In an economic recovery, the commodities sector is usually the first to recover. That’s because higher demand for consumer goods lowers inventories and drives demand for the raw materials needed to produce those products.
Take electronic goods like notebooks and cellphones. These run on lithium ion batteries that require large quantities of lithium produced by only a few countries, including Chile.
Chile’s SQM (SQM), the world’s largest lithium producer, is cashing in on the demand for batteries. Revenues for lithium and derivatives totaled $42.3 million during the first quarter of 2011, an increase of 24.8 percent compared to the same period of 2010.
But the main reason for SQM’s strong first quarter performance was its higher fertilizer sales. With global grain stocks near historical lows due to rising food demand, higher crop prices have boosted fertilizer prices in recent months.
As a result, SQM reported earnings for the first quarter of 2011 of $111.4 million, up 45.6 percent with respect to the same period of 2010, on higher demand and prices for lithium, fertilizers, and iodine. Earnings per ADR were 42 cents for the quarter, compared to 29 cents for the same period of 2010.
Revenues totaled $480 million for the first quarter, representing an increase of 23.6 percent over the $388.5 million reported in the same period of 2010.
“Robust demand in all of our business lines supported the solid earnings performance in the first quarter of 2011. Strong fertilizer market conditions drove growth in our Speciality Plant Nutrition business line, and better pricing conditions in potash markets sustained our fertilizer business lines,” said SQM’s CEO, Patricio Contesse.
SQM anticipates healthy growth for the lithium market in 2011, with total sales expected to increase by about 10 percent, led by demand for batteries, especially from new Asian producers.
“We have observed a return to historical growth rates in our main markets and we expect this healthy demand trend to continue in the following quarters,” said SQM Executive Vice President and COO Patricio de Solminihac, in an earnings conference call.
Potash prices are expected to continue to be strong in the second half, although higher energy and labor costs could have a negative impact on margins, said Solminihac.
SQM plans to invest $1.5 billion in the next four years, including $300 million this year, to increase its production capacity in its three main business areas: fertilizers, iodine, and lithium.
Over the last 52 weeks, the company's ADRs have traded at a low of $31.20 and a high of $61.54, gaining about 75 percent over the same period.
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