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Power up: high-tech products need just the kinds of chemicals found in Chile's far north. SQM is there.

Basking in the sun of Chile's Atacama Desert, lithium, iodine and nitrates producer SQM is sitting pretty. The world leader in its three core product lines, a major expansion plan under way and recovering prices contributed to record sales of US$896 million in 2005. CEO Patricio Contesse expects the company to top $1 billion in sales in 2006.

Demand is growing by at least 6% annually across its product lines and the company is investing $500 million through 2007 to upgrade technology to improve environmental performance and to reduce costs and improve margins, in addition to expanding to clinch its position as market leader. "Demand for our three main products, specialty fertilizers, iodine and lithium, has grown each year over the last 20 years. There has not been a year in which demand has grown at less than 3%," Contesse says. "The world has a scarcity of producers, so this means that the company is selling what it produces."

Lithium increasingly is used to replace nickel-cadmium in batteries for portable devices such as cell phones and laptop computers. Lithium is lighter, can hold a longer charge and is not as toxic, so disposal is less of a problem. "The prospect for the use of lithium in batteries is tremendous. There has been growth of over 20% in the last five years [in batteries] and it will continue to grow," Contesse says.

Demand for batteries helped push lithium prices up 20% in 2005. SQM forecasts a 25% increase for 2006, bringing it back to the nominal levels of 1996, at $3,500 per ton. With demand increasing and prices rising, SQM will expand production capacity to 40,000 tons per year from 28,000.

Potassium nitrate fertilizer enjoys various niches that competing potassium chloride cannot, such as tobacco and premium fruit and flowers for export. Strong performance from its operating divisions, growing demand and recovering prices have enabled SQM to successfully battle rising costs of energy and steel. The strength of the Chilean peso against the U.S. dollar has also helped. Efforts to increase productivity should successfully continue to meet this challenge, Contesse says. Production capacity will increase by up to 30% by 2007 without increasing the workforce.

Demand is booming too for iodine, a material used as an X-ray contrast media and in the production of liquid crystal display screens. Prices for iodine rose 25% in 2005. SQM has a 31% share of a market that has more than doubled since 1990 to 25,000 tons in 2005 on growing consumer interest in laptops, cellular phones and flatscreen televisions. As major economies in Asia and elsewhere become consumer dynamos, demand for iodine should rise even further.

Through a 2,000-ton expansion and the recent purchase of an iodine plant from Dutch producer DSM for $72 million, SQM will have capacity to produce 12,000 tons per year of iodine by 2007. SQM hopes to capture all of the market growth and benefit from further price recovery. Enormous. Ted Posey, president of competitor Atacama Minerals, agrees. He is looking to double iodine production in northern Chile to 1,400 tons per year in the next 18 months. "There is enormous demand in China and India and also Russia. The market will absorb this with no problem," he says. With demand increasing faster than supply, prices have improved too. "The price has risen from $12 per kilogram in 2003 to $20 per kilogram this year," Posey says.

In nitrate fertilizers, SQM already enjoys 50% of the market, which will grow as the company leverages its natural-resource advantage to expand production, something its competitors cannot. With limited supply, prices rose by 15% in 2005, with an 8% to 10% increase forecast for 2006.

Such growth has driven shares of SQM up more than 60%, says analyst Francisco Errandonea at Santander Investment in Santiago. "We have a very positive vision of SQM because it is taking advantage of good prices for its main products and being very careful bringing on new capacity," says Errandonea. "It has to be careful with its risk of investment, as its three products are in small markets, so an unforeseen event like new capacity coming on stream elsewhere could result in a big fall in price."

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Title Annotation:MINING
Comment:Power up: high-tech products need just the kinds of chemicals found in Chile's far north. SQM is there.(MINING)
Author:Harris, Paul
Publication:Latin Trade
Geographic Code:3CHIL
Date:Jul 1, 2006
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