Sociedad Quimica Y Minera De Chile SA ADR Earnings Call Nuggets: Lithium & Iodine Outlook, Cost Inflation

Sociedad Quimica Y Minera De Chile SA ADR (NYSE:SQM) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Lithium & Iodine Outlook

Fernando Ferreira – Bank of America Merrill Lynch: I had two questions, today, that caught my attention from your press release. The first one is the comment that you expect to lose market share this year, in both lithium and iodine, to other players in the industry. I’d just like to know, for both lithium and iodine, who those players are and what amount of new product that you expect to come onstream this year? That’s my first question.

Patricio de Solminihac T. – EVP and COO: Well, thank you, Fernando. Regarding lithium, we did have a weaker first quarter, but we think that we will recover volumes during the year, and volume we expect to be in the range of 5% less only than the year before. There was a delay in the shipment in the first quarter that we expected to catch up in the next quarters. Regarding the new entrants in lithium, we have Galaxy that has been producing in China. However, with the many different problems that they have been publicly stated regarding the stop of their mine and buying from Talison, the (indiscernible) for their plant, also the plant that they need to stop because of the accident. So there are many issues on that. They have been announcing that they will be going through to get to their capacity of their plant. This is a short-term; a little bit more longer-term are the plant that’s expected to start in Canada, which is Canada Lithium, that during this year, they announced that they will be ready to start sending product to the market. And the next one will be oil recovery in Argentina, that we don’t think that they will be shipping any product during the year, but they will do so after that. Regarding iodine, we have a good first quarter. We expect that the production of Algorta, which is the expansion of their ACS here in Chile, will continue to ramp up their production to a capacity. So we expect that during the year, in iodine, we should be around 5% to 7% lower in volume than 2012.

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Fernando Ferreira – Bank of America Merrill Lynch: And my second question is the comment that you expect, the remainder of the year in terms of results to be weaker than the start of the year, also if you could provide some more details on that front as well. Is it more related to the weaker volume factor or is it also counting the fact that potash prices have trended down?

Patricio de Solminihac T. – EVP and COO: Well, there are many factors that influenced that. As you know, clearly, potash prices are lower. We expect that during the year it will not continue to drop. We expect that the price will continue more or less at the level that they are right now. That also influenced prices in our SPN business line that we are seeing – we see average price during this year in the range of $50 less than the year before. And then, of course, which is important for the rest of the year is in our Industrial Chemical business line, which we have a very good first quarter because with the last shipment for the solar salts that we have during the first quarter, but as we have indicated, we don’t see more shipments of solar salts the remaining of the year. So total volume in Industrial Chemical will go down in the range of 100,000 tons, so that also will influence that. And finally, of course, we continue to have pressure in cost, we are working on that, but of course, the exchange rate, together with the pressure in labor cost, have also influenced that.

Cost Inflation

Wesley Brooks – Morgan Stanley: So, just to follow on from the last comment you just made on your costs, I know you don’t talk about costs by segment individually, but can you give us some thoughts of the cost inflation you’re seeing in some of your main lines like labor, energy and how you see that trending over the next few quarters versus Q1?

Patricio de Solminihac T. – EVP and COO: Well, as I said before, and you are right, we do not disclose the cost structure in each of the business line. But in general, we have many common costs that affect all the business lines, and as indicated in the previous question, one of the important factors that pushed our costs up is the labor cost. Chile, as you may know, is almost at full employment. Besides that, there is a lot of activity in the copper sector in the north where we have our operations. And third, the exchange rate have also influenced our costs in dollars because we, of course, have our labor cost in peso-related currency. We can say that we are expecting around 5% more cost, in total, if we compare cost from this year to the previous year. We don’t see that we will have much higher cost the next quarters than that what we have in the first quarter. We don’t see nothing special in that respect.

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Wesley Brooks – Morgan Stanley: And if I could ask another question on these lithium startups, please. Do you have a good feel for what their — like Galaxy, obviously, they have been ramping up, they have had some issues like you said. But do you have a good feel for where their cost might be? And basically, how profitable they can be with current prices?

Patricio de Solminihac T. – EVP and COO: I do not have any real specific information on their cost factor. Of course, I have some estimate because of the cost they have in this (indiscernible), which we know how much are they paying now buying (indiscernible) from Talison. So in our opinion, they have, of course, a much higher cost than us. But they have been given lot of public information that probably you have seen regarding their situation, first in the situation on the high cost that they have in their own mine operations that finally they decided to stop. And second, with the accident that implied that they have to stop the plant for almost three months. Now they are going through trying to do an increasing capital, I understand. They are also publicly stating that. So, I think it’s a question mark what will happen with them in the future. I do not have any specific more information than what they have published.

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