Chile’s SQM, the world’s second-largest lithium producer, reported a larger-than-expected drop in its quarterly profit on Wednesday. The miner, which also produces fertilisers and industrial chemicals, posted a second-quarter net profit of USD 213.6 million, or 75 cents a share, missing analysts’ estimates of USD 296.7 million, or 95 cents a share, according to LSEG data.
The company’s revenue of USD 1.3 billion in the quarter was in line with analysts’ expectations, based on LSEG data. SQM, which produces the white metal in the Atacama salt flat of northern Chile, home to the world’s highest lithium concentration in brine, has the advantage of low-cost production. However, despite posting record-high quarterly sales volumes of lithium, its results were dragged down by a significant drop in the metal’s prices.
SQM’s CEO, Ricardo Ramos, stated that the pricing trend will continue in the second half of this year, with current lithium price indices in China nearly 20% lower than the average lithium price indices in the second quarter of 2024. A basket of lithium prices tracked by Benchmark Mineral Intelligence shows they have fallen about 70% over the past year due to weaker-than-expected global demand for electric vehicles, which can be attributed to high borrowing costs and global uncertainty.
Ramos further added that some lithium producers may reduce their output since the low prices made projects economically unviable. SQM said it will continue with its expansion plans, although it is reevaluating specific markets and initiatives that may be “less attractive in the near term under these conditions.”
U.S. rival Albemarle, which also operates in Atacama, said last month it would cut costs after posting a second-quarter loss. The global lithium market has been facing a challenging environment, with prices declining significantly due to a combination of factors, including weaker demand and increased supply.
The recent developments in the lithium market have raised concerns among industry players, as the low prices may make certain projects economically unviable. This could lead to production cuts and a potential shift in the global lithium supply landscape. As the industry navigates these challenges, companies like SQM and Albemarle will need to carefully evaluate their strategies to maintain profitability and competitiveness in the long run.