SQM Reports Significant Decline in Profits Amid Lithium Price Slump
SQM, once a star performer in 2022 and 2023, is experiencing a challenging fiscal year as the company grapples with declining lithium prices. The Chilean mining giant, which heavily relies on lithium, reported a sharp drop in profits, with second-quarter earnings plummeting 63% to $213 million from $580 million in the same period last year. This decline follows first-half losses totaling $653 million, driven by an accounting impact related to tax disputes.
The downturn in SQM's fortunes is primarily due to the dramatic fall in lithium prices. In 2022, lithium contributed to over 80% of SQM's sales, but this year, it accounts for just over half, at 50.9% in the first half. Despite achieving record production levels, with 52,000 tons of lithium carbonate produced in the second quarter—the highest in the company's history—the sales price of lithium dropped significantly. SQM sold lithium at an average price of $12,700 per ton in the April-June period, a staggering 62% lower than the $34,000 per ton it fetched in the same period in 2023.
This decline in lithium prices has not only affected SQM's profits but also its contributions to Chile's state development agency, Corfo. The company paid $264 million in royalties to Corfo in the first half of 2024, an 80% drop from the $1.27 billion paid in the same period last year. The steep reduction in payments is directly linked to the lower lithium prices, which are subject to a sliding scale of royalty rates agreed upon in a 2017 negotiation between SQM and Corfo.
Despite the challenging market conditions, SQM has increased its lithium production, reaching 95,000 tons in the first half of the year. The company projects total production of 210,000 tons for 2024, which would represent nearly one-fifth of global lithium output. However, SQM's CEO Ricardo Ramos has warned that the downward trend in lithium prices could continue into the second half of the year, with current indices in China already 20% lower than those observed in the second quarter of 2024.
Adding to its woes, SQM reported a half-year loss due to a $1.1 billion accounting charge related to ongoing tax disputes with Chile's Internal Revenue Service (SII). This charge, stemming from a legal battle over the specific mining tax, overshadowed the company's operational profits, which totaled $587 million in the first half of 2024 before taxes and accounting adjustments.
SQM's total revenues for the first half of the year amounted to $2.38 billion, reflecting the company's resilience in the face of a challenging market but also underscoring the impact of fluctuating lithium prices on its financial performance.
