SQM Remains Optimistic on Long-term Lithium Fundamentals

Top lithium producer SQM (NYSE:SQM) is set to invest US$1.33 billion into its lithium operations in Chile and Australia in the next five years as the miner remains optimistic about the outlook for the battery metal.

Despite the current market environment, which has seen prices decline from the highs seen in 2017 and 2018, Chile’s SQM forecasts solid demand for lithium in the coming years.

“The fundamentals support a vision of significant growth in the coming years,” SQM Senior Vice President Pablo Altamiras said at a presentation for investors in New York on Tuesday (September 10).

SQM expects lithium sales volumes to reach 173,000 tonnes by 2025, with demand set to increase between 16 and 20 percent. Gross profit contributions could be close to about US$1 billion by that year, with prices averaging between US$10 and U$15 per kilo.

It’s been a rocky year for the lithium space, with profits from lithium producers being hurt as negative sentiment continues to dominate. SQM posted net income of US$70.2 million in the second quarter — a 47.5 percent decline compared to last year.

At the time, the company said that prices were under pressure due to supply growing more than demand. Despite this, SQM sees the significant increase in near-term capacity as positive for the industry’s long-term growth.

“Considering both demand fundamentals and supply cost structure, equilibrium price could be higher than the historic average, even in double digits,” the Tuesday company presentation reads.

SQM expects sales volumes to hit 65,000 metric tonnes by 2020, helping the company restore its 2017 18 percent market share.

Last year, SQM struck a deal with Chile’s development agency Corfo to potentially expand its capacity in the Salar de Atacama to 180,000 metric tonnes. In return, the company agreed to pay higher royalties and offer discounted lithium for a domestic value-added products program.

In Australia, the company is developing the Mount Holland lithium project, which is known as one of the world’s largest hard rock mining deposits, in a joint venture with Wesfarmers (ASX:WES,OTC Pink:WFAFF). The project includes a mine and a concentrator at Mount Holland and a 45,000 tonne per year lithium hydroxide refinery to be located in Kwinana.

On Thursday (September 12), shares of SQM were up 0.95 percent in New York, trading at US$27.71.

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