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Top Lithium Miner Boosts Output on Optimism About Long-Term Demand

Top Lithium Miner Boosts Output on Optimism About Long-Term Demand

Lithium heavyweight SQM is playing the long game, cranking up output to record highs on the assumption that strong demand eventually will balance an oversupplied market.

The Santiago-based company is gaining market share and forging ahead with expansions even after prices tumbled and some customers deferred shipments in the pandemic. Major peers are taking a more wary approach.

Soc. Quimica y Minera de Chile SA, as the second-largest lithium producer is formally known, is operating at a rate of about 70,000 metric tons this year, the company said in a quarterly earnings statement. Massive concessions in salt flats of northern Chile make SQM one of the lowest-cost producers, with fertilizers and iodine giving it diversification.

While SQM expects demand in 2020 to be similar to last year, it remains optimistic about long-term consumption growth because of increasing expectations for car sales, electric-vehicle penetration rates and continued government incentives. Lithium is a key component in rechargeable batteries.

“Given the demand growth expectations in coming years, we feel comfortable with the higher level of inventories that are being built,” SQM said after reporting second-quarter income that beat the highest analyst estimates.

Between mid-2015 and mid-2018, prices for lithium almost tripled as the world’s EV fleet hit the 5 million mark and the auto industry began to fret over the supply of raw materials. Prices have since plunged by more than 50% as a flood of new supply came on stream, and SQM expects them to be lower in the second half, though it sees higher sales volumes.

The higher inventory levels posed the key concern for SQM’s stock, according to a Citigroup Inc. note. Albemarle Corp. and Livent Corp. “seem to be taking a more conservative approach, only producing to meet customer demand,” it said.

Top Lithium Miner Boosts Output on Optimism About Long-Term Demand

©2020 Bloomberg L.P.