Chile's SQM says lithium battery capacity will increase by 2021.

SAN DIEGO, May 24 (Reuters) - Chilean mining company SQM said on Thursday that it will invest $525 million in Chile to boost its lithium production capacity as demand for key elements of electric vehicle batteries continues to soar.

SQM, one of the world's largest producers of lithium and fertilizer, said that by the beginning of 2021, Chile's Salarde Atacama salt mine will be ready to produce up to 180,000 metric tons of lithium, which is higher than the current 48,000 tons.

“We believe that with this year's and next year's demand growth approaching 20%, the market will be able to absorb this additional supply,” CEO Patriciode Solminihac said in the company's first quarterly results report. “Our strategy is to have installed capacity respond to market demand.”

The company said it will invest $75 million this year to increase the production of Atacama, the flagship lithium mine in northern Chile, to 70,000 tons.

“As we increase our current production, sales in the business unit should reach approximately 55,000 tons (metric tons) in 2018. These additional sales should occur in the second half of 2018,” the company said in a statement.

The company said that lithium and its by-products accounted for approximately 61% of SQM gross margin in the first quarter. It added that demand exceeded supply and prices in early 2018 rose sharply from $13,500 in the fourth quarter of 2017 to $16,400 per ton.

"We believe that this price pressure will continue in the first half of this year," De Sominique said.

The statement said that SQM will increase its production capacity to 120,000 tons in the second phase of the Chilean expansion plan, which is 20,000 tons more than previously expected.

“The second phase of the expansion of Salarde Atacama will be completed in the next 18 months with a total investment of US$200 million,” deSolminihac said in a statement.

The final phase will increase production capacity to 180,000 tons at a price of $250 million. It is unclear whether this is a $200 million supplement.

SQM reported earlier today that its lithium business grew by $113.8 million in the first quarter of 2018, an increase of 10%.

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