SQM's 14% Surge: A Tactical Play on China's Battery Tax Pivot

The market's explosive reaction began in earnest on Monday, January 12. The immediate catalyst was a sweeping policy shift from Beijing that sent shockwaves through the global battery supply chain. China's Ministry of Finance and State Taxation Administration announced a phased elimination of Value-Added Tax (VAT) export rebates for battery products, slashing the current 9% rate to 6% between April 1 and December 31, 2026, before fully eliminating it by January 1, 2027.

This move triggered a frenzied rally in lithium markets. On the Guangzhou Futures Exchange, lithium carbonate futures hit their 9% daily upward trading limit, closing at 156,060 yuan ($22,372) per metric ton-the highest level since late 2023. Traders immediately priced in a massive "front-loaded" export rush as Chinese manufacturers scramble to ship before the April deadline, draining inventories and tightening supply.

The ripple effect was swift for major lithium producers. Shares of Chile's Sociedad Quimica Y Minera S.A. (SQM) surged 14% on the news, with its year-to-date gain now at 13% as of January 12. This tactical move offers a direct play on the anticipated supply squeeze and the policy-driven reset in global battery economics.

Winners and Losers: The Policy's Direct Impact

The policy's goal is clear: to eliminate inefficient producers and curb destructive domestic price wars. By removing a major subsidy, Beijing aims to restore order and profitability to its clean energy supply chains. The immediate winners are integrated producers like SQM, which benefit from reduced competition. The losers are the small Chinese miners and battery makers caught in the squeeze.

For integrated miners and processors, the policy is a direct boost to pricing power. By raising the effective cost of Chinese exports, it protects global prices from a flood of low-cost, rebate-subsidized goods. This front-loaded export rush before the April deadline will also drain inventories, tightening supply in the near term. For a company like SQM, which has both lithium and potassium operations, this creates a favorable environment where its higher-cost production is less vulnerable to being undercut.

The direct pressure falls on the fragmented base of Chinese battery and raw material producers. The policy raises their export costs immediately, squeezing margins just as the industry faces broader financial stress. As the China Photovoltaic Industry Association noted, some companies had already factored the export tax rebate into their overseas pricing, effectively using fiscal funds to subsidize foreign buyers. Now, that subsidy is gone, forcing a painful recalibration. This is part of a broader crackdown on overcapacity, where Beijing is using its industrial levers to push weaker players out of the market.

The long-term aim is to support lithium prices by cutting inefficient supply. The recent suspension of lithium mines in Yichun and the new licensing rules for strategic minerals are steps in that direction. By targeting ultra-low-grade, high-impact production, Beijing is addressing both economic and environmental vulnerabilities. For investors, this creates a clearer path for prices to stabilize, but it also means the industry's growth will be more selective. The winners are those with scale, secure resources, and technological depth-companies that can thrive in a disciplined market.

Trading Setup: Near-Term Levels and Key Dates

The tactical setup for SQM is now defined by a clear timeline and technical levels. The immediate catalyst is the April 1, 2026, deadline for the full elimination of solar VAT export rebates, which will likely trigger a forward pull in battery shipments and demand as Chinese producers race to export before the new rules take full effect.

On the technical side, the lithium market provides a critical benchmark. The 156,060 yuan ($22,372) per metric ton level on the Guangzhou Futures Exchange is now a key support. A break below this level would risk a retest of the 2023 low, signaling the rally has lost momentum. For SQM, the immediate resistance is the 52-week high of $78.28. A confirmed close above this level would solidify the breakout and open the path toward its all-time high.

The major risk to this trade is policy execution. The strategy's success hinges on Beijing's ability to enforce these cuts without triggering a major economic slowdown that could dampen overall EV and battery demand. The push to cut overcapacity is clear, but the market's appetite for a disciplined, higher-price environment must be balanced against the potential for reduced global demand growth. For now, the setup favors a near-term long position, but with a stop-loss below the 156,060 yuan lithium futures level to manage the execution risk.