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Edited Transcript of SQM-A.SN earnings conference call or presentation 22-Aug-19 4:00pm GMT

Q2 2019 Sociedad Quimica y Minera de Chile SA Earnings Call

Santiago Sep 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Sociedad Quimica y Minera de Chile SA earnings conference call or presentation Thursday, August 22, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gerardo G. Illanes

Sociedad Química y Minera de Chile S.A. - CFO & VP of Corporate Finance

* Ricardo Ramos Rodríguez

Sociedad Química y Minera de Chile S.A. - CEO

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Conference Call Participants

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* Alexandre Pfrimer Falcao

HSBC, Research Division - SVP

* Andrew J. McCarthy

Citigroup Inc, Research Division - Deputy Manager of Studies

* Benjamin Isaacson

Scotiabank Global Banking and Markets, Research Division - MD and Head of Commodity Research

* Cesar Perez-Novoa

BTG Pactual Chile S.A. Corredores de Bolsa, Research Division - Research Co-Director for Latin America & Equity Strategist

* Christopher Michael Terry

Deutsche Bank AG, Research Division - Research Analyst

* Isabella Simonato

BofA Merrill Lynch, Research Division - VP

* Joel Jackson

BMO Capital Markets Equity Research - Director of Fertilizer Research & Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the SQM Second Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Gerardo Illanes, CFO. Please go ahead.

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Gerardo G. Illanes, Sociedad Química y Minera de Chile S.A. - CFO & VP of Corporate Finance [2]

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Thank you. Good morning, everyone, and welcome to SQM's Second Quarter 2019 Earnings Conference Call. For your information, this conference call will be recorded and is being webcast live. You may access the webcast later on at our website www.sqm.com.

Our presentation with a summary of the results has been uploaded at our website. And it is also available on our webcast. Joining me today, our speaker is Ricardo Ramos, Chief Executive Officer.

Before we begin, let me remind you that statements in this conference concerning the company's business outlook, future economic performance, anticipated profitability, revenues, expenses or other financial items, anticipated cost synergies and product or service line growth, together with other statements that are not historical facts, are forward-looking statements as that term is defined under federal securities law. Any forward-looking statements are estimates, reflecting the best judgment of SQM based on currently available information and involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those stated in such statements.

Risks, uncertainties and factors that could affect the accuracy of such forward-looking statements are identified in the public filings made with the Securities and Exchange Commission and forward-looking statements should be considered in light of those factors.

I now leave you with our Chief Executive Officer, Ricardo Ramos, for brief comments before we move to Q&A.

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Ricardo Ramos Rodríguez, Sociedad Química y Minera de Chile S.A. - CEO [3]

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Thank you, and good morning for joining us today in the second quarter 2019 earnings conference call. I will begin with some brief comments on our second quarter results, before opening the lineup for questions. You can follow along with the webcast presentation.

Turning to Page 3 of the webcast presentation, you will see a brief overview of our second quarter results. Our revenue for the 6 months ended June 30, 2019, reached almost $500 million and our net income reached just over $70 million, lower than the $134 million reported during the same period last year. So a lower adjusted EBITDA margin this quarter when compared to the previous quarter, but it's still above 33%.

Turning to the next page. You can see that the main driver of these lower results was primarily lower contribution to gross profit from lithium because of lower average prices, although partially offset by higher sales volumes. Our results were also impacted by lower potassium chloride volumes and the lack of solar salts sales during the second quarter. Iodine prices were strong during the second quarter, and we did see a positive change in the contribution to the company's gross profit from this business line. SQM is a dynamic and diverse company, which is subject to cycles. We have seen lithium, potassium, iodine and SPN leading the company's gross profit.

In the lithium business line, the realized average prices we reported in the second quarter were lower than the ones reported in the first quarter, mainly because we have been selling under short-term contracts, which expose us more to the ups and downs of the market. Over the past few months, changes in timing and amount of the subsidies given by the Chinese government to the electric vehicle industry had an impact on the behavior of the demand for electric vehicles in the most important market, and consequently, on the demand for lithium products. These changes may have a total impact on this year demand of 3,000 to 4,000 metric tons, but should not have a lasting effect on the demand for electric vehicles market, as we continue to see a strong commitment from the Chinese government and other relevant players in China and abroad to the electrification of the vehicle industry. These can be seen in the fact that demand for electric vehicles in China could grow to about 33% this year when we compared to last year. Slight changes in the demand have had a direct impact in our realized prices and we continue to have an impact positive or negative. Despite the current noise we are seeing in the market, our commitment to the lithium industry is stronger than ever. We're increasing our production in the second half of this year as we prepare to increase our sales volumes to 65,000 metric tons next year. We keep working on our expansion plan to reach 120,000 metric tons capacity by the second half of 2021. Beyond that our plan is to continue to expand capacity every 2 years in incremental models of 40,000 metric tons each expansion.

Therefore, our next step will be a total capacity of 160,000 metric tons by the end of the year 2023. Since we are already working on the engineering of these project, all this will led us first, recuperate the market share with the loss over the past few years and maintain a strong market share in the growing market.

It is too early to forecast what may happen in 2020, but there are a few things that I think are relevant to discuss at this stage. We have seen higher prices in the iodine business line and believe this positive trend could continue in coming months and quarters. The iodine market is a developed market with a steady growth rate and SQM has access to one of the best iodine resources in the world. The SPN market is expected to continue with its healthy growth. The incremental restriction that we had on the brine extraction in the Salar de Atacama is being released. As a result, annual sales volumes of potassium chloride are expected to close to 600,000 metric tons this year that are approximately 20% more than previously anticipated, and we expect to be close to 1 million tons next year, 2020.

We believe in the future of the solar salt market and we will be supplying a very large concentrated solar power plant project in the Middle East with delivery starting in 2020, which will require over 400,000 metric tons. As you can see SQM continues to take advantage of opportunities across all business lines.

I will close my reviewing the CapEx plans that we have announced as of today. On Page 6 of the presentation, the Board has approved a CapEx plan of $360 billion for 2019. As you can see, it is related to our lithium expansion plans in Chile, both carbonate and hydroxide. We continue to work with Kidman and Wesfarmers on the Mt. Holland lithium project in Western Australia, and we look forward to completing the feasibility study during the very beginning of 2020. At that point, we will have more details surrounding the CapEx, cost, and timing of the project. Furthermore, we have previously announced that we are working on the environmental permits necessary to increase iodine capacity in the near future, and we are increasing nitrates to meet the growing demand in the industrial and fertilizer nitrate space.

I will now open the lines up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question will come from Alex Falcao of HSBC.

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Alexandre Pfrimer Falcao, HSBC, Research Division - SVP [2]

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My question is regarding prices for lithium, specifically on the regional breakdown. So if you go into the Chilean data, it basically says that you sold a lot more to China than you have previously done in previous quarters. But the price is extremely lower, talking about between $6,000 and $7,000. Can you comment on why you're selling lithium so cheap? And if that's a trend that you should continue to see in other quarters?

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Ricardo Ramos Rodríguez, Sociedad Química y Minera de Chile S.A. - CEO [3]

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Hello, Alex. Ricardo speaking here. You know that we are significant global player in the lithium industry. Therefore, we need to sell in all markets, including China, which is a key market in the electric vehicle and battery. We sell to different customers in China with different rates, different industries, different volumes. And SQM lithium production and as specification, of course, are aligned with this market requirement. China is going to be a part of our business for sure in the future, we don't expect to get out of the market, keep in mind that we expect to be at 65,000 metric tons next year and continue to grow with the market. It means a very strong growth. We are moving to 120,000 metric tons expansion to the 150,000 that has been under engineering today. Means, we need to sell everywhere. China, I will not comment about pricing now, but I do not agree with you about the pricing in China, in the $6,000 per metric tons. We're selling on market conditions in China today, and we are selling in China according to the needs of the different industries in China.

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Operator [4]

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The next question will come from Chris Terry of Deutsche Bank.

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Christopher Michael Terry, Deutsche Bank AG, Research Division - Research Analyst [5]

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The first one just relates to the pricing strategy. Just wondering whether you could remind us how far in advance -- how many months forward you have color over what you're selling the materials at? And whether you can talk a little bit about the fourth quarter. Previously, you had spoken about the second half being at 11,000 to 12,000. You obviously talked about 3Q specifically. I was just wondering whether there's any comments on the rest of the year beyond 3Q.

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Ricardo Ramos Rodríguez, Sociedad Química y Minera de Chile S.A. - CEO [6]

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I explained before for the third quarter, we're almost closing all the pricing today, the third quarter. That's why we have an outlook about third quarter. But -- that's why we have a very good idea about the third quarter. But we're, now, as we speak, currently discussing prices for the fourth quarter and as you know, prices are extremely sensitive to slight changes in the short-term demand growth. We think that in the next 2 months, we will have a better understanding about a very good outlook over the fourth quarter. Now we think that it's reasonable to have the outlook of the third quarter out there that is $10,000 per metric tons as already shared with you, close to.

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Christopher Michael Terry, Deutsche Bank AG, Research Division - Research Analyst [7]

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Okay. And just in terms of the China sales, I know you don't want to comment against those -- that previous -- the numbers before. But do -- can you talk about the mechanism to which you sell into China? Is it linked at all to the China spot prices that are separate price that's more similar to outside China pricing? Just wondering whether you could talk through how the discussions work within that region?

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Ricardo Ramos Rodríguez, Sociedad Química y Minera de Chile S.A. - CEO [8]

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Hi, Chris. Chris, let me comment that China is a market like every single market where you have different customers, and as I explained it before, different customers, we have different industry, different grade, and we sell to every single important customer in China. And it's the same kind of discussion we -- you have with different customers in Korea or Japan and everywhere. It means this is not a very unique market out there in China. It's a big market. It's an important market because, as you may know, an important growth in the electric vehicles is coming from China. That's why the China producer, battery producer, cathode producers are very important and will be very important in the future. We would not see -- we don't see a difference in the negotiation process in the relation with these big customers that we have in China as compared to other countries.

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Christopher Michael Terry, Deutsche Bank AG, Research Division - Research Analyst [9]

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Okay. And just the last one for me. Just on the positive developments in solar salts. Can you talk about how that extra 400,000 tons, should we think about that split evenly over 2020, 2021 and 2022? And what sort of margins should we think about just in terms of the profitability of that division? Is it similar to other tons you're selling in that division? Or is it a separate way of thinking about the profitability?

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Gerardo G. Illanes, Sociedad Química y Minera de Chile S.A. - CFO & VP of Corporate Finance [10]

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Hi, Chris. This is Gerardo Illanes answering your question. Of course, the final delivery still will depend on production and on the panel discussions with the customer when they actually need the product. But it's reasonable to expect something in the neighborhood of 150,000 next year, 250,000 the year after next one, and 50,000 the year 2022. That's more or less how these contracts should be delivered. Regarding prices and margin, it should be similar than what we have had in previous contracts. So there should not be a change or a significant change there.

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Operator [11]

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The next question will come from Andrew McCarthy of Citi.

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Andrew J. McCarthy, Citigroup Inc, Research Division - Deputy Manager of Studies [12]

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My first one was just following up on the comment on the impact of 3,000 to 4,000 tons in lithium this year. I just wanted to try and understand, there you're referring to your expected sales for 2019. Are you, therefore, saying rather than sort of 45,000 to 50,000 for this year, you may be seeing sort of 3,000 to 4,000 less than that now? And then my other question was regarding the iodine business. You mentioned tight market conditions. But at the same time you talked about in the press release that you were seeing similar to slightly lower levels of sales volumes this year. I just wanted to try and understand why that was the case given the prices seem to be moving higher but you're saying you're going to sell less this year. If you could provide some color to help us understand that would be great.

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Ricardo Ramos Rodríguez, Sociedad Química y Minera de Chile S.A. - CEO [13]

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Okay. Thank you, Andrew. I want to be very clear about the 3,000, 4,000 metric tons. It's our estimate about the reduction in the total demand of lithium in equivalent -- carbonate equivalent in China. It's not SQM sales. We maintain and probably -- and slightly increasing our forecast volumes sales for this year. From the beginning, we said between 45,000 to 50,000 metric tons this year, I think it's going to be higher than 47,000. That's what I expect today for this year, SQM sales. But this reduction in China is not affecting SQM volumes, our total global volumes, we think, but we -- it's affecting the price environment. The main reason to mention this 3,000 to 4,000 metric ton is that we think it's affecting the conditions and the equilibrium between supply and demand and, of course, affecting the price environment worldwide. This is regarding the lithium question. Regarding the iodine, if you review our sales, last year, our sales volumes grew 5%. Means, in 2018, as compared to 2017, reaching a record year in volume sales. If you compare 2017 and 2018, it's very important that it is aligned. We expect that if you consider both the year, the growth we expect this year and the growth we expect we had last year will be higher than 2.5% average. That is at the same level of the market condition. Means, in 2 years, we're growing according market.

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Operator [14]

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Our next question will come from Ben Isaacson of Scotiabank.

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Benjamin Isaacson, Scotiabank Global Banking and Markets, Research Division - MD and Head of Commodity Research [15]

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I have 3 of them. First one is on the SPN business. Potash prices looks like they're going to be a little bit weaker over the next few quarters. Can you talk about how that will impact SPN pricing and margins?

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Ricardo Ramos Rodríguez, Sociedad Química y Minera de Chile S.A. - CEO [16]

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Hello, Ben. We expect you currently in September. When are you going to visit? I hope...

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Benjamin Isaacson, Scotiabank Global Banking and Markets, Research Division - MD and Head of Commodity Research [17]

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I'll be down in a few months.

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Ricardo Ramos Rodríguez, Sociedad Química y Minera de Chile S.A. - CEO [18]

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That's going to be great. About -- of course, potash is a raw material. In the production of potassium nitrate with our competitors that's for sure. Different pricing in the potash is affecting their cost position and, of course, could affect, in some way, the potassium nitrate. If you're reviewing the past because we have had a lot of up and down in the potash in the last, I don't know, 10 years. Of course, in some way affects, but it's not in the same effect of the potash price effect. Means, when the potash price increased 15%, we don't expect to increase our potassium nitrate 15%. The same example when the price goes down 15%, we don't expect to decrease our pricing 15% while the market price decrease 15%. Means, our potassium nitrate pricing is more stable than potash pricing. But of course, having a high potash price is better for us, that's for sure. Because not only it affects the potassium nitrate, it affects our potash industry. As you know, we are selling today, we expect to sell 600,000 metric tons this year, and I expect to sell close to 1 million tons next year. Keep in mind that in the past, we sold like 1.3 million tons and 1.5 million tons of potash. That's why I expect to be 1 million tons probably in 2020 and come back to the 1.3 million tons. And it's a very important market for me, even though I am very small in the potash industry. But for me it's important, for SQM it's important and for potassium nitrate it's important too. It's a good news having the potash going up, yes. It's a terrible news in terms of the potassium nitrate, no, but it affects.

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Benjamin Isaacson, Scotiabank Global Banking and Markets, Research Division - MD and Head of Commodity Research [19]

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Perfect. My second question on lithium costs. If we take out royalties, it looks like you got your costs down quite nicely in Q2 over Q1. My estimate is roughly $4,000 a ton, excluding the royalties. Can you talk about whether that's as low as you expect them to go? Or is there more room for improvement?

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Ricardo Ramos Rodríguez, Sociedad Química y Minera de Chile S.A. - CEO [20]

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I think, Ben, it's some mistake in the numbers. If you subtract the royalty to CORFO, thus keep in mind that we put the table of the royalty in our web page, if you want to review in one press release in the past. It's available for everyone. I think that our cost in some way is similar to the cost of the first quarter, may be a slightly higher asset cost without considering royalties and the reason is that we are selling because the average cost of inventory, we're selling product from the first quarter. And during the first quarter, our cost was slightly higher because it was the start-up of the new facility, and we have some additional and extra cost. In the future, now, we have a very good news from the lithium plant. I'm more than happy today to inform you that the plant is producing at 200 tons per day, means, close to the 70,000 metric tons. The only reason why this year we expect to produce it is close to 60,000 metric tons because we are changing some equipments, improving some areas of the plant. That's why we have some maintenance time in order to do it. But as a total production capacity, we already reached the 70,000, and more than sure that next year, we will produce something more than 70,000. And the most important thing is that all the production will be according commercial requirements in terms of the spec. That's why the technical strategy will be according to the commercial needs, and we will produce more than 70,000. And the other good news is that, of course, the total cost I expect would be lower than today because we will producing more lithium in the same facility, producing every single day. That's going to be good. Anyway, I remember -- let me remind you that the table -- the figure with a -- Gerardo, if you can explain where we can find the table we placed to CORFO.

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Gerardo G. Illanes, Sociedad Química y Minera de Chile S.A. - CFO & VP of Corporate Finance [21]

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Yes. Remember that the table that we used to calculate the lease payments to CORFO for lithium carbonate is different than the table of lithium hydroxide. And fortunately, we don't disclose the breakdown between lithium carbonate and lithium hydroxide. So for you, it's somewhat different -- difficult to get to the precise number, but Ricardo was mentioning the trend that we are seeing in the cost and what we expect going forward.

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Benjamin Isaacson, Scotiabank Global Banking and Markets, Research Division - MD and Head of Commodity Research [22]

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Very helpful. A very last question, I'm not sure if you want to answer it. You talked about $10,000 roughly in guidance for Q3. Can you talk about how, and you talked also, that you're already focused on Q4. So for July and August, how did those dollar values or those prices trend? And maybe you probably have insight into September as well, really as breaking that dollars down on a monthly basis?

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Ricardo Ramos Rodríguez, Sociedad Química y Minera de Chile S.A. - CEO [23]

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Yes. I understand. We don't break the -- we don't give the numbers per month. And I think the best reasonable way to do it is as an average per quarter. There's different customers in different months, different industry and so on. I think the average per quarter is a better number. We don't disclose it per month. And I repeat, we expect as an average pricing for the quarter close to $10,000 per ton.

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Operator [24]

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The next question will come from Cesar Perez-Novoa of BTG Pactual.

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Cesar Perez-Novoa, BTG Pactual Chile S.A. Corredores de Bolsa, Research Division - Research Co-Director for Latin America & Equity Strategist [25]

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Lithium tonnage in 2020 is expected to grow between 30% or 40%. What demand growth is embedded in that guidance? And is that figure based on hard contracts? Or how your business -- on your view on how your business should roll in 2020? And if I may have a second question as well, it relates to China. Can you please state, as a proportion of sales, how much was sold to that specific country in the second quarter? Whatever form you may want to express that in volume or revenue?

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Ricardo Ramos Rodríguez, Sociedad Química y Minera de Chile S.A. - CEO [26]

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(foreign language) About your questions about lithium. The first question was, sorry...

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Gerardo G. Illanes, Sociedad Química y Minera de Chile S.A. - CFO & VP of Corporate Finance [27]

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How to get to 65,000?

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Ricardo Ramos Rodríguez, Sociedad Química y Minera de Chile S.A. - CEO [28]

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Okay. Okay. You're right. In this you're right that the -- we expect a growth for next year higher than the market growth. That's for sure. The reason behind that is that if you review our volume sales in the last 4 years, including 2019, SQM volume sale was quite a stable at 47,000, 48,000 per metric tons. It means, of course, with the market growing and SQM volume sales are stable, the reason behind that was the production restriction. And what we are doing next year is to, in some way, recover our market share participation. And in order to do so, we move to the 65,000 metric tons in order to have this market share participation that I think is a reasonable market -- strong and a reasonable market share for SQM. And we expect EBITDA to grow maybe just a little bit higher than the market may be in the 2021, '22. That's why we are moving to the 120,000, 150,000, and probably, next step will be 200,000 metric tons. We are working now as we speak in the program, in a commercial clear program to allocate the 65,000 metric tons. And we know how to do it. We have a clear plan in order to do it, and we will execute the plan next year. And the main reason to do it now next year is because we're going to have all the production, we are going to have to produce more than 70,000 metric tons. That's very important. All of them according to market technical specs -- specifications that will allow us to have the first inventory to increase our sales and to have the logistic and inventory to increase the sales to the 65,000 metric tons next year. This is the first question. And your second question is the breakdown of our total volume sales per country. We don't do that. Now we don't have the numbers in front of me anyway of the breakdown. Let me check it internally, first up, if we're going to release this information, and if we do so, we will publish this information publically, okay? In the 6-K. Let me review it internally with our colleagues if we are going to do so. But anyway, I don't have it in front of me.

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Operator [29]

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The next question will come from Joel Jackson of BMO.

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Joel Jackson, BMO Capital Markets Equity Research - Director of Fertilizer Research & Analyst [30]

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I have 3 questions. I'll ask one at a time, please. On the brine extraction, so I think you're -- you've had the right to extract as high as 1,500 liters a second because of a couple of reasons. Over the last year or 2, that's gone down to I think 1,000 or 1,100. You're now suggesting that you're getting more relief on that. So what would you expect your brine extraction to be next year to get to a 1 million tons? And for -- of merchant products volume, sales volume? And then what do you expect that to increase beyond that?

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Ricardo Ramos Rodríguez, Sociedad Química y Minera de Chile S.A. - CEO [31]

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Hi, Joel. As I explained during the conference at the beginning, we are now moving in the right direction. It means that total volumes will be 600,000 metric tons this year. They are more than what we originally anticipated. We're working as we're speaking the technical plans for next year. It's not so easy because we have solutions. We put the solutions on department and we need to wait until we have the finance sought. But my estimate today that could change is that we can reach something closer to 1 million tons next year in terms of potash and probably something more in 2021. I expect during the next conference call to have a very accurate number about that. And I -- we'll release this numbers. What we're having now is going back to the original approved extraction that we had the approval before the reduction that we are having in a couple of years. That's exactly what we're doing. It didn't affect the possibilities to produce lithium, but it affected our possibility to produce potash and now we are recovering the potash production.

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Joel Jackson, BMO Capital Markets Equity Research - Director of Fertilizer Research & Analyst [32]

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Okay. Back on lithium. I know that the China lithium question has been asked several times, I'd like to ask a little bit different angle, which is, it does seem like prices have come in very low in China, some of the pricing you sold. Is this because you're having issue meeting spec for some of your products, and so you have to sell it to some of these lower-quality opportunities? Or is your specs fine, your production is fine, you're making good quality product, but this is where the incremental demand is at these lower-priced customers in China?

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Ricardo Ramos Rodríguez, Sociedad Química y Minera de Chile S.A. - CEO [33]

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Joel, as I explained before, we sell it to different customers, different specifications, different industry, and all of them, they have different requirements. But anyway, when I said that during the third quarter, I want you to be very clear about that, when we say that during third quarter our expected price average will be $10,000 per ton. We expect that all the products we sell during the quarter will be according customer specification. We're not selling out of the spec product, we are selling different products to different needs of different markets around the world.

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Joel Jackson, BMO Capital Markets Equity Research - Director of Fertilizer Research & Analyst [34]

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Okay. And finally, on hydroxide, you're looking to more than double hydroxide expansion again here by 2021. Right now, if I calculate rightly, I mean, hydroxide premiums, you're not really making any margin really to upgrade carbonate hydroxide, you're not going to have the Australian JV for some years. Is this something you have to do right now to meet customer needs? Because I think ideally, maybe you'd want to have your hydroxide production coming out of Australia down the road?

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Ricardo Ramos Rodríguez, Sociedad Química y Minera de Chile S.A. - CEO [35]

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You're right. In terms that the equilibrium of the needs from the hydroxide and carbonate is changing, depending the type of batteries they are going to produce in the near future, plus it's changing because most of the new production from Australia is trying to target the hydroxide market. We have this capacity to produce lithium carbonate and some production of hydroxide. We maintain and we will maintain this capacity in order to have full flexibility considering that we're going to be a full player with that strong market share and we expect to supply all the needs of our customers. That's why having this capacity for us is very important as a strategy, but of course, we have the ability and the flexibility to sell more lithium hydroxide or to translate from lithium hydroxide to lithium carbonate depending what is the real situation of our main customers.

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Operator [36]

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The next question will come from Isabella Simonato of Bank of America.

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Isabella Simonato, BofA Merrill Lynch, Research Division - VP [37]

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My questions are on lithium as well. First of all, looking more to short-term prices. We saw already a pretty big decline in July prices versus what happened in Q3. And considering your guidance of $10,000, it might seem a little bit optimistic considering where we're seeing the market price. So is it possible for you to give us a little bit more color, how prices should evolve throughout Q3 and Q4? And if possible also, what do you expect in terms of mix between carbonate and hydroxide? That would be my first question. And the second one, longer term, considering that most of the growth of lithium demand should come from China and the grades and, as we saw this quarter, right, the mix tends to be a little bit worse. It's fair to assume that looking at prices in China should be in the medium term the benchmark to your prices?

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Ricardo Ramos Rodríguez, Sociedad Química y Minera de Chile S.A. - CEO [38]

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First, as I mentioned you before, we're not disclosing today because we don't have a clear understanding or estimate of the cost or the pricing. We are starting the negotiation prices with some of the customers, some of them. About third quarter, as we mentioned -- already mentioned to you that it's the average pricing. You have many publications of pricing of people publishing in internet, different pricing in China. I don't know where they get it. They say prices, for example, some publications say, pricing in China is $6,000 per metric ton, and we're not selling at $6,000 per metric ton today in China. I don't know where the numbers are coming from. And when I said that the $10,000 is the average, it's the average, and it's what we expect for this quarter. You are right that China is important in the lithium industry in the future, it's important today and will be important in the future. But it's not the only market. Keep in mind that the electric vehicle growth is something very important in Europe, in India, in South East Asia, in the United States, it's going to be very important in next 2 years. That's why China even though is, if I'm not wrong, close to 20%, 25% of the market of the electric car -- of the cars today, the roller cars, it's very important. It's not the only market and that's why you need to consider a full global average in the market. That's why China is not the benchmark, it's part of the average of the world. And I don't foresee that China quality will be lower or China production will be different quality production than northern countries in the world. That's why I don't foresee the long-term pricing in China different than pricing all around the world. It means every single customer into the world will produce high-quality products and they will require high-quality lithium and they will produce high-quality cars. And it means that they will buy at the same price everywhere. Means that the price would be quite stable around the world in the long term. China is going to be part of the game. But again, we expect and repeat our outlook of the third quarter, and we want to have a better information to have an outlook over the fourth quarter next year about lithium pricing.

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Isabella Simonato, BofA Merrill Lynch, Research Division - VP [39]

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That's clear. Just one follow-up, I mean, despite the sell-off in prices, you're still quite profitable on lithium. Is there any price level you would stop expanding capacity?

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Ricardo Ramos Rodríguez, Sociedad Química y Minera de Chile S.A. - CEO [40]

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Definitely not. We -- I want to be very clear that we are the lowest cost producer in the world, we will continue to be the lowest cost producer in the world. I will expand and my capacity would be ready 100% according to commercial needs at the end of 2021, 120,000 metric tons. And we are moving as fast as we can in order to have the 160,000 metric tons at the end of the year 2023. That's for sure. We will be there, and we will have a lot of profits doing so because it's a very good business for us and we're very low cost.

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Operator [41]

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This concludes our question-and-answer session. I would now like to turn the conference back over to Gerardo Illanes for any closing remarks.

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Gerardo G. Illanes, Sociedad Química y Minera de Chile S.A. - CFO & VP of Corporate Finance [42]

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Thank you. Before finishing the call today, let me remind you that we are hosting our Investor Day in New York on September 10. Details are on our website. In case you want to register, you can go there and follow the instructions there. Thank you all very much for joining us today. And we hope to see you on September 10 for -- on our next conference call. Goodbye.

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Operator [43]

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Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.