SQM - Sociedad Química y Minera de Chile: Managing Risks Amidst Lithium Protectionism
2024-05-06 16:25:03 ET
Summary
- Sociedad Química y Minera de Chile is one of the largest lithium producers, with 18% market share.
- Long-term demand for lithium is expected to remain strong due to its role in battery manufacturing, which could lead to a potential recovery for SQM in FY25 and beyond.
- However, the Chilean government's protectionist shift poses a significant risk for SQM, and the company is taking steps to diversify its business away from Chile.
Sociedad Química y Minera de Chile ( SQM ) is among the largest lithium producers globally, boasting a market share of around 18% in FY23. The lithium price skyrocketed to all-time highs in 2022, driven by supply chain restrictions and the surging demand for EVs, only to sharply decline in 2023 due to oversupply. By early 2024, the price has shown signs of stabilization, hinting at a potential recovery. This trend significantly impacted SQM's economic performance, initially benefiting the company in FY22 but turning into a headwind in FY23, with potential effects extending to FY24. Beyond short-term volatility caused by supply/demand imbalances, the long-term demand for this metal is expected to remain strong, propelled by structural factors rooted in its essential role within battery manufacturing. For these reasons, after a challenging FY24, I expect an improvement in revenue and margins starting from FY25. In my opinion, this outlook suggests that the stock is undervalued, a view also supported by the DCF analysis....
Sociedad Química y Minera de Chile: Managing Risks Amidst Lithium Protectionism