SQM lithium revenues for Q1-Q3 up 7.7% despite lower sales

By Martim Facada, Michael Greenfield
Published: Thursday, 20 December 2018

SQM reported lower quarter-on-quarter lithium sales despite strong prices for iodine and lithium and delays in production expansion.

Chilean lithium and iodine producer Sociedad Quimica y Minera de Chile (SQM) increased its revenue from lithium and derivatives by 7.7% to $500.9 million in the nine months ended in September 2018, compared with $465.2 million in the corresponding months of the year before.

Strong demand fundamentals arising from the growth of the battery industry by 25% year on year in 2018, and higher average achieved lithium prices of $16,500 per tonne, were said by SQM to be the principal factors behind the increase in revenue.

SQM achieved an average price for lithium of $16,400 per tonne in the first quarter of 2018, it said in an earnings statement on Wednesday November 21.

Fastmarkets assessed the price of lithium carbonate, min 99-99.5% Li2CO3, large contracts, packed in bags, cif Asia, at $14-18 per kg on October 31. This compared with $17-20 per kg on December 27 last year.

Despite remaining at historical high levels, much higher than the $5-6 per kg price range from 2015, contract prices have decreased month on month since June 2018 due to the lower spot prices in China.

Chinese domestic spot prices for battery-grade lithium carbonate dropped by 55.14% to 74,000-83,000 yuan ($10,684-11,983) per tonne on November 22, from 180,000-170,000 yuan per tonne on November 3 last year, according to Fastmarkets’ assessments.

Increased availability of lithium compounds in China and slow demand have pushed prices down in the East Asian country over the course of the past 11 months.

SQM sold 9,300 tonnes of lithium compounds in July-September 2018, 16% less than the total volume sold in April-June.

The lower sales played a part in delaying the first stage of SQM’s production ramp-up, alongside logistical challenges, the company said.

SQM expected to sell close to 45,000 tonnes of lithium compounds throughout 2018, it said in the earnings report. This was almost 5,000 tonnes less than the previous target of more than 50,000 tonnes.

SQM also expected strong lithium prices due to demand from the battery industry as well as delays that prevented other lithium projects delivering material on schedule.

"During 2017, we announced an important lithium expansion near Antofagasta [in Chile], which would allow us to increase our capacity by almost 50%," Patricio de Solminihac, SQM’s chief executive officer, said during an earnings call on November 23.

"This project, which entailed a complete overhaul of our existing plant, had a short timeline and very low capex. The commissioning of the fully upgraded plant, as previously announced, has been more challenging than expected, affecting our ability to produce high-quality lithium during the third quarter, and also our sales volumes. We are working diligently to resolve these issues as soon as possible," he added.

"The ramp-up delay will probably affect our fourth-quarter lithium and derivative sales volumes, delaying part of these volumes into the first quarter of 2019," de Solminihac said.

SQM intends to expand production to 180,000 tonnes per year by 2021 from 48,000 tpy in 2017, however, the delay in the production increase is expected to affect volumes sold and the speed at which the company will be able to reach this target.

The lithium and derivatives division of SQM accounted for almost 54% of consolidated gross profit for the nine months ended September 30, 2018.

SQM’s total revenues across all businesses increased by 7.5% to $1.7 billion for the first three quarters of 2018, up from $1.58 billion in the same period in 2017.