智利化工礦業 (SQM) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter SQM earnings conference call. My name is Noelia and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Patricio Vargas, VP of Finance. Please proceed.

Thank you, Noelia. Good morning everyone, and welcome to SQM's third quarter 2009 earnings conference call. For your information, this conference call will be recorded and is being webcast live. You may access the webcast later on our website www.sqm.com.

Joining me this morning as speakers are Patricio Contesse, Chief Executive Officer; Patricio de Solminihac, Executive Vice President and Chief Operating Officer; and Ricardo Ramos, Chief Financial Officer.

Before we begin, let me remind you that statements in this conference concerning the Company's business outlook, future economic performances, anticipated profitability, revenues, expenses or other financial items, anticipated cost synergies and product or service line growth, together with other statements that are not historical facts, are forward-looking statements as that term is defined under federal securities laws.

Any forward-looking statements are estimates reflecting the best judgment of SQM based on currently available information and involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those stated in such statements. Risks, uncertainties, and factors that could affect the accuracy of such forward-looking statements are identified in the public filing made with the Securities and Exchange Commission, and forward-looking statements should be considered in light of those factors.

I now leave you with Patricio Contesse.

Good morning, everyone. Thank you all for taking the time to join us today. Although our quarterly earning were lower than those recorded in third quarter last year, this decline is overstated considering that the third quarter of 2008 was the highest quarter ever recorded in the Company history.

Additionally, net income recorded in the third quarter of 2009 is 98% higher than the net income posted in the third quarter of 2007. We believe that the market has bottomed out across all of our business lines and are beginning to turn around. The recovery process is slow and will most likely remain slow in the following year.

In the case of our specialty fertilizer business, we expect moderately higher sales volume during next year. On the other hand, we expect significantly higher products volumes for next year. Volume for 2010 should double 2009 target volumes, reaching approximately 1.1 million metric tons, in the line with announced capacity increase.

In the case of potassium-related fertilizers, prices in the second half of this year has been lower than in the first half. So it's reasonable to expect the average price for 2010 for all our fertilizers products should be lower than the average price in 2009.

Although it is difficult to predict future prices, given the volatility observed during the past 18 months, it is possible that prices towards the end of 2010 look upward slightly as volume normalize in the potash industry.

In the case of iodine and lithium, demand has followed a similar trend compared to our specialty fertilizer business. And we have observed signs that indicated demand has started to recover. Considering, however, that most of our clients have adopted conservative purchasing policies, we expect demand to recover slowly during the next year.

Business volumes observed in the third quarter of 2009 were higher than those observed in the previous quarter of this year, which establishes a positive trend that we anticipate should continue in the following quarters and the coming years.

Several weeks ago we announced a price decrease of 20% for the lithium business line. We expect that this new prices level will accelerate demand recovery and create incentive for new application. Those -- these lower prices should impact average prices for 2010, which will be lower on average than 2009 prices.

The underlying fundamentals in all our business remain strong and we are confident about medium and long-term prospects for all of them. We believe that by the end of 2010, demand levels for all our business should reach pre-crisis level and begin to grow at the high growth rate observed in the years leading up to 2008.

The year 2010 will be a transition year that should be followed by a growth period positively influenced by our increasing potash production, higher demand for lithium batteries technology, increased demand for nitrates for solar energy storage and the potentially better pricing condition that should accompany demand growth. Thank you.

Thank you, Patricio. And Noelia, we may now go to the Q-and-A session.

(Operator Instructions) Your first question comes from the line of Cristobal Mora with Santander.

Yes, well, good morning, and thanks for your time and for the conference call. I have two questions. The first one is have you seen a recovery on your specialized -- specialty fertilizers business, especially in terms of sale volume during October. And the second one is have you thought on scaling down your potassium chloride expansion project given the current and continued weakness on demand? Thank you very much.

Well, first of all, about -- as we have stated we see a recovery, but a very slowly recovery. And we see decline on a quarterly basis, and for the next year, gradual -- and slowly recover on a quarterly basis. And we think that a normalized market should be in -- in volume terms should be done by the end of 2010, not before that. So we see some improvement, but then it will be gradually.

In terms of our program of increase of potash, we continue to do that, and we will remain on the objective we have announced publicly in terms of increasing volumes. We think that the potash business, even though has suffered quite a lot in demand, this year it should recover maybe not on the prices or volume, but by the end of 2010, yes. And we see and forecast by 2011, the demand for potash should be very strong.

Okay, thank you very much.

Your next question comes from the line of Francisco Schumacher with Raymond James.

Hi, good morning. I have two short questions. One is how much of the decrease in lithium prices should be effective in the fourth quarter and -- or if you are going to see it more next year only? And also, given the slower-than-expected recovery in iodine, at least what we were expecting, is there a possibility for a decrease in iodine prices similar to the decision you made on lithium?

Well, first question about lithium, we see a very minor effect during this year. Clearly, we see the effect on the lowering prices for next year, not the fourth quarter really significantly. But also on the other hand, that will mitigate somewhat this average prices will be lower we should increase in volume. But anyhow, we will have a negative effect.

In terms of iodine, we are -- we will -- our policy is to maintain the prices of iodine currently; that we have currently in the market.

Okay, thank you very much.

Your next question comes from the line of [Mark Rogers with Cannon Securities].

Mark Rogers. Thank you. What I was wondering is if the R&D efforts that we're seeing right now in the electric vehicle and battery space alone can push the prices of lithium to a higher level, or do we really need to see large-scale commercial production of these electrical vehicles and battery components to drive the price of lithium up to a significant level? Thanks.

See, we -- our estimated prices of business should not move upward. We have a lot of capacity, and a lot of capacity -- installed capacity and capability to grow, and with good margins and current prices.

I'm sorry, in the beginning you got cut off or at least I lost you. You didn't expect the price of lithium --?

Excuse me, we don't expect prices to go up. We think the price for us -- think from a policy standard of our company, are more adequate in terms of the medium and long term because we can increase our capacity in the -- in our slot with good margin and current prices.

Thank you.

And we think also by this pricing, the first sign we were looking to give to the industry, there is lithium, and so people can look forward to new applications.

Okay, but your primary drivers for increased lithium prices are not the electric vehicle industry, but the ceramics --

No, we don't see that even if they become very strong that prices should go up.

Mark Rogers. Okay. Great, thank you.

(Operator Instructions) Your next question comes from the line of Geoff Gilbert with Peak Investment.

Good day, gentlemen. In reference to an announcement you guys made in April of 2008 in regard to other mineral resources, can you remind us about the size of property you control, the status of that endeavor, and whether or not you would JV with any other exploration companies? Thank you.

Thank you. This is Patricio Solminihac. We do have an area for exploration of close to 2.5 million hectares. We have, as we indicated in our information in April 2008, a program where we are exploring for deposits, looking for deposit -- metallic deposits, copper, gold or others. And up to now we have identified some indication of targets and we continue with that program. We don't have any specific to report on that. This is a long-term plan, and as soon as we have something, of course, we will comment it to the market.

Sure, I appreciate that. Is it -- just to clarify, that's a search with internal resources?

Yes, the most important program is internal resources. We did in the past when we found these two deposits that we sold to [Taberacta Minerals] and also to [Tekkomiko], and we put together in the beginning of 2008 new teams of geologists, so it's internal resources.

Thank you very much.

Your next question comes from the line of [Natalia Lacara] with Credit Suisse.

Hi everyone. My question relates to your view on the Chinese negotiation. I just wanted to know what you think about when that should happen and if you are expecting a considerable lower price, or do you think that's going to change other countries' prices and do you think that could drive prices even down, further down? That's my question.

Well, about the Chinese negotiation, it's too much to begin to talk about. It's really -- we don't participate in those negotiations. So exactly (inaudible) where they are, we don't know exactly. We heard the rumors, and so far -- and of course, if prices in China go down, it would go down everywhere. And if they're going to stay stable, they would be stable. But exactly what would be the outcome and when, we exactly don't know.

Okay, thank you.

And your final question is a follow-up question from the line of Cristobal Mora with Santander.

(Spoken in Spanish). I have a question regarding the lithium business. I would like to know if after the decline in prices you announced, if you have seen any recovery in the month and which specific uses do you believe are more price-sensitive than others?

We have seen recovery in the -- for the next quarter and a [sign] of that, we have on our plan for next year. We see a significant increase in volumes basically coming from batteries. But there we see -- and I (inaudible) those two areas. And I think also -- we're seeing the market adjusting to new pricing still, we'll provide a -- maybe somewhat a little bit more better information than we already -- we have been able to see.

So in the case of volume, we see a change. But as I said before, that change in volume, that will be important, but will not compensate the deterioration of prices anyhow.

And I don't know if you have a feeling of what level of capacity utilization do you believe you will have next year under this new price scenario on lithium.

It would be in the range of 70 to 70 -- that range in terms of volume compared to our capacity.

Thank you very much.

And ladies and gentlemen, this concludes our question-and-answer session. I would now like to turn the call over to management for closing remarks.

Thank you all very much for joining us today. We hope to have you with us in the next conference call. Goodbye, everyone.

Thank you for your participation in today's conference. This concludes your presentation and you may now disconnect. Have a great day.