Sociedad Química y Minera de Chile S.A. (NYSE:SQM) Q4 2022 Earnings Call Transcript

Sociedad Química y Minera de Chile S.A. (NYSE:SQM) Q4 2022 Earnings Call Transcript March 2, 2023

Operator: Good morning, and welcome to the SQM Fourth Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Irina Axenova of Investor Relations. Please go ahead.

Irina Axenova: Good morning. Welcome to joining SQM’s earnings conference call for the fourth quarter of 2022. This conference call will be recorded and is being webcast live. Our earnings press release and our presentation with a summary of the results have been uploaded to our website where you can also find a link to this webcast. Speaking on the call today will be Ricardo Ramos, Chief Executive Officer; and Gerardo Illanes, Chief Financial Officer; Carlos Diaz, Executive Vice President of Lithium; Felipe Smith, Commercial Vice President of Lithium and Juan Pablo, Bellolio Commercial Vice President of Iodine will be also available to answer any questions. Before we begin, let me remind you that, statements in this conference concerning the company’s business outlook, future economic performances, anticipated profitability, revenues, expenses or other financial 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 term is defined under federal securities laws.

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Any forward-looking statements are estimates, reflecting the best judgment of SQM based on currently available information and involves a number of risks, uncertainties and other factors that could cause actual results to differ materially from those stated in such statements. Risks, uncertainties and factors that could affect the accuracy of such forward-looking statements are identified in our public filings made with the U.S. Securities and Exchange Commission and in our earnings release issued today. And these forward-looking statements should be considered in light of those factors. We assume no obligation to update such statements, whether as a result of our new information, future developments or otherwise, except, as required by law.

I now leave you with our Chief Executive Officer, Ricardo Ramos.

Ricardo Ramos: Thank you, Irina. Good morning and thank you for joining the call today. We are very pleased with the 2022 results we published last night. Leasing business contributed to almost 80% of our gross profit for the year, driven by significantly higher sales volumes and average prices. Our long-term vision for the lithium market investments in technology, innovation and new capacity along with the risks we took and our operational success enable us to make the most of favorable market conditions since last year. Through the public private alliance with CORFO for our total contribution $2 trillion, including corporate taxes surpassed $5 billion in 2022. We see a strong indicators of demand growth in the lithium market driven by the electric vehicle sales growth worldwide, and the investment in renewable energy that require energy storage systems.

We estimate that the total global lithium demand will reach 1.5 million metric tons by 2025 and deliver at least 20% growth in 2023. After unexpected a slowdown in demand during the Chinese New Year celebrations, electric vehicle sales have increased in recent weeks in China, while the U.S. market electric vehicles sales are doubling when compared to last year. This growth rate should continue for the remainder of the year, with major OEMs showing an increase in their production volumes. Consequently, our sales volume during the second half of the year should be higher than compared to the first half of the year. We will continue to invest in growing our lithium production globally. Our capital expenditure plan for the next three years includes investment in lithium iodine and Nitrates capacity expansion in Chile.

Competition of the Mt. Holland project in Australia and lithium refining capacity in China. We are also active on lithium mining exploration and we will continue looking for attractive assets worldwide. This CapEx plan also includes investment in certain activities and initiatives related to our Salar Futuro project, which technically documentation we expect to submit for evaluation to the Chilean authorities in 2024. I would like to highlight our operations success during last year. We successfully completed a ramp up of our lithium capacity, reaching 180,000 metric tons, and finished the year with record high IRM production volume. So, over those 12,000 metric tons. None of these schools have been possible without the continuous dedication, support and commitment of our team at SQL.

Thank you.

Irina Axenova: Operator, we will now open the line for questions.

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Q&A Session

Operator: Our first question will come from P.J. Juvekar with Citigroup. You may now go ahead.

P.J. Juvekar: Good morning. I think you had mentioned last quarter that for 2023, you were 100% exposed to spot price. I was wondering can you explain spot price because there is China’s spot price which is dropped recently. But spot price x, China has not dropped as much. And there is another price for seaborne lithium. So, we’re wondering what price are you exposed to? And can you just talk about your pricing exposure? Thank you.

Ricardo Ramos: Well, I would like to commend that our sales are very well diversified a geographically by segment by product. So, you have to be careful when you look at the evolution of some of the indexes in the market. Because what we have is actually at the end is a mix of different a Geographic’s and market prices. So, what you’re seeing today in China is still very early for us to consider us as a real trend, because the level of transactions that we’re seeing so far are not that much a relatively. So, I will say that the main message is that we are going to be very well exposed to the market, whatever the direction the market takes, our sales will be mainly following the market.

P.J. Juvekar : Okay. Thank you. And then secondly, you mentioned that the lithium sales in China slowed in the first two months, but we certainly have picked up was a comment you made. I was wondering, can you just talk about kind of what kind of bounced back have you seen recently? There will be helpful. Thank you.

Ricardo Ramos: Yes. We are seeing actually indeed. First of all, generally, we are starting to see very good figures of sales of EVs. And that will definitely have an impact on the purchases of lithium. And we are now already seeing that activity increasing.

Operator: Our next question will come from Ben Isaacson with Scotiabank. You may now go ahead.

Ben Isaacson: Good morning, everyone and congrats on the good results. I have three questions. I’d like to ask them one by one if that’s okay. First question is on iodine. These prices are really incredible. I think it’s there now much higher than they were after the Fukushima disaster 10 years ago. So, what’s going to crack the market? I mean, my view is that if demand destruction kind of didn’t occur at $40 and $50 and $60. And now we’re at $70. How is this market going to crack in iodine?

Juan Pablo: Hi, Ben this is Juan Pablo. Prices are high today. I would say almost at the same level or even higher, in average done after Fukushima, but it is mainly due to a healthy demand coming from the market, I would say contrast media industry is growing more than what was the average of the iodine industry. So, the demand is growing more than the supply pushing for prices. So, we still see that health demand coming this year. And that will be still bring pressure on prices, we see at least now, prices to be at the same level during the first half of the year compared to the end of 2022.

Ben Isaacson: But do you see any new capacity announcements? I mean, why wouldn’t people be rational and start taking advantage of these very high margins?

Juan Pablo: Sorry. Could you repeat the question?

Ben Isaacson: Given that prices are so high? Why aren’t we seeing any announcements for new capacity?

Juan Pablo: First of all, we SQM, we have announced in the past, and we keep announcing a new investment in new capacity in iodine. But you need to remember that new capacity in iodine takes a lot of time, and we’re talking about material capacity or new projects will take time to get the permits and environmental conditions to go ahead. And that’s why you have to look the price today to do that investment, you need to look the price for the future. And that’s obviously something not so clear.