智利化工礦業 (SQM) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the earnings conference for the first half of 2010. At this time, all participants are in 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, to Mr. Mark Fones, Vice President of Finance and Investor Relations. You may proceed.

Good morning, everyone. And welcome to SQM's First Half 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 at our website, www.sqm.com.

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

Before we begin, let me remind you that statements in this conference concerning the Company's business outlook, future economic performances, anticipated profitability, revenue, expenses, or other financial items, anticipated cost synergies, and products 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 law.

Any forward-looking statements are estimates, projecting 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 our CEO Patricio Contesse for a brief comment before to move to Q&A.

Good morning, everyone. Thank you for joining us. We have observed a shift in market momentum during the first half of 2010 across all of our business lines. The low market conditions of 2009 have been replaced by robust demand in our principle markets.

Volume growth was sustained by improved global economic conditions and restocking throughout the supply chain in our various business lines. The operational inventory buildup witnessed in the second quarter is clearly a sign of underlining market confidence and long-term demand recovery, which is a positive view that we share.

As a result of improved demand and inventory restocking, we posted significantly higher volumes across all of our business segments. In general, volumes in the second half of 2010 should continue to show improvement over 2009 market lows. Market demand in each segment should be substantially higher than 2009 market demand.

Considering, however, the effect of the return to normal inventory levels in the second quarter on the part of consumer and distributors, it is reasonable to expect that volumes in the second half of 2010 in some segments will be lower than those observed during the first half of this year, particularly the second quarter of this year.

As we expect before 2010 is a transition year after 2008 financial crisis that impact 2009 market demand. Better-than-expected demand recovery during this year allow us to be more optimistic about 2011 and 2012 outlook.

We continue taking the necessary measure to prepare ourselves and position our business so that we can really react quickly to market changes and capture future growth in all of our four businesses. In line with this strategy, we recently completed our new 300,000 metric tons of potassium nitrate facility located in Coya Sur.

Despite some uncertainty regarding the low global economy in the short-term, long-term fundamentals are intact in all of our four business. And the product that we supply will continue to provide important solutions to [the day more] challenges. These factors will undoubtedly drive our business and propel SQM future growth. Thank you very much.

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

Thank you. (Operator Instructions). And please standby for your first question. And our first question is from the line of Isabella Seminado from Merrill Lynch. You may proceed.

Hi, good afternoon. I have two questions. First, regarding lithium, we have seen recent articles saying that you're negotiating sales directly to automakers. Can you tell us what's the potential sales per year and when the deliveries could start? And also, have you seen -- do you see an impact from -- what impacted the regulation of lithium in Chile mean for higher competition?

And second question regarding volumes, what do you expect -- when do you expect to see SQM volumes coming back to pre-crisis levels? And have you observed any recent pickup in demand post second quarter, given recent trailing grain prices? Thank you.

In our negotiations, clearly we -- as part of our situation, we don't make it public. And still it's not completed. So I apologize. I cannot directly answer the question clearly. We negotiated with end users, not only in the car industry, [Pernod Pariala], our producer of batteries, so we give global numbers but negotiations are going through. Clearly, we don't give any information at all.

Regarding regulation, Chile -- the -- still not any law going on through the Congress looking forward to change the regulation that we have today. There has been a lot of discussion. There is [woman] that has the philosophy that this should be a normal mineral. But you need for the characteristic of the law to have a constitutional grade, you need about four or about seven, about four-sevenths of Congress to approve.

And that politically is not clear that that could happen. Clear, that is under discussion. We believe this -- our company for this product should not be regulated, should be work as any other mineral. That situation is -- that way and until today. And we don't foresee in the near future that the government will sign a law to change this statute.

Regarding -- and because of that, also, we don't see any new competitors coming on Chile. We see competitors maybe coming from abroad anyhow. There's several places in the world. And we know that we are in a world of competition. We think we have advantages in terms of cost and the quality of our -- of the mine where we are working and where we are looking and trying to do everyday the best we can.

So our competitiveness is not in Chile, will be abroad anyhow. And we would prefer to have competition in Chile than abroad because we're in Chile. And all of them -- the earning of that competition should be in our country. But if that doesn't happen, would be abroad anyhow.

In terms of volume, this year, we have seen full recovery in volumes of what were the demand of 2008. That is in a few words was better than what we expected. We were thinking that this number, it would be seen by 2011, the full recovery. But the full recovery has been already been in place this year. And that's why we see the outcome for the future in terms of volume higher than we were thinking before, also for 2011 and '12. In terms of prices of lithium, we don't see any changes.

Thank you.

Your next question is from the line of Tim Tiberio from Chardan Capital Markets. You may proceed.

Good morning, gentlemen. I guess my first question is the directional guidance that you provided on lithium volumes in the second half, does that incorporate some of the, I guess, recent pre-announcements that we've seen from some companies in the PC and electronics industry?

We make our forecast in saying that we will -- during the year, we will be in the range of what was 2008. And the industry has at all currently would be slightly higher than 2008. But the volume in general, we see two main factors that are behind this number.

One is the recovery of inventories. That is for one time and secondly, more consumption. The recovery inventory anyhow we see quite possibly because demonstrated, as we said, that the confidence of the industry of what is coming on in the future because, if not, then they will not be acquiring for inventories.

Okay. And I guess my next question is as far as you mentioned that SPN volumes are coming back faster than you expected. Where is your capacity utilization rates, I guess, trending at this point in the cycle?

Today, we are producing in the range of three-quarters of our capacity.

Okay. And then just one last question I guess as far as the demand environment in South America going into the planting season, what are you seeing as far as retail potash inventory levels, I guess both at the distributor and retail level?

Well, we think that the inventories in the hand of dealer system, let's say, is still far away what it was in 2008, very little. But anyhow, we see the consumption reaching the 50 million metric tons, that was not our number at the beginning of the year, was more we think -- considering that the -- in that case, the inventories in the hands of -- out of the producer has not grown too much.

Okay. Well, great quarter. And thank you for taking my questions.

(Operator Instructions). Our next question is from Cesar Perez-Novoa from Celfin Capital. You may proceed.

Good morning, gentlemen. And congratulations for the outstanding earnings report. You recorded a strong rise in year-on-year volumes in the first half of 2010. Could you please quantify the quarter-on-quarter growth in volumes? That would be very helpful. Are you -- as you posted very strong or record quarters for iodine and lithium products. I understand you don't disclose the quarterly division of volumes. But perhaps you can do that on an aggregate basis to get an idea how strong the market is.

I will not disclose again. And anyhow, I must say that the second quarter, we think it was absolutely extraordinary. You cannot multiply the second quarter by four. We see -- when we see the numbers there, clearly, we see that this quarter specifically inventories have grown up in our end users quite importantly. In one sense, it could be bad news. But in the other hand, I think it's good news because that demonstrates the view of our customers for the future too, because that was -- didn't happen before.

So we see that the increase of inventories in the next quarter will be less than what it was the second quarter of this year. So we will see good numbers in lithium and volume. We will see good numbers in iodine, also in numbers during the year but proportionally not as good as it was the second quarter.

All right, thank you very much. And perhaps, Patricio, if you could please review your capital expenditure program for this year and the next, please?

Yes, this year, we -- as we have said it's in the range of US$370 million, US$380 million. And we are in that range. Today, preliminarily, we think that we should be in the range of US$300 million for the next year. Basically, what consists this program, well, we accomplish already, as we've said, the new plant of potassium nitrate in Coya Sur, also a big investment in the Salar to increase capacity, while increasing capacity of potash this year in 0.5 million metric tons.

And for the next year, we -- the next year to come, we want to accomplish what we have said because of what much [price] we can [plan] to get over the 2 million metric tons by 2013. So we are proceeding to that. And that means also huge investments. And also, because of the recovery of the market in iodine and nitrate, probably we'll make some investment in advance of what we were thinking related to that -- those areas in the first and in the second region of Chile.

All right.

Besides economic depreciation.

All right, thank you very much, sir. Thank you.

At this time, there are no other questions in the queue. I'd like to turn the call back over to Mr. Mark Fones for closing remarks.

Well, thank you, all, very much for joining us today. And we hope to have you with us in the next conference call. And goodbye, everyone.

And, ladies and gentlemen, thank you all for your participation in today's conference call. This concludes the presentation. And you may now disconnect.