May 23, 2019 / 1:21 PM / 4 months ago

Chilean lithium producer SQM's profits fall on lower prices, higher royalties

SANTIAGO, May 23 (Reuters) - SQM, the world’s No. 2 producer of lithium, said on Thursday that first-quarter earnings dropped by nearly one-third on a slump in prices of the ultralight battery metal and a spike in royalties at its operations in Chile.

SQM reported quarterly earnings fell to $80.5 million from $113.8 million during the same period the previous year.

SQM Chief Executive Officer Ricardo Ramos attributed much of the decline to “lower margins in the lithium business line.”

The Chilean miner sold lithium at an average price of $14,600 per tonne, it said, an 8 percent drop from the fourth quarter of 2018.

“As expected, during the first quarter, the lithium market saw price pressure as new supply entered the market,” Ramos said.

He added that new royalties put in place by Chilean development agency Corfo last year, considered to be the highest in the world, also dinged profitability.

Payments to Corfo nearly quadrupled, from $12 million to $45 million, according to SQM’s earnings statement.

SQM last year struck a deal with the government to more than triple production by 2025 in exchange for paying sharply higher royalties and offering discounted lithium to domestic value-added producers of battery components.

Ramos said global demand for lithium, a key component in the batteries that power electric vehicles and cell phones, would increase 17 percent this year, in line with the company’s previous forecast.

The company expects to produce 60,000 tonnes of lithium in 2019, with sales volumes this year reaching between 45,000 and 50,000 tonnes.

By 2020, SQM predicts that sales volumes would jump 30 percent over 2019, reaching approximately 65,000 metric tons.

The company earlier this year received environmental approvals for a $400 million plant expansion. Once completed, it would allow the Chinese-backed SQM to eventually produce as much as 180,000 tonnes of lithium carbonate from its Salar de Atacama operations in Chile.

China’s Tianqi Lithium Corp bought a nearly 24 percent stake in the firm last year. (Reporting by Dave Sherwood; Editing by Jeffrey Benkoe)

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