智利化工礦業 (SQM) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the fourth quarter 2010 SQM SA earnings conference call. My name is Regina and I will be your operator today. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. (Operator Instructions).

I would now like to turn the conference over to your host for today, Mr. Mark Fones, Vice President of Finance and Investor Relations. And you may proceed, sir.

Good morning everyone and welcome to SQM's 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 today as speakers are Patricio Contesse, Chief Executive Officer; Patricio de 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 costs, 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 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 filings 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 we move to Q&A.

Good morning everyone. Thank you for joining us. After consistent performance in each quarter of the year, we finished 2010 with solid results. We have such strong volumes across all of our product line as market condition in all of our business segments surpassed our initial expectation for 2010 moving past 2009 lows.

We observed healthy volume recovery that in some cases exceeds pre-crisis levels. In fact, we posted record sales volume in the iodine and our lithium business, which reflects the strong fundamentals of our markets.

The first month of [2010] has followed 2010's upward strength, and we remain optimistic about the coming year. In this normalized condition, we anticipate more and more rate growth trends compared to 2010 recovery as market return to historical level of expansion.

SQM remains uniquely positioned to capture this future growth and we remain truly committed to capitalize on our competitive advantages. As you know, in the first month of 2010, we forecasted that our market will recover in the period of two to three years, and in general market performed beyond our expectation for 2010 recovery expanding approximately one year and reaching demand levels observed before the crisis. As a result, markets are likely to return to historical level of growth during 2011. Thank you very much.

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

(Operator Instructions). Isabella Seminado, Bank of America-Merrill Lynch.

Good morning, everyone. So I have two questions. First, the recently announced price increase of potash from [VPC] into Brazil $45 a tonne, are you guys seeing this price being accepted by the buyers already? When do you see room for further price increases in the upcoming months? That would be my first question.

There are some very important negotiations coming on-stream and we have to wait and see what's going on basically in [them]. That would be relevant of what could be an extra increase for more prices for the remaining of the year.

Anyhow we estimate -- anyhow, at the end of 2010, we were able to see some increases on prices and we have put a forecast for this year with higher prices. But on extra pricing, we will have to do quite a lot of that by negotiation.

Okay, thank you. And my second question. In terms of volumes, what do you see for 2011, and do you think you can increase capacity faster given the strong global demand for fertilizers? Do you see SQM volumes recovering to 2007-2008 levels or are we focused more on [KCL] sales?

Well, I think in all fertilizer lines, volumes are increasing significantly well. We have been doing in the last five years a lot of effort to increase capacity in potash production and SOP, and this year it would be in the range of 300,000 metric tonnes more of potash plus some SOP.

Also in potassium nitrate, we see some increases too in the market. So in both areas, we see a strong demand for our products.

Thank you.

Javier Martinez, Morgan Stanley.

Hi, good morning, thank you for taking my call. And you mentioned in the press release that lithium prices remain stable, and is this the case for January, February, March. Do you have any, in mind, any potential price increases during 2011, or we should expect just flat prices during this year?

In lithium, our policy is to maintain flat prices, and what we have been seeing is stronger demand than last year.

Okay, thank you.

(Operator Instructions.) Brian Chase, JPMorgan Chase.

Hi, good morning, thank you for taking this call. Just a quick question. I'm not sure if it was covered; I dialed in late. But I saw that there was a very big pick up in the fourth quarter in other non-operating expenses. I calculate around $18 million. Could you briefly explain what that was caused by?

Yes, most of these non-operating expenses reflected in the fourth quarter are related with amortization of our market that are included according to IFRS in the fourth quarter go up to $6 million, plus we have some provisions regarding some expenses that we expect to have, some -- related to some trial around the world that is close to $4 million, that is including the non-operating. Those are the main two reasons why the increase during fourth quarter as compared to the previous quarters.

So it should be nonrecurring going forward?

Yes, that's what we think.

Thank you.

Craig Shaw, HLM.

Good morning, thanks for the call. I was taking note of how well the battery electric cars, if you will, are doing. Nissan's Leaf, Chevy's Volt, they are all basically sold out and doubling their production in the years to come.

I was wondering if you could comment on how -- where you are in terms of establishing supplies of lithium to battery makers, if you've managed to sign any meaningful contracts. And my second question would be if you could touch on how much industrial nitrates you sold for solar salts in fiscal year 2010. Thank you.

Thank you for the question. This is Patricio de Solminihac. Regarding the batteries in electrical cars, as we have been commenting, these, of course, is the future growth for the lithium demand.

Today, even though as you say, Nissan and General Motors have been very successful in the (inaudible), still there are few cars. There's not a huge amount of cars that are being produced. But all these car manufacturers are quite optimistic about their future. So we keep our expectation of more volumes from the year 2014 and onwards.

Today the demand of lithium, as Patricio was commenting before, continue to be strong in the level of 5% to 8%, and we have the capacity to support this. We are the largest producer of lithium carbonate for this industry and for every industry.

So, of course, we are providing today to the battery producers not only for the appliance like cellular phones and laptop and so forth, but also for these initial cars. There is not long-term contract for that; it's just agreement that we do for the years, and we continue to [vary] quarter by quarter.

Regarding industrial salt, at the level of production and sales that we have during last year, this year is in the range of 50,000 tonnes and we expect that industry to pick up strongly in 2012 going in the range of 200,000 tonnes.

Great, thank you very much.

Tim Tiberio, Chardan.

Good morning. I apologize I got on late, but it hasn't been touched on. I have a question on iodine pricing. I'm looking at some of the expansion that's planned in the industry. How confident are you that global demand can absorb some of the supply expansion that is planned across the industry?

Well, the price last year went up during 2009 -- and was more or less the same. Excuse me. 2009 went up; even though demand decreased significantly, we were able to raise about $3 more per kilo in 2009. Even in the very bad situation, of course, we'll make a big effort in carrying our sales when it comes to match the supply and demand.

Secondly, in 2010, demand has been stronger than ever with the same more or less prices than 2009. And now this year we're seeing more or less the same stronger demand for this year and prices are increasing somewhat in the range of 5% to 7%.

I should say that they are a new comer coming upstream for next year, and this year would be very modestly in our view in the market, [it's next] year. The market is growing at the pace of 4% to 5% per year. So probably that company do need some bit of time to capture most of that growth.

But now the market has been much stronger than our view, and last year was a record in our history and in the total demand of the world. So also there things looks quite well.

On the other hand, some of the producers in Chile have been slightly decreasing their production. So we have been able to capture that lower production.

Okay, thank you. And just one follow-up question. Regarding your joint venture in China, just want to see how that is progressing from your perspective and whether you see more opportunities for these joint venture opportunities throughout Asia.

In China, we made prudent steps, say. We have already an NPK soluble plant too. (Inaudible) we have also this new facility in the joint venture with Migao, to produce more potassium nitrate, and yes, the inauguration was done in January. The operation is doing well to clear our way of entering in China and [really good], this ready product. It's not really very significant or very strong. It's step by step. And we will continue that way.

Okay, thank you very much for your time.

ladies and gentlemen, this concludes the question and answer portion of our call. I'd like to turn the call back over to management for closing remarks.

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

Ladies and gentlemen, thank you so much for your participation. This concludes the presentation. And you may now disconnect. Have a wonderful day.