SQM still optimistic on lithium demand growth despite short-term slowdown

Sociedad Quimica y Minera (SQM) foresees global lithium demand reaching 1.5 million tonnes by 2025 and expects total demand to grow by at least 20% year on year in 2023, the Chilean miner said

Optimistic expectations come despite a slowdown in global lithium spot prices since the end of 2022, which stem from weakening demand in China, company representatives said during a conference call to discuss its fourth-quarter earnings on March 2.

“We see strong indicators of demand growth in the lithium market driven by the electric vehicles (EV) sales growth worldwide, and the investment in renewable energy that require energy storage systems,” chief executive officer Ricardo Ramos said during the call.

“Our sales volume during the second half of the year should be higher than compared to the first half of the year. We will continue to invest in growing our lithium production globally,” he added.

SQM reported total lithium carbonate equivalent (LCE) production of 180,000 tonnes at its Salar de Atacama operations in Chile; it expects this to rise to 210,000 tonnes of LCE by the end of 2023.

The company also expects to produce its first spodumene from its MT Holland project in Western Australia by the end of 2023 and lithium hydroxide sourced from spodumene by the first half of 2025.

SQM reported revenues for lithium and derivatives totaling $8.15 billion during the 12 months ending December 31, a year-on-year increase of 771%.

Revenues for lithium and derivatives during the fourth quarter of 2022 increased by 458% from the fourth quarter of 2021. Ramos attributed the increased revenues to higher realized lithium prices over the reporting periods.

Lithium prices bottomed out in 2020 but have since risen thanks to a revival in demand from the downstream battery sector for EVs. Still, prices have retreated globally in recent pricing sessions, reflecting weakness in the most liquid Chinese domestic market.

Fastmarkets’ daily price assessment of lithium carbonate 99.5% Li2CO3 min, battery grade, spot price cif China, Japan & Korea was $58-65 per kg on Monday March 6, down by 7.51% from $65-68 per kg on February 28 but up by 53.75% from $39-41 per kg at the start of January 2022.

Temporary ‘sluggishness’ in EV sector

In the Chinese domestic market, participants highlighted temporary sluggishness in the EV sector as a reason for thin demand for lithium salts. Cathode producers are not receiving any new orders from battery producers, diluting demand for upstream lithium salts, they said.

Despite some short-term weakness in the domestic Chinese market, SQM’s sales are well diversified by geography and product, Ramos said during the call.

“What you’re seeing today in China is still very early for us to consider as a real trend,” he said.

When asked about the company’s decision to increase its exposure to prices in a falling market, Ramos added: “We are going to be very well exposed to the market - whatever direction the market takes, our sales will be mainly following the market.”

“We have taken that decision already some time ago that we want to have our contracts following the market. I think this at the end represents the best solution for customers and suppliers,” he added. “We have learned the hard way in the past but sometimes when you fix prices and then the market changes unexpectedly then you are in a problem and we want to avoid that.”

Although long-term contracts -- based on a fixed price negotiated between seller and buyer -- have traditionally dominated the lithium market, the price uptrend of recent years coupled with the unpredictability of future lithium prices has prompted a shift to a pricing mechanism based on more transparent and up-to-date supply-demand dynamics.

Keep up to date with global market insights and predictions for 2023 and beyond with our NewGen forecasts.

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