are going to be better. They are going to be higher than last year, but we don't expect nice 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 Vice President of Lithium and Iodine of Asia Pacific

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 -- BMO Capital Markets -- Analyst

Okay, a couple more questions. Okay, so when you put out your sustainability targets or plan I think in October, you talked about now extracting less brine and producing less potash -- or producing less potash having less potash for merchant sales. When I look at your outlook for '21, you're talking about similar potash, merchant potash sales in '21, you're talking about NOP sales being up and you're doing really well in lithium production. So is this where you are not extracting less brine this year, or are you producing more material now, better yields from the ponds while extracting less brine?

Ricardo Ramos -- Chief Executive Officer

Okay, Joel. First, we -- it's important to say that we are very proud of the technology and research and development advances in this a lot, that's clear. Today, we can produce more with fewer brine 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 used 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 the -- 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 -- BMO Capital Markets -- Analyst

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

Ricardo Ramos -- Chief Executive Officer

Yeah, it's important to consider that we have been working for, I don't know, three years or four years or 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 shared the costs, and we are proud to say that both costs are going in the right direction, even though in nitrates, it's more difficult to reduce the costs. 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 are -- we have a lot of challenge about costs in the short term. The exchange rate in Chile is one of them. The high price of copper is the second one, because it means that the labor -- the market of different contractors in the North of Chile is going to 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 are already mentioned to you, the exchange rate plus the high costs of the labor and high costs of the contractors in the North of Chile because of the copper price. But again, we're very proud about the costs, and we expect to continue at the same trend in the future.

Joel Jackson -- BMO Capital Markets -- Analyst

Okay, thank you very much.

Operator

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

Ben Isaacson -- Scotia Capital -- Analyst

Thank you very much, and good morning, everyone, and congrats on a difficult 2020. First question is on SPN. I -- if I read it correctly, I think you said that the market increased by 5% and you guys had volume down maybe 0.5% 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 -- Chief Executive Officer

Okay, I don't think you saw a big difference between the different products we have in SPN. I think the main reason of 2020 that you already mentioned is that I think -- if you review our sales per quarter, you can notice that our sales volumes were really affected during the first half of the year. Third quarter and fourth quarter, our volume sales were high [Technical Issues]. Why first -- first half was so bad, because it was in the middle of the COVID-19. And for us, considering healthcare 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. But 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 you want to 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, that means that we have been able to improve our market conditions and improve our margins in the different markets where we participate in the year 2020 as compared to 2019. I expect to continue this trend in 2021. And I repeat again, I think that 2021 volumes for Specialty Plant Nutrition, including potassium nitrate and all the fertilizers in the Specialty Plant Nutrition business line will be higher than 2020.

Ben Isaacson -- Scotia Capital -- Analyst

Thank you for that. In terms of the Mt. Holland project, congrats on the approval of that. Can you just -- I haven't looked at Wesfarmers to see if they 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 -- Chief Executive Officer

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 Mt. 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 Mt. 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 that Mt. 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 Wesfarmers. We think that we have a lot of opportunities to continue to grow with them in the future. And again, the most important thing is that growing market out there, and we strongly believe in the growth of the lithium market. And the second key point is that we think we're in really competitive project in Mt. Holland. It means that we are going to 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 -- Scotia Capital -- Analyst

Last question for me. Your capital is going to 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 going to generate a lot of cash. How do you plan on using that cash say in kind of three years, four years, five years from now? Do you expect to continue investing in projects to maintain your market share in lithium? Do you think there will 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 -- Chief Executive Officer

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 Mt. Holland is the last project we are going to develop outside Chile. I think it will be a lot of opportunities where we can capture good opportunities to do business, and we are working on it now. We think that we can grow again and again in the nitrates 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, long-term.

As I mentioned -- as -- I want to mention to you that now we are working, not 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 amounts, but I expect to move from 30,000 to 60,000 [Phonetic] in the short-term -- in the medium-term, sorry, and we're working these kind of projects now. It means we have very many different alternatives to do.

And, of course, as you mentioned before, we -- as a company, we have various high dividend policy so far, 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 in spite of the Company policy in the past.

Ben Isaacson -- Scotia Capital -- Analyst

Great. Thank you very much.

Operator

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

Javier Martinez de Olcoz Cerdan -- Morgan Stanley -- Analyst

Thank you. Hi, Ricardo, Kelly. 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, or maybe a little bit of information or updated information on the timing, volumes, cost of production, no, if you are able to share something with us?

Ricardo Ramos -- Chief Executive Officer

Yes. As you may know, we are really busy now because we are moving from 70,000 metric tons, now we have predicted more than 70,000 metric tons. We're 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's more than 80,000 metric tons, but moving 40,000 metric tons to 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 to 180,000 metric tons, means an additional 60,000 metric tons capacity at the end of 2023 -- 2022, sorry, that's a lot of work -- '23, sorry. And that's why we do expect to have a lot of things to do, and we are really pleased 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, very successful in order to reduce the costs 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're moving now, we're moving from 15,000 metric tons to 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 to increase capacity. That's why I'm thinking in the first stage will be something close to 60,000 metric tons, and probably I'm thinking in the long term, probably I want to go to the 90,000 metric tons capacity in lithium hydroxide. It means using portion of what we are using in 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 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. This will be very important.

But the lithium hydroxide facility is going to be up and the lithium carbonate capacity expansion probably my next or our next big project. And of course, we are -- we expect to be very successful in Australia with Mt. Holland. And as you know, Mt. Holland is a great project. And the first stage of the Mt. Holland is the 50,000 metric tons capacity.

There's no reason why to stop there. If the project goes in the right direction, and I'm quite sure it's going to go in the right direction, we can move in Mt. Holland to 100,000 [Phonetic] metric tons is something that we have to discuss and to review with our partner from Wesfarmers. But we are very exciting 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 de Olcoz Cerdan -- Morgan Stanley -- Analyst

Ricardo, so it's quite impressive the way you are increasing volumes. That was obviously the highlight of the quarter, 50% up quarter-over-quarter. So, with this, you are moving the Company to a new level. And with that scale, I guess that makes more sense to invest more in technology, and technology to allow you to be not only the leader, but also to continue to be the low cost of production. And so, I -- 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 in oxide, where maybe you are a little bit less competitive today. So how -- where are we in that process? So are we -- 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, that's -- a framework for that would be very useful?

Ricardo Ramos -- Chief Executive Officer

First -- yes, 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 problem to reach the quality, at the beginning of the expansion to 70,000 metric tons.

Now we are producing in the same facility more than 7,000 [Phonetic] 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 was producing more than 80,000 metric tons. Second, the whole production is full quality. This is 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 our process, improving our process, being very effective in our process, we publicly announced our internal commitment, no, required by the government, sorry, this was SPN commitment to reduce up to 50% in the long-term of the lithium -- the brines extraction in the Salar and at the same time increase our production from 70,000 metric tons to 180,000 metric tons, means this is a lot of development in the technology, a lot of R&D involved in this decision.

Third, lithium hydroxide, we wait maybe just a little bit more than six months to announce a new expansion because we are looking forward for significant improvements in our lithium hydroxide production process. We think that we will announce an expansion from 30,000 metric tons to 50,000 metric [Phonetic] tons with a very, very low cost.

We are very proud that the new announcement, the new 30,000 metric tons. It means increased from 15,000 metric tons to 30,000 metric tons that we're working now will be better than the original 15,000 metric tons, 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 being -- we are going to be producing in the short-term, 120,000 metric tons per year and our target is to be 100% full quality of the 120,000 metric tons -- commercial quality of the 120,000 metric tons production capacity, that's a lot of R&D, a lot of technical development behind these goals.

Javier Martinez de Olcoz Cerdan -- Morgan Stanley -- Analyst

Thank you, Ricardo. Much appreciated.

Operator

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

Cesar Perez-Novoa -- BTG Pactual -- 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 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 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 metric tons carbonate line into the new 120,000 metric tons line, should we expect some downtime at any level, and would you hold any inventory to cover any possible shortfall, time-wise, when would this take place? Thank you.

Ricardo Ramos -- Chief Executive Officer

Hi, Cesar. First, as you know, we expect to produce it here in excess of -- in excess of 2,000 -- 80,000 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 volumes -- sales volumes and sales volumes 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 are 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 are very close to the 120,000 metric tons and we are very close to the 180,000 metric tons capacity. We have inventory, and 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 logistical commercial point of view, I think we -- the track record of the fourth quarter is amazing. We were able to sell in one quarter, 26,000 metric tons, means we have the capacity at the logistic in a very complex logistic environment, commercial, logistic, production, supply everything to sell in one quarter 26,000 metric tons. It means that we are more than prepared to 100,000 metric tons per year in terms of the capacity of the organization to sell this product, everything quality, everything delivered to the customer and so. That's why we are in a very strong position for our sales volume we expect for the -- for this year and the next year. And I will ask Felipe to give more color about what you expect Felipe about where are the markets growing now and what your expectation about that.

Felipe Smith -- Commercial Vice President of Lithium and Iodine of Asia Pacific

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 five years to 10 years will definitely be the EV market. And this we are seeing it today. Actually in 2021, we expect sales of electric vehicles to be around 40% higher than in 2020. And our estimation is that the growth of sales of electric cars over the next five years will be in the range of 30% to 32% per year, which is 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 cars, but also significant. So this is the main reasons why we are quite convinced of the business of lithium for the future.

Cesar Perez-Novoa -- BTG Pactual -- Analyst

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

Operator

And the next question will be from Susan Simonato with Bank of America. Please go ahead.

Isabella K. Simonato -- Bank of America -- Analyst

Hi. Good morning, everyone. This is actually Isabella. My question is on the chemicals business. We did see a big jump on volumes, but we saw also a contraction in margins as we could have made 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 topline and margins? Thank you.

Ricardo Ramos -- Chief Executive Officer

Hi, Isabella, you should consider that what we call industrial nitrates today is mainly the most important business -- the product, the high solar salts means the product we use for this energy storage system. And we have a pre-contract with the customers in the Middle East. That was the 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 it's a 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, and all these things we have to consider if there is 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 costs that I've already mentioned before. But I think it's reasonable to expect similar margins per ton in 2021, as compared to 2020, but keep in mind that volumes, it will be slightly higher from 160,000 metric tons to 190,000 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 that 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 K. Simonato -- Bank of America -- Analyst

Okay, thank you.

Operator

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

PJ Juvekar -- Citi Banchile -- Analyst

Yes, good morning, Ricardo. Last year, you build 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 -- Chief Executive Officer

First, we have all our inventory is 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 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 month of sales.

PJ Juvekar -- Citi Banchile -- Analyst

Okay, that's helpful. And what we are hearing is there is regionalization of supply chain happening in lithium. 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 Vice President of Lithium and Iodine of Asia Pacific

PJ, 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 -- Citi Banchile -- Analyst

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

Felipe Smith -- Commercial Vice President of Lithium and Iodine of Asia Pacific

Well, as I said before, we are very committed to the industry and to support the growth of the industry independently on where these demand will take place. So, 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. So, yeah, there is no -- we do not see a big -- 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 900,000 tons of nitrate. So, we are prepared to handle big volumes in different markets. So, I'm not particularly concerned about building up supply chain to Europe or the U.S.

PJ Juvekar -- Citi Banchile -- Analyst

Okay. Thank you so much.

Operator

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

[Operator Closing Remarks]

Duration: 42 minutes

Call participants:

Kelly O'Brien -- Head of Investor Relations

Ricardo Ramos -- Chief Executive Officer

Felipe Smith -- Commercial Vice President of Lithium and Iodine of Asia Pacific

Joel Jackson -- BMO Capital Markets -- Analyst

Ben Isaacson -- Scotia Capital -- Analyst

Javier Martinez de Olcoz Cerdan -- Morgan Stanley -- Analyst

Cesar Perez-Novoa -- BTG Pactual -- Analyst

Isabella K. Simonato -- Bank of America -- Analyst

PJ Juvekar -- Citi Banchile -- Analyst

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