Q3 2021 Sociedad Quimica y Minera de Chile SA Earnings Call
Good morning, and welcome to the SQL third quarter 2021 earnings conference call all participants will be in muscle only mode.
If you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
I'll ask a question you May press Star then one on your Touchtone phone.
On your Touchtone phone.
Again that is star then one to ask your question.
So withdraw your question. Please press Star then two.
Please note this event is being recorded.
I'd like to turn the conference over to Irina accident of Investor Relations. Please go ahead.
Thank you Brad good morning. Thank you for joining <unk> first quarter 2021 earnings Conference call. This conference call will be recorded and is being webcast live.
Following this call you will be able to access a bit cost at our website.
That was a dog that's cool.
The press release and a presentation with a summary of the result has been uploaded to our website, where you can also find a link to their best.
They came on the call today, well Ricardo Ramos, Chief Executive Officer, but at a very young Chief financial Officer and Pablo.
Commercial vice President lithium and iodine.
Yeah, well don't available to help answer any questions. Following the prepared remarks.
And again, let me remind you that statements in this conference call regarding the company's business outlook future economic performance anticipated profitability revenues expenses.
You'll items anticipated cost synergies and product or service line growth together with other statements that are not historical facts are forward looking statements as that is defined under federal securities laws.
Any forward looking statements estimates, reflecting the best judgment of SRAM based on current information and involve a number of risks uncertainties and other factors that could cause actual results could differ materially from those basic concisely.
Clothing, our ability to successfully implement and sustain it.
Risks uncertainties and factors that could.
Accuracy of such forward looking statements.
Besides in our public filings made with the U F secure different exchange Commission and in our earnings release issued yesterday and the forward looking statements should be considered in light of the.
Rescue no obligation to update such statements, whether as a result of new information future developments or otherwise except as required by law.
I now leave you with our Chief Executive Officer Ricardo Ramos.
Thank you Tina and good morning, and thank you for joining the call today I Wonder earnings during the third quarter of 2021 were significantly how you get there. It makes reported during the same period last year.
Results were driven by considerably higher sales volumes and prices across almost all our business lines. We continue seeing very positive market conditions in all the markets in which we participate remain in lithium market is exceeding our previous expectations. Yeah. You didn't market has recovered from the blood.
Any faster than anticipated while we are also seeing a positive trend in different delights your market.
We're now expecting that the lithium market demand should grow close to 50%. This year driven by strong sales of electric vehicles in all relevant markets, especially in China.
The capacity expansions, we have been working on.
To growth even more than the market. They do not reach close to 100000 metric tons and sales volumes D. C. Here by the middle of next year I would expansion 280000 metric tons shouldn't be rate, allowing us to keep on growing our sales volumes.
These accelerated lithium market growth is pressuring prices at the same time the contracts. We signed last year are expiring. This allow us to expect an average sales price.
Per metric ton during the fourth quarter and probably even higher during the first quarter next year.
In the Meanwhile, Yeah, you didn't market demand has already reached the press had been eating habits discrete recovery.
Positive impact on prices as supply has not been able to respond.
We're now expecting total sales in 2021 around 25000 metric tons.
With average sales prices increasing from prices seen over last few quarters.
So we are working on expanding now where are you, adding capacity, we expect to ramp up additional thousand metric tons in the beginning of 2023, followed by approximately $2 5000 metric tons in 2020 for all parts of our way early announced growth plan.
We have seen some very interesting developments in the FERC later markets globally supply has been impacted by export restrictions on logistic interruption the spot prices for both both our sample doesn't nitrogen fertilizer.
Reached levels not seen in more than a decade now.
Now with respect I would put basketball potassium nitrate average prices to reach almost $700 I know it sounds a dollar per metric ton respectively. During the fourth quarter of this year considering all the positive factors. We now anticipate a record for most during the fourth quarter. This year was a significantly higher grade.
EBITDA, we remain confident in our ability to deliver future growth, while continuing to operate in a sustainable way, creating value for our customers communities and all our stakeholders.
Yeah.
Yeah.
You can now open the lines for questions.
Okay.
We will now begin the question and answer session. So I asked the question you May Press Star then one on your Touchtone phone.
They are using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question today comes from Joel Jackson with BMO capital markets. Please go ahead.
Carter.
I'm going to ask a few questions one by one and we're looking to your production for next year for lithium.
You've got to 120 already healthy you'll get to 180. Some point next year, what do you think it would be your ability for production next year and what do you think your level of sale, presumably you want to build some inventory, but what could be your maximum production or maximum sales next year. Thanks.
Okay, Hi, doing Ricardo Ramos speaking now about production.
So total production cost.
We have ramped up to the 180 during next year, we think it's reasonable to expect a production there had been a 40000 metric tons six here.
Maybe it's going to be definitely higher than that but I did a 40.
My best estimate today of the total lithium might be to macro site total production in Chile are both sales volumes proud of whats your opinion.
Hello, Joe.
I wouldn't be able to continue growing according to the demand if we go CAGR with being a girl for the next year would you remind me. The 20 are 50% we expect to grow over safety is not the same person to person.
Okay now.
I appreciate your pricing guidance now you know when I looked at our October Chilean customs data.
Rising in October it seems well less than 12000, you're going to average about 12000, you say for the quarter. So I wanted to know if you expect to place so much more volume next year and presumably you're now pricing volumes now for next year like we can pricing volume pricing ahead for next year.
Much.
How much of your pricing how much of your volume in 2022 are you locking in now or we expect to lock in by Christmas, Let's say and would you expect that pricing that any pricing youre walking in now for 'twenty two is that all of 12000.
Yeah.
Yeah.
Yeah.
Okay.
Okay.
Do you know that today with the needlessly in negotiations for volumes for the next year. However, what I can say because you already know.
We have secured some local contract.
For the next year, we have.
We need to negotiate closely to the 80% of our total sales for the next year, you've spoken to whose cashless with our customers. So that's the personal touch of the total volume study so before the next the next year.
So right now today, 80% of your anticipated volume next year is open is that what you're saying.
Today for the next year.
20 per se is already negotiated in 10 different kind of contract with ice.
80% is still open to us.
But to the completion of study.
Now we need to discuss with our customers.
Okay, and I appreciate that and we can all see spot pricing from different Chinese and Asian benchmark 20000 on carbon 20000, and I talked about $25000 in government are those real prices that you can achieve a scale in the market for 2022.
Answer it's much less than 25000 <unk>, it's much more than 12000 like help us understand how real some of those prices are we see in the twenties.
For real volume real large Ryan you offer.
You know that east.
Westwood regarding prices Bob.
We need to remember is that dependent on what we negotiated with you as we look past the OSB means shorter contracts lots of country, depending of the why do you feel the approval if it goes to other applicators.
Applicators sugar industrial obligations than you have.
Diesel prices, what I provide today is bigger.
One of the huge demand in lithium.
Lack of supply the spot prices is too high but it doesn't mean it.
We see these kind of prices for Donuts frankly goes again.
No because the ships have to be negotiated with each customer.
Thank you very much.
Our next question comes from Ben Isaacson with Scotiabank. Please go ahead.
Good morning, Thank you for taking my questions. So I hope everyone's doing well.
I'll ask a few questions one by one if that's okay. I guess the first question is just to extend off of Joel's question, you talked about 20% to 2022 volume is negotiated already 80% is open can you just talk about the shape of that 80%.
How much of that 80% should be contracted by the end of this year and how.
How do those contracts get renegotiated in each of the next kind of four or five quarters.
Are they all calendar 2022 contracts that will be negotiated before January 1st or is it on a kind of continuous basis. Some are short term. Some are long term can you just give some more color in terms of when we expect that 80% to be contracted.
Yeah.
Okay.
It is a difficult question because we are under negotiation for sure that we know that when you are selling these amount of lithium we need to reduce that amount, but it's again also it's up to every.
Every customer site gasoline.
So the 80% bandwidth via combination of flows should go and check them for sure something that we are looking for if we are able to do it.
Good project there.
No.
Dancing conscious and normally when you sign a lot of contract negotiation process is slow.
Short term contracts, so that everything will depend how fast we can we can do that with our customers. So do we I cannot really give you affect the number of how much of those contracts will be we will.
Anyhow, we are very close to the end of the year. So for sure that I just think that by the end of the year at least the first quarter. It should be you know really negotiated with our customers.
Well, 100% be finished by the end of Q1.
I cannot say, 100%.
Okay.
But but.
Most of it should be finished by the end of Q1 is that right I mean, just based on the timing of.
The previous contract someone may expire is that fair to say.
Okay.
Once again I mean it depends.
But for sure because of the video of the year that we have today by the end of the year, we should have on.
An important percentage of revenue was 84 to one.
Okay. That's helpful. Thank you for that next question is on.
On iodine you guys have had tried different strategies over the years, sometimes volume sometimes price.
With mixed success on the price side and the volume side. It's been very successful now we're getting above $35 or that's the direction that we're going per kilogram and if I remember correctly, that's kind of the point in which you start to see.
The economics look attractive for marginal producers in Chile to come online is that what you want do you want to see higher prices or is that getting a little bit dangerous that you could see new capacity coming on can you kind of run us through what that debate looks like and kind of what your opinion is.
Okay.
You'll note that.
In the industry, we need to consider is different.
So one of the.
The demand.
The ECS will be calling on these nine will be higher than expected close to 12%.
We need to go see it honestly.
So at the end everything will be paying off the CAGR of the Asian players in the supply.
Yes.
In the supply side in that regard.
What we have seen is not a.
I mean, we have not seen enough response of the supply in order to be able to supply all demand that is today in the market.
So Brian.
Some of the supply and demand and everything.
Everything will depend on how the different players react with the supply plan.
In order to accomplish the demand.
Yeah.
Okay.
Just two more quick ones for me.
When you look at each of your business segments can you talk about.
Cost of production, whether it's iodine or MLP potash or whenever it may be.
And how that's been impacted by inflation cost inflation of raw materials of labor of energy are you seeing that already or is that something that we should expect them to be modeling.
For over the next few quarters.
Yeah.
It's been almost speaking.
If you review our nonferrous do you need the first three quarters of this year, you'll see the cost was slightly higher during the third quarter that compared to previous quarters I think the course cost today.
Our objective by the exchange rate for example exchange rate in Chile.
It affected by the increased cost of raw material or significant increase in cost of raw materials.
Our production process, yes, additional cost of the energy as you may know.
Factors of course.
Because we have they reflect the exchange rate and Chris Caso from a 10 year old yet again everything plus we have some extraordinary costs in the last I don't know like Tmall.
Related to the COVID-19 pandemic that affect in some way I would call I think.
It's already reflected some of it yes, it will be some additional probably costly if situation of the raw materials and energy continue unit in the next few quarters, yes.
It seems that we are doing the right thing in order to increase productivity to increase the yields of our process in order to control the cost allocation, but so far we are seeing every.
Every single product producers in the World. These increased costs that have been affecting our production in the last two or three quarters.
Yeah.
Great and then very last question if I may last quarter, you said that lithium demand was looking like it was going to be up 40%.
Next year was you were thinking of around 20% now you're saying lithium demand is going to be up 50% this year and that makes sense.
The question is is that 50% is that taking away some of the demand or are we seeing some demand acceleration getting pulled from 2022 or do you think 2022 will still be 'twenty or potentially even stronger.
And then maybe as a follow up how do you think 25, well look are we still looking like it will exceed 1 million tons or it could be a little bit higher.
Yeah.
Okay Ben.
<unk>.
First of all we need to remember that's important debate for where we are starting 2020, we know that the demand was lower because of the crisis. So that explains why we have the key growth this year and we are.
Our growing from 40%, 50%, because what we have seen with electric vehicles.
It's been very good and very positive actually today.
We're forecasting total states east of the year.
Savings will be between $6, three or $6 6 million, which is bigger than one expected efficacy and the other thing because we need to go see it up some part of the Lincoln today is for the cash that we produce next year.
So we are.
We have a more positive beautiful globally over the next year when I say to you between 2020 It was 30%.
I'll do it a little bit bigger than the view that we have before so we have some very positive outcome at.
In the short term.
To start with two sounds kind of 'twenty five we'll have the finished scenarios our basis is 1 million. It also MTA, which is beginning to do some indications that we gave.
His son and months ago.
We are working on of course, we are following up the market and potentially we could see better results.
But today, we remain our view of the 1 million.
Thank you very much.
Yeah.
Our next question comes from Paul.
Paul Horner with Bank of America. Please go ahead.
Good morning, everyone and thank you for taking my question two questions actually the first one on the iodine.
Business, if you could share.
The impact of the fire.
Jason one other plants and a lot of it wasn't being put it in terms of cost during this quarter and the second question on the fertilizer business.
Sure.
The pricing that we're seeing on the marketplace and what would you expect.
Going forward for the next year at all.
Okay.
Uh huh.
Yeah.
<unk> already got a lot more speaking first of all the fire we had in our facility.
Facilities in the North Sea.
Three months ago, I think are they impacting production was not more than 40 40 tons because most of the production works moving forward in the next month.
Finally about the about because yes, we had some additional costs probably in the range of $200000.
That's a rich Mad at me see improvement of the facility replacement.
It grew in replacement of equipment.
200, $250000 total cost involving the five.
That's why it was not so relevant.
We have taken all the measures that these kind of situations those happen again, it's a very important it shows a significant issue for us having a fire in a facility. That's why we are where we detailed a situation and now we're better prepared for this kind of situation, although the tricky luxury.
It's difficult to give you an outlook after the fourth quarter, we no doubt that's fourth quarter his.
It is very unusual price levels.
We are observing price levels that had not been recorded in previous years.
As I mentioned, you were reaching Samantha dollars per tonne in the potash close to $1000 in the potassium nitrate.
I do not have a low churn view is important today is important to consider that in the potash industry. We are relatively small.
And at current prices.
We are here to observe that we have today reflect I think temporary supply and demand situation.
It was in my opinion is that their demand demand of the potash industry remained very strong.
<unk> stated with embedded practice of agricultural products on the other hand, if logistical difficulties of shipments pushed the prices up.
It is very difficult for us to predict prices for next year definitely prices for fourth quarter is going to be very strong.
The situation is very difficult to predict in the long term.
Anyway, it's important to consider that the case of potassium nitrate differed from the case of potassium chloride.
All of the specialty fertilizers to us are less volatile however, although with less volatility they fall in some way that channel for those prices.
Thank you medically.
Our next question comes from current <unk> with Deutsche Bank. Please go ahead.
Hey, good morning, everyone.
My question have been answer, but they just have to quite to copper up a follow up question. The first one on potassium and so you're right.
Q1 volume guidance to close to 900 tonne, which imply a significant catch up in <unk>. So if you could just comment on that catch up with <unk> and also how should we be thinking.
And Pamela volume for 2022 rig given the market condition do you do you expect volume to decrease would you expect maybe volume to stay close to two eight on the top line on that for next year.
Hey, Tony in regard to what I was speaking of.
Of course due to the fact that the prices are extremely good and stable price a big unique price environment. Today, we are doing our best in order to increase the volumes during the fourth quarter were using some inventories and so on in order to increase the volume during the first fourth quarter, that's why probably if you put the.
Numbers together fourth quarter total volumes is close to 300000 metric tons that very strong number we expect to de lever during one quarter, just a little bit lower probably depending the cheapness space.
Sometimes you'll have a delay of one or two achievements from fourth quarter to first quarter, you don't know yet because it will be decided at the end of the non depending the conditions at the port.
But anyway, it's going to be a really strong quarter, because the price position would tend to push everything forward.
About <unk> I don't have now a forecast of volumes potash should remember that we have on both our production and there's a lot of like AMA and we use of some of the protection on most of the both us and the production of potassium nitrate either for fertilizer cereals solar source business.
That's why depending what's going to be able to start to even especially for July so that solar source next year.
Total production from the seller.
Again do you have at the end of the remaining is going to be the board actually will sell to the market anyway.
Anyway as you May know, we are reducing our commitment from the company to reduce the pumping of solutions for their most important reduction will be in 2022 as compared to themselves in 'twenty, one 'twenty three 'twenty four 'twenty five.
We'll have a small reduction every year, but the most important one is going to be next year, probably total production of both at the SLR that have come up will be between 150000 ton slow it means from a total level.
2125 <unk>.
Two 5 million tons.
We will move to $1 1 million tons, probably production for next year.
Move forward probably reductions because the.
The reduction in pumping will be in the range of 40000 metric tons per year, but deferred to serious and important one is the 150.
100, 150, we don't know yet exactly.
We're improving improving a lot of the deals that there's a lot of labor. That's why we expect this will be closer to two.
Do I have to tell them reduction.
Most of it of course, it will be reflected in the potash industry because our first priority is to supply the board dashboard, where night at some solar.
But that's a nice to have solar source business.
Yeah.
Alright, Thank you and just to come back maybe I need to be done.
And there's some pricing.
What's your expectations going forward and maybe 'twenty, two but maybe even beyond that that time in terms of you know considering maybe using you know there'll be enough contract back shop them, great that'd be upfront then maybe switching to some stays on school do you do you consider maybe this question is from Ghansham more I agree.
Uncle pricing like some of your peers are doing that well do you read the.
Seek to contract an offtake agreement for most of the volume.
Okay.
Okay well regarded.
The addition of prices for the next year.
We see strong demand as.
As we already said.
However, you know that the.
Prior to send out sort of the supply and demand and everything else that will depend of the reaction of the supply we know that there are other projects.
Under development, so everything will depend on how the supply can react to it.
Anyhow, we are really positive on the demand side us, but we need to see what's happening within the next year, but we should expect well see a positive trend.
Regarding to the to the strategy of contracts and Nick just on <unk>.
But we have we have said before.
We are open to consider different.
Our customers would it be.
Just to give to our customers the solutions that they need.
In the past, we have announced some note their agreements we are under discussions of different contract with our customers, but it would be in what we are looking for always is to have good contract for both sides. So we are also primarily to have a mix.
Between short and long term.
Long term contracts.
Great. Thank you that's helpful and just the last one with you do you have any update.
I'm sure I know like any update for the month or in a project in Australia.
Yeah well.
Well as you know a subdivision of the year, we announced the final investment decision. So from there we are doing a good progress we have restarted the early construction stage in both sites that means the refinery.
And then Mohan upside where will be the main them be concentrated plan.
So far so good according to the plan so everything is doing well.
Alright, Thank you that's it.
Yes.
Our last question today will come from Cesar Perez Novoa with BTG Pactual. Please go ahead.
Yes, good morning.
Good afternoon to everyone. Some of my questions have already been answered, perhaps I have a weak productivity here, but.
My questions would be what supply conditions, just ask Jim C. In the lithium market in general.
For next year, considering that new volume will come on stream for for several.
Producers, including yourselves.
Second I am fully aware management provides no pricing outlook. However, most lithium benchmarks our hoovering.
Around two times <unk> indicated our fourth quarter price question being in terms of direction.
Where what your realized price or beer or if that should come closer to data already embedded in the spot market are concerned.
I heard correctly, 80% of your contracts are yet to be close to possibly in the first quarter of next year and any qualitative assessment there would be greatly appreciated.
Hello.
Okay.
Okay.
So Paolo speaking.
Regarding to your question about conditions in lithium market as I said before we are we are really positive about that.
In total we see.
Growth for the next year between 30% and that is.
Explained for the electric vehicle penetration.
As I said before.
<unk> for the year, we expect that it will be between $6 $306.
Maintenance for the next year and we see that the number will be close to $9 million. So we see that the amount of electric vehicles will continue growing so we are really positive.
Although the market.
Sure.
We don't have any any thoughts about that we see a strong fundamentals hopefully feel demand.
Regarding to the new supply well I.
That is good to see the new projects.
Coming in defense that in order to be able to supply. This amount this huge amount of demand.
So we think that the important players woof proceeding with expansion plans.
They also have announced like us so thus.
That's what we see.
And finally regarding to the to the Brexit.
It's really again, it's really difficult to lose any focus on all of that because you'll see that the market is.
It's moving so fast it's changed so fast that any price prediction I would say that it is difficult to do.
What we're going to do is to try again to secure volumes with our customers negotiate in good conditions from each party in order to secure.
Long term offer to our customers.
Alright. Thank you very much and then if I may squeeze one more question there maybe.
Maybe you answered this before but have you given any capex guidance for 2022.
Yeah.
That's how you kind of know from Capex for next year, certainly the same way.
And you didn't update the Capex in the last 30 days or 60 days.
First we had at the beginning.
The year and the rock is close to $500 million.
For 2012.
The memory.
Capex for.
Yeah that was previously announced.
Mhm.
Alright. Thank you for your time and thank you everyone Pablo Thank you.
Yeah.
Ladies and gentlemen, this concludes our question and answer session.
I would like to turn the conference back over to Iraq, Irina <unk> Investor Relations for any closing remarks.
Thank you for joining us today, and we look forward to having you at our next call Okay, Great day, everyone.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.