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Sociedad Química y Minera de Chile $SQM finalised a deal to expand production at one of the biggest sources of lithium in a drawn out deal with the Chilean economic development agency (CORFO). The deal saw Lithium producer' stocks sold off hard on new supply.

 Salar de Atacama Chile NASA Earth ObservatoryNASA: Salar de Atacama

While the increased supply expands the market potential for $SQM at a time when automakers like Ford are expanding into electric cars and futures markets are expanding into cobalt and lithium futures there is a downside. Lithium prices had been squeezed higher by demand overshooting supply

This new agreement with Corfo has dragged on for over a year on SQM's royalties payable to Chile from the Salar de Atacama mine. The mine is a massive salt flat in Chile home to one of the world's largest supplies of lithium. The Chilean government alleged that $SQM had been underpaying royalties and violating environmental regulations

Under terms of the deal, $SQM, among other things, is to pay higher lease and royalty payments. It also must improve its corporate governance and environmental-control measures and put money toward research and development in surrounding areas. The company will also have to offer part of its lithium production "at a preferential price" to give producers the option to operate in Chile.

The increased supply saw $SQM shares sell off modestly, despite the deal favoring them. The effect on prices saw it's competitors shares crushed.

While Sociedad Química y Minera de Chile is a fertilizer giant, it is considered a lithium play. Initially $SQM fell 4.6% to $56.80 but has since bounced back to $58.90 to be down less than half a percent late in the day. On Friday pending the deal shares closed Friday at $63.90.

Competitors of $SQM were sold off hard.

Albermale $ALB, the world's largest producer of lithium, crashed 11.3% to 112.54. Albermale recovered at the close to $117.87 to be down 7.15%. FMC Corp.

$FMC fell to a low of $87.10 before recovering half the loss to be down 3.92% at $90.14 at the close.

Global X Lithium and Battery Tech ETF $LIT, whose top holdings include $SQM, $FMC and $ALB closed down 3.74% at $38.46 after trading at a low of $38.04.

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