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Lithium's Chinese Connection

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Douglas Adams


  • SQM shares fell 7% last week as the company missed consensus projections of EPS and total revenues.
  • Meanwhile, the company's lithium revenues have cumulatively increased 189% through the end of 2017 since 2015 as the price of a metric ton of lithium reached all-time highs.
  • In the first quarter, lithium poked through the $16,000/metric ton threshold for the first time, an unprecedented 23% increase for the period.
  • SQM's production limits have been lifted as supply is now projected to reach 180,000 metric tons by 2021 as China assumes a commanding role in the EV space.

Sociedad Quimica y Minera's (NYSE:SQM) lithium production through the end of 2017 came to 49,700 metric tons, translating into $644.6 million at then current world prices, a 25% YOY increase in revenues from 2016 revenues of $514.6 million. Interestingly, the company's production needle through the end of 2016 didn't budge, coming in at 49,700 metric tons. More on that later. Going back another year, SQM's lithium production came to 38,700 metric tons through the end of 2015, making the company's 2016 production total larger by some 28%. The company's lithium revenue soared from $223.0 million to $514.6 million for a crisp 131% increase YOY. On the production side, the cumulative increase came to just over 28% for the period. On the revenue side, SQM cumulative gain topped 189%. In 2017, the average price for a metric ton of lithium came to roughly $13,000, about $10,350 in 2016 and just under $6,000 through the end of 2015. Through the end of the first quarter, lithium scratched out a new scorching high of $16,000 per metric ton, a 23% increase over the course of three months rather than over the course of a year. Through the end of 2016, the price of lithium came to $12,970 per metric ton. In 2015, that price was $5,760 per metric ton, almost 80% lower than the settling price of $10,360 through the end of 2016.

Lithium sales provided the company with 71% of its gross margin through the end of 2017. In 2016, lithium sales were responsible for 66% of gross margins and 51% in 2015. Cumulatively, lithium margins were up 125% for the period. Further price increases are expected up until the time when supply and demand come closer to some semblance of equilibrium in the next year and beyond. Until that time, demand is well out in front of supply, creating a classic seller's market

This article was written by

Douglas Adams profile picture
Douglas Adams specializes in macro-economic research and turning theory into practical portfolio applications for clients over the past seventeen years. Mr. Adams recently formed Charybdis Investments International based in High Falls, New York where he is the managing director of a fee-only investment advisory practice with clients throughout the United States. As an author, Mr. Adams has commented widely on a diverse array of topics from Brexit to monetary policy to forex to labor productivity and wage growth. He holds an undergraduate degree from the University of California, a master’s degree from the University of Washington and an MBA in finance from Syracuse University.

Analyst’s Disclosure: I am/we are long SQM, WMLLF, ALB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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