智利化工礦業 (SQM) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the First Quarter 2010 SQM Earnings Conference Call. My name is Jasmine, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. At this time, I would like to turn the conference over to your host for today Patricio Vargas, VP of Finance and Investor Relations. Please proceed.

Thank you, Jasmine. Good morning, everyone. And welcome to SQM's First Quarter 2010 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, our 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.

As you probably noticed from our earnings release, as of January 1st, 2010, and in accordance with regulations issued by the SVS, we have adopted international financial reporting standards as the accounting basis for our financial statements. Therefore, the first quarter of 2010 was the first quarter prepared according to IFRS. For comparative purposes, first quarter 2009 figures have been prepared and presented under IFRS. I now leave you with Patricio Contesse for brief comments before we move to Q&A.

Ladies and gentlemen, good morning. After undergoing unprecedented economic challenges during 2009, which negatively impacted global markets, the first quarter of 2010 showed strong signs of transition to the pre-crisis levels. We observed positive signs of recovery in all of our business lines with higher volumes in each business segment in the first quarter of the year compared to first quarter of 2009.

Although prices in our fertilizer and lithium business are lower than the same period last year, they are in line with our expectations for the first quarter of 2010. Although there continue to be economic uncertainty in global markets, improved economic conditions and a more encouraging outlook in general have a positive impact in our businesses. And we expect this positive trend to continue throughout the year.

Last year's challenging conditions proved that our diverse businesses and broad customer base make SQM more resilient compared to fertilizer industry player under demanding market conditions. Sales volumes for the first quarter of 2010 reflect the turnaround in markets. And we are optimistic that the following quarters will continue to show promising signs of growth and recovery of our businesses.

Thank you, Patricio. Jasmine, we may now go to the Q&A session.

(Operator Instructions). Your first question comes from the line of [Isabella Seminado] with Bank of America Merrill Lynch. Please proceed. Isabella Seminado, please proceed.

I'm sorry. Good morning, everyone. I have two questions. First, I would like to know what is the impact that you guys are seeing from the current crisis in Europe as you have a high exposure to the region. And second, what is the -- what are the trends in demand that you guys are seeing for iodine and lithium as we are approaching the end of second quarter and for the second half of 2010? Thank you.

Okay, we have affected the euros. We made some increase in prices in February to come back again to what was the return on US dollar in our fertilizer, where we are exposed not in lithium or in our industrial products mainly. And now back again, we are looking forward to come back again with some -- putting more prices, but clearly not fully.

We think in the short period of time related to what was the return on US. So the impact in this stage is not too easy to make it because telling where euro will go, exactly nobody knows. But at this stage, our best view is in the range of US$10 million compared with what we had before.

And related to the demand of lithium and iodine, we see for the rest of the year same trend that we saw basically in the first quarter of 2010 compared to 2009 and in the case of iodine was in the range of 40%, 45% more volumes and in lithium was in the range of 65%, 70%. And we see the same trend for the rest of the year in these products.

Okay. Thank you.

Precisely in the case of lithium, would be in the range of 50% to 60% instead of 65% to 70%. Excuse me.

Your next question comes from the line of Cristobal Mora with Santander. Please proceed.

Yes, hi, good morning. I would like to know once you complete your capacity expansion in the potash division, what do you expect to be the growth driver for results looking for the medium term? Thank you.

When we think we have announced our increase over 2 million metric tons by 2014, I think that's the medium term. So I think you have thinking -- the way you made the question, I think we have answered.

Thank you.

Your next question comes from the line of Tim Tiberio with Chardan Capital Markets. Please proceed.

Hi. Good morning. My question is surrounding the fertilizer business. Is there any insight that you might be able to provide us as far as inventory level trends that you're seeing at your retailers and distributors downstream in the fertilizer business, both domestically in South America as well as in some of your export markets?

Well, we have to tell in general the market. But we see in our (inaudible) of volume sales as we have seen in the first quarter and also in the fourth quarter last year that the volume have increased significantly higher. We are selling more than 100% -- almost 100% more of potash compared to previous year. And that's going readily easily. We don't see any major problem in selling our volumes.

And then the specialty planned attrition, we are very close to the volume of 2008. And so compared to last year, we're selling very easily. So that demonstrates a certain way that the volumes held on one hand by the dealers is not that big because we are selling quite easily our product in terms of volumes and also demand in terms of the final user also we have seen them come back.

Okay. Thank you very much for your time.

Your next question comes from the line of Cesar Perez-Novoa with Celfin Capital. Please proceed.

Good morning, gentlemen. In your first quarter 2010 results, you mention a significant pickup in volumes, particularly those of potassium-related products. Could you please provide which markets are providing the impulse? And at what price levels do we currently stand, both for potash and potassium nitrate?

Well, in the case of the first quarter, usual -- the main market are in Europe and the United States. And now it comes the turn to be the Far East and Brazil for the second quarter. But the first quarter has been concentrated based on those markets where normally the seasonality of the fertilizer industry [goes]. So there we had been. And clearly now the seasonality's changing to the other country I would mentioned before.

In term of pricing of potash, we are what the markets know. They're not one price in the market. Their price is in the range of slightly more than US$400, up to US$350. And so we are in a certain way -- we are in at this stage selling in the range of US$370, US$380 more or less as an average price, so where the margins are between US$350 and US$410, as I said today. And then in the case of potassium nitrate, we are in the range depending on the quality of the nitrate, the potassium nitrate between US$800 to US$900 per metric.

All right. Thank you very much, Patricio.

Your next question comes from the line of [Hector Leano] with [IPM]. Please proceed.

Good morning, gentlemen. My question is with regard to potassium chloride. I wanted to know what are the operating costs or the cost to create one pound or ton and how that relates -- that compares to other competitors, for example, in South America and Australia.

In terms of potash in South America, you also -- you will only have some in Brazil, (inaudible) relatively marginal. Clearly, I will go beyond that. We think as a Company we are in the low cost structure in the world of cost production of potassium chloride. And also, not only in terms of what we're doing today but also in terms of expansion, we're looking for the medium term, as I told you, I said before, over 2 million metric ton. It is the lower in terms of CapEx and being invested by metric ton of production.

Okay. And is there any figure as far as costs per ton to produce potassium chloride?

Our total cost with depreciation, FOBs in the range of US$130 metric ton. That will be total cost with depreciation included.

Okay. Thank you very much.

Okay. Bye.

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

Hi. Actually, this is Francisco Errandonea also from Santander. Regarding the increasing volumes, do you believe that this level of growth that we saw in the first quarter is sustainable for the rest of the year? Or what levels of growth in iodine and lithium do you expect to have by year end?

What we think of in lithium the whole [SMB] compared to previous year in the range of 50% to 64% (inaudible) [thinking] the terms of the iodine should be in the range of around 50% more, too. And we think in potash, we are selling 90% to 100% more compared to what we sold direct last years of potash. We're selling what we produce in potash.

Thank you. And regarding the joint venture you have with Qingdao in China, do you have an update on the project, on when the plan is expected to come into stream?

It's according to schedule. And we see that coming on stream at the end of the year.

Thank you very much.

Your next question comes from the line of [Natalia Lacasa] with Credit Suisse. Please proceed.

Hi, Patricio. My question is related to your capacity. Last year, you were running at below your full capacity because of the weak demand. I would imagine that now that demand started to pick up you were going to increase production and therefore reduce your unit cost. So my question is should we expect for the coming quarters to see your unit cost reducing and therefore your margins going up for basically all the business lines? And then as a follow up on that question, does that mean that we saw already a very good first quarter, if we expect earnings in the 2010 to be very close to 2009, even with lower prices? Is that a reasonable forecast?

Well, in general, to say that we have been able to gradually or slightly decrease our cost, I think that trend should continue by itself. And also, we have been helped lately by the dollar value, also will help that to have lower cost to what we thought in terms of the US dollar currency.

But beside that, we have been doing some structural changes. And clearly, you are right when we are estimating more volumes. That means in some areas, like lithium, for example, to produce more and that reduce the unit cost. But in general, we -- that's going all through our industry. The other question was --?

On earnings?

Yes, we think that with all the uncertainties of beginning April and maybe beginning in May and with uncertainty in what's going on in Europe and how could that affect or not that is very yet just starting. We have all that problem to be seen effective or still not in the market, probably, but we don't know yet. But with having that mind, we think that results should be in the range of what were the last year.

Okay. Thank you.

Your next question comes from the line of [Martin Baylak] with T. Rowe Price. Please proceed.

Good morning. And thank you for taking the question. I guess I have two questions. The first one is regarding iodine and lithium prices. As volumes start to come back, I was curious to get your feeling as to how fast do you think prices should come back to both divisions? And then the second question is in terms of the capacity expansion at Coya Sur. Could you provide us a timing when is that new operation coming to place?

Well, related to iodine, we see prices to be more or less the same as they were last year. And we see prices of lithium -- we don't see increases in prices on lithium at all. And we see what we have announced for the fourth quarter last year in the range of 4,500 to 5,000 as we made public announcement last year, reducing prices that were slightly more than [$16,000] per metric ton. And we are in that range today. And we see lithium to be in that range now and in the following years, too.

In terms of capacity expansion of potassium nitrate, should be starting in two months from now. That's a capacity that has been in time and also in the budget where we previously thought at the beginning, so have been working quite well and should be working by July, August onwards.

Thank you.

(Operator Instructions). Your next question comes from the line of Cesar Perez-Novoa with Celfin Capital. Please proceed.

Thank you, gentlemen. Regarding your lithium business, we're seeing a very strong demand coming from the rechargeable battery market. Do you expect this demand trend to hold, considering the recent slowdown in Europe? In addition, what year-on-year volume growth should we expect in 2010, specifically for lithium carbonate as a volume target? And could you also comment on the possibility of Chile opening the lithium market and also the impact of a higher royalty over -- could have over your financials?

Well, related to the recovery of lithium, we are seeing in general, adding and subtracting [types of] various supply that the volumes in general are at the level of 2008, the market. And we're in the range of 90,000 metric ton as a total market. That's total lithium. That was more or less the level in 2008. So we see that had been more positive than we thought because we thought that the full recovery was going to be by 2011 and was a year previously then.

Because there was some different openings and closing and of lithium, this year, we should be selling what I told you at the beginning in the range of 50% to 60% more. That mean between 30,000 to 32,000 metric ton compared to the 21,000, 22,000 we sold last year.

In terms of Chile, well, we have seen announcement in the public that maybe lithium could become more free in terms of being strategic. But that's something to be seen. It requires a law. And I don't know what clearly it's still not in the agenda of the government. So -- and in the case anyhow, we don't see from that size, any effect even in the long term because clearly the resources of lithium are up to our best knowledge compare to what we have in the [Tacalasol], Salt Lake are significantly different in terms of quality. In terms of -- what else was there a question --?

Royalties?

-- royalties?

Yes, royalties.

Well, we think that today it should be in the range -- these extra royalty in the range of US$3 million to US$4 million extra to what we thought before, what we had before.

Okay. Thank you very much.

At this time, there are no further questions. I would now like to turn the call back over to Patricio Vargas for closing remarks. Please proceed.

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

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.