Chilean mining group SQM examines markets in light of weakening lithium prices

Chilean lithium producer SQM reported a sharp drop in profits in the second quarter and said it was reassessing some “less attractive” markets as prices for the battery metal continued to stagnate.

“While we continue to advance our previously announced expansions, we are currently reassessing certain markets and initiatives that may be less attractive in the near term,” Chief Executive Officer Ricardo Ramos said in a statement.

Net profit fell to $213.6 million in the second quarter, a 63 percent drop from a year earlier, while revenues fell 37 percent to $1.3 billion. After significantly lower prices in the last quarter, pressure on lithium will increase in the second half of the year, Ramos said.

Lithium prices have fallen to a three-year low as disappointing demand exacerbates oversupply. According to Benchmark Mineral Intelligence, the market will not return to deficit until the end of the decade. So while SQM reported record lithium sales volumes last quarter – up more than 20% – revenues fell by more than half.

Some lithium producers may cut production, Ramos said, “since many projects, especially greenfield projects, are not economically viable at these prices.”

Some of SQM's competitors are already going on the defensive. Albemarle Corp., the largest producer, announced three weeks ago that it plans to close half of its current processing capacity in Australia and put an expansion there on hold. Some smaller, more expensive mining companies have already closed mines, including Core Lithium Ltd. In China, Zhicun Lithium Group Co. has put two carbonate units into maintenance and repair.

Although there is still an oversupply in the global lithium supply chain, SQM remains optimistic about consumption and expects global demand to grow by around 20% this year.

SQM has some of the lowest costs in the industry, can tap into the richest saltwater reserves in the world and uses an evaporative technology that uses far less fresh water, chemicals and energy than hard rock mining, as practiced in the largest mining area, Australia.

The Chilean government shares SQM's growth strategy, as the authorities want to develop new mining areas and promote further processing. More threatening than an oversupply in the coming years is the risk of a renewed shortage, which would drive up prices and make alternative battery technologies more profitable, said Finance Minister Mario Marcel in March.

Executives of the company, formerly known as Soc. Quimica & Minera de Chile SA, will hold a conference call on Wednesday at 12 p.m. (Santiago time).

The company's shares have lost 38 percent so far this year.

This article was generated from an automated news agency feed without any modifications.