智利化工礦業 (SQM) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the SQM Second Quarter Earnings Conference Call. My name is Chanel and I will be your Operator for today. At this time, all participants are in 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. I would now like to turn the conference over to your host for today, Mr. Mark Fones. Please proceed.

Good day, everyone, and welcome to SQM's First Half 2011 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 Solminihac, Executive Vice President and Chief Operating Officer and Ricardo Ramos, CFO.

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 the 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 brief comments before moving to Q&A.

Good morning, everyone. Thank you for joining us. The second quarter of the year continued to the positive trend observed during the first months of 2011. As a result, we posted strong second quarter numbers. Fertilizer, iodine and lithium demand growth remain healthy during the quarter, which was possibly influenced the results of our business lines.

The consistent demand growth and tight market conditions in three of our business lines helped boost results during the second quarter and we expect this market [cyclicality] should continue in the second half of the year.

We'll continue to be global uncertainty in financial markets. The underlying fundamentals in all of our business remain strong and we are optimistic about the remaining months of the year. Our solid financial position and current expansion plans will allow us to better position ourselves to capitalize on the growth opportunities in all of our businesses. Thank you very much.

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

(Operator Instructions). Your first question comes from the line of Fernando Ferreira with Bank of America.

Hi. Good morning, everyone. I have two questions. The first one would be on potash. I would like to understand a little bit more why sales volumes were flat in the first half compared to last year. Was it because of higher inventories that you're building up to sell the second half? Or were there some production issues there?

And also, when we look at margins for potash this quarter, they seem to have come down, even though we saw potash prices continue to rise. So I'd like to understand a little bit more there, if that's the case or not, also.

Well, I think we have put a line of, say, potash MOP and potassium sulfate and that makes a misunderstanding. First of all, regarding volumes, we have to think of last year, we were selling more sulfate than this year. This year, we have just recently started our own operations of SOP. We will stop producing SOP last year, so we take out the SOP difference, we're talking about 50,000 metric tons more of MOP.

Besides that, we have stronger demand in nitrates. So if -- for producing more potassium nitrate. We have also used around another 50,000 metric tons of MOP. So compared, really, to last year, we are in the range of 100,000 metrics tons more of MOP than last year. [Regarding] margin is the same. Because last -- the last year, we have more SOP and SOP had higher margins. So if we take that out, the MOP share by itself, the margins are higher than the last year. Considering, as you said, the better pricing we have in the market.

Okay. Perfect. Then in -- during the second half, you expect us to increase -- to have an increase in this line in terms of sales volumes?

Yes, but also we are using more MOP in potassium nitrate so that will create, maybe, MOP at the end will be sold more. But maybe sold more and more potassium nitrate. Our margins should continue to improve because better prices than we are having today.

Sure. And my second question would be on iodine. I'd like to understand how much are spot prices today relative to contracts? And if we see spot prices remaining that high, is there any chance of adjusting the contract prices higher to close this gap?

Well, spot prices are in the range of $85, $90 per kilogram. So the contracts are in [27], slightly higher than that. Most of those contracts are ending this year. So we are going to negotiate in the higher levels. Of course the market stays very tight and demand is very strong.

Okay. Thank you.

Your next question comes from the line of Mauricio Seguel with Santander GBM.

Yes. Hello, Patricio. My question is related to the first question of Fernando. And it's about potash and iodine prices. Well, those products have increases of 17% and 15%, respectively. Should we expect new increases in prices of these products during this year?

Related to potash, I must say that we are followers. We are not mark up only where is setting our influencing prices in the market. And we see the situation of potash very strong. We think prices will continue gradually to go down during the rest of the year and also the next year. Go up. Excuse me. Go up, during this year and next year.

But exactly how much? We don't know exactly. But I think next year we should be able to be getting in the market, [protein rushities] in the range of $600, not average price, but get into that range of prices in the next year. And concerning the iodine, I must, frankly, say that I cannot leave that open because we are finding clients high influence in the market and if I say something could affect the negotiation, this should carry on during the rest of the year.

Okay. Thank you.

Hello? Okay.

Yes. Many thanks.

And your next question comes from the line of [Sara O'Brien] of [MVS Management].

Hi. I just wanted to confirm the guidance that you gave last week at the JPMorgan conference, the volumes for 2011, 2012. You said that potash volumes will be in the range of 1.7 million metric tons for 2011 and 1.8 million metric tons for 2012 and SOP will be in the range of about 1.2 million metric tons for 2011 and 2012. Are those still correct? Hello?

Yes, excuse me, but I didn't hear you well. We have the cross line [intermittent]. But in potash, we are estimating, with some SOP this year, 1.7 million metric tons and next year, we will produce more SOP and would be in the range of 1.8 million metric tons. So you are right.

Okay. And the 1 million 8 -- 1.8 million metrics is for potash or SOP?

Both.

For both?

But we are going to produce much more SOP next year.

Okay.

Your next question comes from the line of Felipe Koh of Citigroup.

Good morning, all. Thank you, Patricio. I have one question on the potash side. You mentioned that you were -- the Company was increasing the capacity to produce more to annual or potash types of products. And I just wonder if you already started to sell more of these products that are more fit to the Brazilian customers? And if we could see, eventually, a higher margins for the second half of the year, due to these possible higher volumes in this type of product?

We are estimating better margins for the second half. And in the case of potash, some more volume too, compared to the first semester. But it's my guess because prices are high. The average price of the second semester will be higher than the first semester.

Can you give us an update on this capacity? How much we should see an increase in this type of product? Or this type of potash?

Excuse me. Can you repeat the question? I didn't hear it well.

I just wanted to understand how much of the -- your potash volumes are not granule and how much we could expect -- or you meant not granular?

Oh, excuse me. Not what? Not granular? Okay. Yes, but can you -- ?

Exactly.

And that's your question?

Yes.

Could you repeat your whole question, please?

Basically, I just wanted to understand how much of the volumes that you sell, how much is currently granular and the other type of more commoditized products? And how much we could see in the second half of the year that your volume will increase towards the granular products, for the second half of the year? Basically, that's the question.

Our projection for this year is around 40% granular form. And for the rest will be standard form. But to change -- this will change next year because the granular plan has been recently installed. So next year the proportion of granular will be much -- significantly higher than this year.

Okay. But do you have an idea of how much it could increase in terms of the mix?

Sorry, the connection, we cannot hear you well. Could you please -- the voice is a little bit louder, please?

Yes, sorry. It is clear. I just wanted to understand how much of the sales mix, you mentioned that currently it's 40%, of the granular -- from the potash side is granular. So for the next year or for the second half of the year, do you have an estimate of how much it could increase?

The projection we gave you, the 40%, is for this year.

Okay. And for the next year, how much we could expect?

In the range of 70%.

70%? Okay. Thank you.

You're welcome.

(Operator Instructions). Your next question comes from the line of [Alessandro Bajbadino], Deutsche Bank.

Hi. Good morning. My question is on lithium. A couple of months ago, [Rocco] announced the 20% increase in prices. Do you plan to follow that? And if so, when, this year or maybe next year?

Think maybe we see that the current situation as a stable situation and that is our position.

Okay. Thanks.

Your next question comes from the line of Geoff Gilbert of Peak Investment Management.

Good day. Thank you for taking my call. I was wondering if you could give me a comment on the overall overview of risks or issues in the cost of production, specifically in regards to any energy issues or water resources.

Yes, we have three main issues regarding extra costs. One, as I said, is energy. That is significantly higher than last year. And that is affecting our costs compared to last year. The second one is the strength of the Chilean peso. It also affects the costs not only of labor, but a lot of contracts that incorporate as a participation of the formula, the Chilean peso.

And certainly the labor market situation in Chile, that is specifically in the mining industry, is very strong. So you have to act related to the market in terms of salaries and be, sometimes, reactive or proactive in increasing salaries because of this very strong market situation for the labor force.

Excellent. Thank you very much for your comments.

(Operator Instructions). Your next question comes from the line of [David Preago, Tempest Co.] Capital.

Hi. Yes. I had a question on iodine prices. The -- I think the average for the first half you recorded was in the low 30s per kilo which used to be almost $30 below the -- I think this is below the spot prices right now. Can you talk about what we should expect in the second half of the year? Should we expect your prices to merge with spot prices? Thank you.

We estimate an average price for the year in the range of $38, $39 per kilo.

And would -- do you think that will be sustainable into 2012? Or would prices taper off after this?

As I have said before, I don't want to comment beyond that because I have to name the negotiations, so my sayings publicly could affect those negotiations.

Thank you.

Ladies and gentlemen, that concludes the Q&A session. I would now like to turn the call back over to management.

Well, thank you very much for joining us today and we hope that you are with us next time. So good-bye. Thanks.