SQM Sees Lithium Demand Up, Prices Down in 2019

Despite lithium prices being under pressure so far this year on the back of new supply coming online, Chile’s SQM (NYSE:SQM) sees lithium demand growing at a double-digit rate in the future.

The top lithium producer reported earnings of US$80.5 million during the first three months of the year — a 30 percent decline year-on-year due to lower margins in its lithium business.

“As expected, during the first quarter, the lithium market saw price pressure as new supply entered the market,” SQM CEO Ricardo Ramos said.

The company’s average lithium price was US$14,600 per metric ton (MT) in Q1 — an 8 percent drop from the last quarter of 2018.

Aside from lower prices, another factor impacting margins was higher costs related to the new lease payment structure with Chile’s development agency Corfo.

Last year, the company struck a deal with Corfo to potentially expand its capacity to 180,000 MT, but agreed to pay higher royalties and offer discounted lithium for a domestic value-added products program in return. Payments to Corfo increased from US$12 million to US$45 million year-on-year.

In 2019, the company’s lithium production is expected to hit 60,000 MT, with sales volumes set at 45,000 to 50,000 MT.

Looking ahead, SQM expects new output to continue to have an impact on pricing this year, with average prices reaching around US$11,000 to US$12,000 per MT in the second half of 2019.

Despite this, the lithium major continues to believe demand could reach close to 1 million MT by 2025, with lithium demand expected to grow about 17 percent in 2019 and the company’s lithium sales volumes by as much as 30 percent in 2020.

“Lithium carbonate and lithium hydroxide demand is expected to continue to grow at double-digit rates in the future. … Significantly more supply of both products will be needed,” said Ramos, adding that “operational flexibility is essential” for the future success of the company.

SQM is expecting to complete its US$280 million lithium carbonate expansion to be able to produce 120,000 MT per year during the second half of 2021. The company’s current capacity is 70,000 MT.

Additionally, the company is working on expanding its lithium hydroxide capacity in Chile to reach 29,500 MT in 2021, with capital costs set at US$100 million.

In Australia, SQM is developing the Mount Holland project together with Kidman Resources (ASX:KDR,OTC Pink:KDDRF), which received a AU$776 million takeover offer from diversified company Wesfarmers (ASX:WES,OTC Pink:WFAFF) earlier this month.

The deal is backed by SQM and has received support from Kidman’s board, with a shareholder vote scheduled for August.

On Thursday (May 23), shares of SQM were down 6.21 percent, closing at US$30.66 in New York.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.