Chile lithium producer SQM delays Atacama expansion amid price slump

Credit: REUTERS/Ivan Alvarado

By Dave Sherwood

SANTIAGO, May 23 (Reuters) - Chile's SQM SQMa.SN, the world's No. 2 producer of lithium, said on Thursday it would delay a key expansion of production capacity from the Atacama salt flat until the end of 2021 amid a slump in prices for the coveted battery metal.

The miner had previously expected installed capacity in Chile to reach 120,000 tonnes "by the end of 2020," an expansion of 50,000 tonnes over current capacity, according to filings with the U.S. Securities and Exchange Commission in March.

News of the delay came on the back of an earnings drop of nearly 30% in the first quarter, due to weaker lithium prices and higher royalty payments to the government.

Chief Executive Ricardo Ramos said in anearnings callthe unexpected delay in its plant expansion was due to fast-evolving requirements of the red-hot battery technology industry. Lithium is a key component of batteries used in cell phones, electric vehicles and other consumer goods.

"The delay is not related to the market or demand," said Ramos, adding that both permits and technology were in place for the Atacama capacity expansion. "We are going as fast as we can."

Series-B shares in SQM SQM_pb.SN fell as much as 6.6% on the Santiago's Stock Exchange .IPSA. U.S.-listed shares SQM.N were down about 5.2%.

SQM's quarterly earnings fell to $80.5 million from $113.8 million a year earlier. Ramos attributed much of the decline in profits to "lower margins in the lithium business line."

The Chilean miner sold lithium at an average price of $14,600 per tonne, an 8% drop from the fourth quarter of 2018.

"As expected, during the first quarter, the lithium market saw price pressure as new supply entered the market," Ramos said.

Ramos expected prices during the second half of 2019 to fall again, to between $11,000-$12,000 per tonne as additional supply comes on line from new lithium mines across the globe.

He said new royalties put in place by Chilean development agency Corfo last year, considered to be the highest in the world, had hurt profitability in the first quarter.

Payments to Corfo nearly quadrupled versus the previous period, from $12 million to $45 million, according to SQM's earnings statement.

Ramos said the payments, which run on a sliding scale according to the price of lithium, would fall during the second half of 2019, alongside dropping sale prices.

SQM last year struck a deal with the government to more than triple production to 180,000 tonnes in exchange for paying sharply higher royalties and offering discounted lithium to domestic value-added producers of battery components.

The company expects to produce 60,000 tonnes of lithium in 2019, with sales volumes this year reaching between 45,000 and 50,000 tonnes.

By 2020, SQM predicts that sales volumes would jump 30% over 2019, reaching approximately 65,000 metric tons.

(Reporting by Dave Sherwood; Editing by Jeffrey Benkoe and Bernadette Baum)

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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