Scotiabank reiterated its Sector Outperform rating on Sociedad Quimica y Minera (NYSE: SQM), with a consistent price target of $70.00. The bank's analysis followed SQM's second-quarter earnings, which, while aligning with Scotiabank's expectation of $384 million in EBITDA, fell short of the broader market consensus of $433 million by 11%.
The report highlighted that SQM's lithium production volume exceeded forecasts but did not compensate for lower than expected average selling prices (ASP) in the second quarter, influenced by product mix and timing. Furthermore, SQM has indicated that lithium carbonate prices in China have dropped approximately 20% from the Q2, which is likely to affect earnings in the second half of the year.
SQM has updated its capital expenditure plans to $1.6 billion through 2024 and is reviewing certain projects due to the current pricing environment. Despite this, SQM's expansion strategy remains unchanged. In contrast, the iodine segment has performed robustly, with both prices and volumes surpassing expectations. This positive trend is projected to continue in the near term, supported by an anticipated 7% year-over-year growth in demand in 2024.
SQM has also launched a new venture, SQM International Lithium, aimed at advancing its lithium business outside of Chile. The new subsidiary is targeting a significant increase in volume, aiming to achieve over 100,000 metric tons of lithium carbonate equivalent (LCE) per year by around 2030.
Sociedad Química y Minera de Chile (SQM) reported robust first-quarter earnings for 2024, with revenues nearing $1.1 billion and an adjusted EBITDA surpassing $400 million. Despite a one-time adjustment related to the lithium mining tax in Chile affecting net profit, SQM plans to expand production capacity due to increasing demand.
The firm also noted a significant rise in sales volumes, particularly in the iodine and lithium segments. On analyst notes, Berenberg initiated coverage on SQM with a Hold rating, while BMO Capital Markets maintained its Outperform rating on the company, following the near-finalization of a joint venture agreement with Codelco.
Lastly, SQM's joint venture agreement with Codelco, known as "Newco," is nearing finalization, which BMO Capital Markets believes will lead to a rise in lithium prices and a gradual decrease in uncertainties surrounding the company.
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