(Bloomberg) -- The world’s No. 2 lithium producer SQM shipped record-high volume last quarter and vowed to keep growing production in Chile, even as prices of the battery metal continue to fall in a global glut.
A 20%-plus jump in volume of the battery metal shows SQM is plowing ahead with expansions at its low-cost operations in the Atacama Desert. It’s a bet on growing market share as other producers curtail output and spending in response to the lowest prices in three years.
At least in its prized brine operations and processing facilities in Chile, SQM isn’t flinching at a time when some of its rivals are going on the defensive. The Santiago-based firm plans to produce about 210,00 metric tons of the key ingredient in electric-vehicle batteries this year, about 20,000 tons more than it expects to sell.
The volume strategy is a double-edged sword for an industry reeling from a painful price capitulation. By expanding when buyers are still running down inventories, the approach may help prolong the glut. But SQM is backing up a bullish demand outlook, preferring to stockpile unsold material rather than scaling back.
To be sure, SQM is considering reducing how much lithium it processes in China over the coming months as prices and earnings continue to fall. “That’s something that we could do in the short term,” Carlos Diaz, SQM’s head of lithium, told analysts on a call. “In the long term, we still think this market is going to keep growing.”
Shares in the firm formally known as Soc. Quimica & Minera de Chile SA were up 0.8% at 1:13 p.m. in New York.
SQM’s biggest rival, Albemarle Corp., has already announced plans to shut half its processing capacity in Australia and put an expansion there on hold. Some smaller, higher-cost miners have already shuttered mines, including Core Lithium Ltd. In China, Zhicun Lithium Group Co. has placed two carbonate units into care and maintenance.
Other producers may reduce output, SQM Chief Executive Officer Ricardo Ramos said, “as many projects, especially greenfield, are not economically viable at these prices.” Benchmark Mineral Intelligence estimates the market won’t swing back to deficit until decade-end.
Meanwhile SQM’s refinery in northern Chile continues to ramp up production toward its recently expanded capacity. Further expansions would take capacity toward 300,000 tons, although that will depend on execution of a deal to hand over a majority stake in SQM’s brine assets to state-owned Codelco in exchange for extending operations.
SQM enjoys some of the industry’s lowest costs. It taps the world’s richest brine deposit and employs an evaporation technique that uses far less fresh water, chemicals and energy than hard-rock mining as practiced in top producer Australia.
Chile’s government shares SQM’s growth strategy as authorities look to open up new areas to mining and encourage more processing.
More threatening than oversupply in the coming years is the risk of a renewed shortage, which would send prices soaring and make alternative battery technologies more viable, Finance Minister Mario Marcel said in March.
--With assistance from Philip Sanders.
(Updates with comment from executive in fifth paragraph)
©2024 Bloomberg L.P.
