Lithium: SQM to restrict 2019 production, market share not a concern

Lithium giant Sociedad Quimica y Minera de Chile (SQM) has stated that the company expects to produce 10kt in excess of contracted sales forecast for 2019. This comes from comments made by CEO Ricardo Ramos regarding the company’s preference for value-capture over market share during 2019.

Ramos revealed that SQM’s ability to capture price premiums for its product had lessened compared to that of 2018. The need for stockpiling was not driven by the goal of sustaining high prices, but rather to generate greater flexibility for its customers and recover inventories to deal with the expansions of their plants.

SQM expects to produce over 60kt LCE in 2019 with contracted sales forecast to be just under 50kt LCE. Ramos went on to state how, in previous years, company sales had been over and above installed capacity, hence stressing their plant’s production processes.

Roskill view:

Chinese spot prices for battery-grade lithium carbonate have fallen from US$25,000/t (incl. VAT) at the start of 2018 to US$11,500/t at the start of 2019, and this has also impacted Chinese import prices from which SQM was generating much of the aforementioned price premium. In its Q4 earnings call, the new CEO stated that SQM was not selling lithium products into China. With FMC previously reporting the diversion of lithium hydroxide output at Zhangjiagang from domestic sales to export focus, SQM’s comments further reiterate the growing supply and demand softness in China that has driven down the price. It appears that both companies are trying to ride-out the current market and price weakness in China by not participating in it.

SQM expects the lithium market to grow to 350kt LCE in 2019 and reach 1Mt LCE by 2025. With the outlook for future demand post-2020 remaining strong, SQM will continue to increase its production guidance as it plans to triple its carbonate capacity by 2025 to 180kt LCE and add hydroxide capacity in Australia. This could result in a potential market share of around 20%, similar to that in recent years. While the value strategy employed may bolster profit margins in the interim before greater quantities of output are required, not competing in China – the fastest growing market – could irreversibly cede market share to domestic producers such as Tianqi and Ganfeng. Game theory is now very much a part of current and future lithium market analysis.

To discuss the lithium market with Roskill, contact David Merriman: merriman@roskill.com or Robert Baylis: robert@roskill.com