Q1 2023 Sociedad Química y Minera de Chile SA Earnings Call
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Speaker 2: Good day and welcome to the SQM first quarter 2023 earnings conference call. All participants will be in listen only mode. Should you need assistance please signal conference specialists by pressing the star key followed by zero.
Speaker 2: After today's presentation, there will be an opportunity to ask questions.
Speaker 2: To ask a question, you may press star then 1 on your telephone keypad.
Speaker 2: To draw your questions, please press start and 2.
Speaker 2: Who's method of interest being recorded?
Speaker 2: I would now like to turn the conference over to Irina Ksenova, Head of Investor Relations. Please go ahead.
Speaker 2: Thank you, Sarah. Good morning. Thank you for joining us during the conference call for the first quarter of 2023. This conference call will be recorded and is being webcast live. Our earnings press release and a presentation with a summary of the results have been uploaded into our website. You can also find a link to the webcast.
Speaker 2: Speaking on the call today will be Ricardo Ramos, Chief Executive Officer, and Gerardo Yannis, Chief Financial Officer. Carlos Diaz, Executive Vice President of lithium, Philippa Smith, Commercial Vice President of lithium, and Juan Pablo Bellolio, Commercial Vice President of iodine will also be available to answer any questions.
Speaker 2: Before we begin, I would like to remind you that statements made in this conference call regarding our business outlook, future economic performance, anticipated profitability, revenues, expenses and other financial items, along with expected cost synergies and product or service line growth, are considered forward-looking statements under federal securities laws.
Speaker 2: These statements are not historical facts and may be subject to changes due to new information, future developments, or other factors. We assume no obligation to update these statements except as required by law. For a complete forward-looking statement, please refer to our earnings press release presentation.
Speaker 2: I now leave with you.
Speaker 2: I will now leave you with our Chief Executive Officer, Ricardo Ramos.
Speaker 3: Good morning and thank you for joining the call today. Yesterday we reported our earnings for the first quarter of 2023. The results were affected by lower sales volumes in lithium and especially planned nutrition business lines, partially offset by higher average prices when compared to the same period last year.
Speaker 3: We saw a decline in lithium demand in the beginning of the year, especially in China, which affected our sales volumes. High inventory levels across supply chain accumulated in the previous quarter and reduced cathode production volumes resulted in low customer purchasing activity and put pressure on market prices.
Speaker 3: Coming out of the first quarter, we have seen an increase in market activity with customers looking for more volume to buy, which signals the end of the disc stocking period and is also being reflected in the spot prices trending upwards in the recent weeks.
Speaker 3: We believe that the lithium market foundations are intact and have no change our expectation for the lithium demand growth this year. During the first quarter of the year, the global electric vehicle sales continue to increase when compared to the same period last year, achieving almost 30 percent growth worldwide, with sales in China increasing almost 22 percent, in Europe almost 19 percent,
Speaker 3: requirements for mining operations have affected the economics of some of the high-cost suppliers as well as impacted the timing of new projects. Consequently, we expect that the lithium market will remain tight throughout the year.
Speaker 3: We will continue to focus on expanding our production capacity and fostering a strong relationship with our strategic customers. We're committed to investing in these areas to drive growth and maximize our sales volumes. With the reconfirmation of volumes from all our major customers, we will continue to focus
Speaker 3: For this year, we anticipate a steady increase in sales volume throughout the year, quarter over quarter. Since last year, we have made significant progress in transforming majority of our contracts into flexible pricing conditions, utilizing index, reference, price, with a lag between...
Speaker 3: We believe this approach allows us to respond swiftly to changes in the industry and provides greater flexibility to our customers.
Speaker 3: As I mentioned yesterday, we are very proud of the results in our Calitro operation.
Speaker 3: And, specifically, IODine business will allow us to increase our sales volumes and ensure the supply of IODine to meet the growing demand of the X-Ray conscious media segment. While global IODine demand is expected to be flat on the year as a result of the reduced demand in some of the IODine applications, we will continue to increase the demand for
Speaker 3: We believe that contrast media segment could growth close to 7% a year. SKIM is the only producer that has been able to increase materially its production volumes in the recent year.
Speaker 1: Thank you.
Speaker 3: Sustainability remains at the core of our operations as we continue to focus on reducing the carbon and water intensity of our products. I am pleased to announce that our 2022 Sustainability Report will be published next week and invite you to explore and progress throughout past year.
Speaker 3: We take pride in the achievement we have made and remain committed to advancing our sustainability development plan even further.
Speaker 2: Sara will now open the line to questions.
Speaker 4: Thank you.
Speaker 4: Thank you.
Speaker 2: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad.
Speaker 2: To withdraw your question, please press star then 2.
Speaker 2: If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker 5: At this time, we will pause momentarily to assemble our roster.
Speaker 5: Our first question comes from Thiago Bociego with Bredesco BBI. Please go ahead.
Speaker 6: Thank you, gentlemen. Thank you for taking my question.
Speaker 6: Actually, I have two questions. The first one is on lithium supply in the coming years. So how do you see...
Speaker 6: new frontiers evolving? How do you look at Argentina, Brazil, Mexico as potential new frontiers? And still in that question, would you consider eventually exploring potential projects in those regions?
Speaker 6: And then the second question is about the national lithium policy. Can you give us an update on how conversations are ongoing with CODFO, with the Chilean authorities, any hope that a middle ground can be reached? So just want to hear your views on that. Thank you.
Speaker 7: Yes, hello Diego, this is Felipe Smith, how are you?
Speaker 3: I'm good, how are you Felipe? Yeah, I will try to answer your first question. So indeed, I mean, we have always mentioned to the market that lithium is available everywhere. And there are of course, today we are seeing projects arising in different regions.
Speaker 7: We are of course following those developments and as SQM we have also said in the past we are always interested in studying new projects in different parts of the world. So we are potentially also analyzing that possibility. Now one important statement that we have to add is that a
Speaker 7: when we look at new projects, I mean here the experience and know-how of the one who is responsible of that project is key because we have seen that in some cases projects take too long or finally do not materialize as originally foreseen.
Speaker 3: Okay, I have a round speaking now. Talking about the CODELCO, we expect to start talks with CODELCO in the coming weeks. Though it may well be on Zoom, we'll be checking our
Speaker 3: As I said before, we are looking for an agreement that will be positive for the country, the Antofagasta region, the communities, and of course for the two companies. About what you call the, we can call the national lithium policy, as a company we do not comment on it.
Speaker 3: or give an opinion about what we call public policies. I think it's a very interesting discussion, but it's a discussion that corresponds to political parties, you the analyst, or the study centers that we have a lot of them in Chile, and the different unions that are also giving their opinions. We just want to start this conversation in the coming weeks as a state.
Speaker 6: you guys. So Argentina, Mexico and Brazil, which one of those would you think that there is more potential for FUM and for the market in general?
Speaker 7: Yes, I would say that today our main focus is Australia as number one, let's say, potential area of development. We are already developing a project there and we are studying different potential new projects.
Speaker 7: So I would say this is our number one focus today.
Speaker 4: All right, thank you.
Speaker 5: Our next question comes from Rafael with Banco Santander. Please go ahead.
Speaker 8: Good afternoon and thanks for taking my questions. My first question is related to lithium volumes. You mentioned that Seios volumes have rebounded in the second queue, but I just would like to understand if it's now at normal levels for a second queue or if you believe that it's ready to take.
Speaker 8: for example, two more quarters for us to see volumes returning to normal levels. And my second question is related to CapEx. I would just like to understand how flexible is your 2023 CapEx guidance of $1.2 billion, and in which scenario you would consider reducing this CapEx level. Thank you.
Speaker 4: Okay.
Speaker 7: Yeah, hi Rafael. Regarding the volumes, well as Ricardo mentioned at the beginning of the call, we are very positive today because first of all the fundamentals of the demand are strong. The EV sales...
Speaker 7: are showing an increase of 30% on the first quarter, which is already very positive.
Speaker 7: And we are also seeing that the customer activity has recovered. We are engaged in business discussions with our customers. Customers are buying again. So I would say that from a volume point of view, I can say that
Speaker 7: The second quarter will be substantially higher in volume than the first quarter, also will be higher than what was the second quarter of last year. And finally, I would say that, as we have said in the previous call, that the second semester volumes should be better than the first semester volumes.
Speaker 3: Just about the projects, just one comment. Our projects in the lithium business are so good that we are not even thinking about to reduce it. We don't foresee any scenario where we are going to reduce the capex. We are thinking about increasing our capex. We have new projects, new initiatives, and probably we have new projects in the lithium industry.
Speaker 5: The next question comes from Isabella. The momma too with Think of America. Please go ahead. The next question comes from
Speaker 5: The next question comes from Isabella. It's a momma too with Think of America. Please go ahead. Thank you.
Speaker 5: Hi, good afternoon. Hi, Ricardo, everyone. I have two questions. First of all, on the iodine side, you mentioned, Ricardo, that prices should be resilient for the second quarter, but I'd like to hear more your views beyond that, what you're seeing in terms of new supply.
Speaker 5: You mentioned that no one has been able to add supply. So if you give a little bit more details on the midterm scenario. And second of all,
Speaker 5: Even though quarter prices were down, the premium of SPM was relatively resilient during the quarter. So also, what are your expectations going forward? Thank you.
Speaker 8: Hello, Isabella. This is Juan Pablo. I'm going to answer the question about iodine. We believe that, as we mentioned, that during the first half of the year, the amount of you can develop in Erbil is counseled by many.
Speaker 8: It's going to be stable. We think the same about prices for the second half of the year. It will depend on the demand and supply of the market finally. But what we see from today and onwards is that there is a segment of the contrast media market.
Speaker 8: that is growing strongly. So there is a fundamental on the demand that should keep the market and demand strong. So unless more supply arrives to the market, we see the market more or less stable.
Speaker 3: About the potage and the relation between SPN, it means especially the plant nutrition products, potassium nitrate, and the relation with potage, it's important to consider that are not dieted competitors. It means it's important to keep these numbers as a ratio, as an important indicator.
Speaker 3: but it's different market, it's different in outcome, it's different uses.
Speaker 3: But anyway, I think that that today's price environment of potassium nitrate is not good. It's not bad. It's good in terms if you consider our average prices two years ago, whatever it means today's prices are very good. And we're very positive about the potential demand in the near future.
Speaker 3: Things are just a little bit better now than what used to be in the first quarter. Just to comment to you that first quarter this year we're mainly affected in the sales in Europe . Europe is affected by the high inflation, high production costs of farmers.
Speaker 3: We had bad weather that has delayed crops. The uncertainty in the world also has caused agricultural activity to be lower than expected. But if you consider the other markets, mainly for example, United States, Mexico, and other ones, we can say that we are more than we're close to a normal demand. That's why we think that we are more positive.
Speaker 3: But of course, if the potash price goes down, it will affect the price of potassium nitrate in some way. Yes, it will affect. But we have to see what is going to be the development of the pricing of potash and potassium nitrate. It still is not so clear for the future.
Speaker 3: the potash price goes down it will affect the price of potassium nitrate in some way yes it will affect but we have to see what is going to be the development of the pricing of potash and potassium nitrate still is not so clear for the future. Thank you.
Speaker 2: Our next question comes from Ben Isaacson with Gosha Bank. Please go ahead.
Speaker 6: Thank you very much and good afternoon everybody. Just a few questions. I'd like to ask them one by one if that's okay.
Speaker 6: you sold 32,000 tons in Q1 which was a little bit lower than what most had expected. What does that mean for your overall guidance for the year in terms of volume? Can you give us some kind of range in terms of what we should expect?
Speaker 7: better than the first and we also expect that the second semester volumes will be higher on the first semester volumes.
Speaker 6: Okay, that's perfect. Second question is, I believe we saw 46,000 tons of exports from SQM and you recognized 32,000 tons. Does that mean that you've paid Corfo royalty payments on the whatever the difference is 14,000 tons? So,
Speaker 6: you've paid maybe, I don't know, $150 million or something like that, that's as a prepayment. Is that correct?
Speaker 9: Hi Ben, how are you? This is Hilario Díanez. Well, that figure of 46,000 metric tons of export is... I'm not sure if it's...
Speaker 9: the exact number that we are considering or that we consider during the first quarter exports. But you're right, we pay to core for the moment we export based on the volumes that were export during the quarter and the average sales price to third parties during that quarter. So in the first quarter we export more than what we...
Speaker 6: if I may. In the past you had mentioned some interest in investing potentially as joint ventures in Canada and the US. Earlier on the call you said you're still most excited about Australia. Are you still looking in Canada and the US and any progress there?
Speaker 3: We are open to do business almost everywhere in the world. If it is good for us, we think that we have competitive advantages in lithium. We have a lot of experience, we know how to do it. We have commercial capacities and a lot of technical know-how.
Speaker 3: And of course, the US, Canada, Australia, everywhere is an alternative to look forward. But of course, Australia for us, because we have an office there, we have some people there, seems like a very interesting place. We are open to review, and we are reviewing alternatives all around the world.
Speaker 6: Last question, if I may. You said in the press release that you believe de-stocking has been concluded. Can you just give a little bit more color in terms of what you mean by that? What data points are you seeing? What locations? Where in the supply chain have we seen de-stocking finished? Yeah, I mean.
Speaker 7: are seeing this activity of purchasing restarting strongly and I would say strongly I want to highlight that so the the fact that you see also the indexes changing is a very good sign that
Speaker 7: What we are reading is also what in general the market is reading so the customers are buying again and that means definitely that they need to start a or they that they reach their lower stock levels and now they are a rebuilding a stock and a market that are eating, consuming.
Speaker 7: what in general the market is reading. So the customers are buying again and that means definitely that they need to start or they that they reach their lower stock levels and now they are rebuilding stocks and consuming. Thank you very much.
Speaker 10: Our next question comes from Corinne Blanchard with Deutsche Bank. Please go ahead. Hey, good morning or good afternoon everyone. I missed actually the beginning of the call, so I hope my question hasn't been asked or you haven't made a comment on this. But I was trying to get maybe some clarity on…
Speaker 3: Okay, sorry, but we expect to start the talks with Kovalko in the coming weeks. I think we need to wait until we have an idea about the conversation.
Speaker 3: But I think both sides, CODEL, CONSQM, were open to look for alternatives that are going to be, if they are positive for the country, the Antofagasta region, the communities, and of course the two companies.
Speaker 3: At today's, I think it's not possible to have an estimate of the time it will be required in the negotiation, of what kind of negotiation we will have. I think we need to start the process and it's going to start in the next – in the coming weeks.
Speaker 10: Great, thank you. And then maybe trying to understand a little bit better the volume and pricing that we could expect for lithium for the remaining of the year. I mean you mentioned this talking being nearly done. I think based on market shakes it seems to...
Speaker 11: before.
Speaker 7: We are positive about the volumes in the second semester and also in Q2. Regarding pricing, you know, I mean, we will repeat this as a mantra. So supply demand, the prices are basically following the supply demand balance.
Speaker 7: So it's very difficult to predict and the market has shown this year that it has been very fluctuating. We started the year with high prices, then by mid-April we reached very low level prices in China. We have seen those prices recovering now in the range of mid-30s.
Speaker 7: But what will happen from now till the end of the year is something definitely we cannot predict. It will depend not only on the continuation of the customer activity but also on the supply coming at the right time.
Speaker 7: so on. So, Felipe, what do you you can comment to us about your mood, your personal mood? That's very important for me. Of course. Ricardo, I am in a very good mood. Better than one month ago, for sure. I was in China and I will go to China again. So, I see that the activities
Speaker 7: much much higher today. So, Korean we expect good volumes. That's what I guess. That's what really matters for me. Yes.
Speaker 9: All right, thank you. I appreciate it. Yeah, but the other side is, sorry, Corinne, Carlos, you mentioned that our production plan is not changing. That means we're running at a full capacity in Chile and we expect to start producing stone in China at the end of the year in Australia.
Speaker 3: It doesn't change anything regarding to keeping producing us full capacity Yeah, probably will change and we will increase some of our projects That's what we expect from Carlos to announce Everyone that we expect to do something better and to move forward in production move forward in
Speaker 3: new technology, move forward, and new qualities means we are very, very positive in order that we will increase our capex in order to do something better. That's what we expect for the near future.
Speaker 12: Thank you. Our next question comes from Joel Jackson with BMO. Please go ahead. reps internet
Speaker 13: Hey, good afternoon guys. This is Joseph on for Joel. So just in terms of lithium pricing, can you just discuss please how Q2 is trending so far versus Q1 realizations? And also we've seen recently very big disparity obviously between Chinese bought prices and the broader Asian and European prices. So we're just wondering...
Speaker 13: which regional benchmarks would be the most relevant for us to look at for SQM, and which ones do you guys follow primarily? Yes, how are you doing?
Speaker 14: Well.
Speaker 7: You know we have sales more or less in all the main markets so and our contracts we have explained in the past our contracts are
Speaker 7: sales more or less in all the main markets. So, and our contracts, we have explained in the past, our contracts are sensation only, our products are not.
Speaker 12: This is your conference operator. Please stand by while we reconnect. Again, please stand by while we reconnect. Thank you.
That question.
This is your conference operator. You may proceed with your call. Thank you.
Yeah, thank you. Go back. Any more questions from Joe?
Sorry, we had a problem with the connection in the screen.
Dora, you were? Yes. Sorry, we had a problem with the connection in the screen. Don't worry. Is anything?
So just in terms of pricing, first just wondering how Q2 has been trending so far versus Q1 Realization and just given the disparity that we've seen in Chinese bought prices versus Asian and European prices, which regional benchmarks would be the best for us to follow and most relevant for SQM? And we're just wondering which one you guys look at primarily. Thanks.
Yes, I don't know how much you heard from my previous comments, Joel, but basically I was trying to explain that depending on where we sell we follow different indexes.
Most of our demand is concentrated same as the global demand. Our sales is also concentrated in Asia. So that's what I can comment. Yes.
Our next question comes from Lucas Ferreira with J.P. Morgan. Please go ahead. What's your favorite comic visual of your favorite
Hi guys, good morning, good afternoon. I have two questions, pretty much two follow-ups. One is on the real price.
Again, I think that realize the price that you posted in the first quarter, correct me if I'm wrong, but implies that most of your sales happen probably in the month of March, right? Where prices were lower. I mean, probably because.
with prices on a free for all your clients, maybe wait a little bit to put orders and then you probably sold most of the volumes towards the end of the quarter. So my question is, looking at the second quarter, if we can expect something similar to happen, so most of your sales happen more towards the bottom.
we saw in Asia. And if not, if you're being able to sort of capitalise in a way to sell at a better price, more towards the end of the quarter since the prices are up by more than 50% already from the lows. So just to swipe, we can better calibrate here our expectations for the realising pricing to kill even all the volatility.
And the other question, maybe to Ricardo, sorry to come back to the same issue of the Coelco negotiations, and I know that it's just starting, it's a very sensitive issue to the company, but just wanted to understand from you and the company, if there's any aspect of this negotiation that is sort of negotiable for you, for instance the control of the Atacama, is this something that it would be...
willing to give away in exchange for a better economic terms or you know for whatever reason you think the company needs to keep the control of the operations or How you deal with the carbon plant is something that you are willing to contribute to an adventure negotiation Or the plant is not
could not be part of negotiation. So how to think about sort of the big level important things for these talks? Thank you very much.
Okay, regarding your first question Lucas, in general Q1 tends to concentrate towards the end of the quarter because you have always the Chinese New Year in between at the end of January , sometimes early February .
In particular this year the start was even slower because of the things you know we have explained in the past about the Some pre buying occurred at the end of last year. Okay, but in Q2 the situation is different. The situation is So far is showing that it is a more stable volume pattern
Yeah, I think I want to repeat, sorry, it's repeating the same, but we expect to start the meetings and conversation with colleagues in coming weeks. We are not in the middle of the process as we speak. That's why we have to wait until we sit together.
and that if we have an agreement, it's going to be a good agreement for us.
But I think it's important to go to the meetings and have and understand different positions. And of course, I think it's a very bad idea to send any message to Godeleco indirectly. It means if I have something to say to them, I will do it during the table, during the negotiation, in a confidential basis.
I think keeping confidential, keeping a process that we can reach an agreement is very, very important. If we start publicly discussing alternatives, it will not be a very good idea. Not in terms of confidentiality, not in terms of having a productive negotiation. But, again.
It's going to start in the coming weeks, and we will keep everyone informed. If it is necessary to inform, we will, but we will try to keep it confidential because it's going to be good for the process. That's my main statement about that. That makes total sense Ricardo. Thank you very much for the answers.
This concludes our question and answer session. We would like to turn the conference back over to Irina for any closing remarks.
Thank you for joining our call today, and apologies for some technical issues we were having. We look forward to having you at our next conference. Have a great day, everyone.
This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.