Lithium giant Sociedad Quimica y Minera de Chile (SQM) reported massive growth in earnings, but came up shy of estimates, despite beating on revenue. SQM stock fell in Thursday stock market action, following the late night report.
There was plenty of good news about SQM’s lithium operations. SQM said it’s now on track to sell “at least 145,000 metric tons” of lithium carbonate this year, up from prior guidance of 140,000. The company also said it’s close to reaching its prior year-end target of a 180,000-ton annual run rate.
“As we have seen in the past, a lot of new lithium supply outside of SQM has been delayed and slow to come online,” the company said. As a result, SQM expects the supply/demand balance “will be tight for the remainder of 2022,” continuing to support high lithium prices.
SQM earned $3.01 per share, up 871% from a year ago, but shy of $3.12 estimates. Revenue leapt 342% to $2.599 billion, easily beating estimates of $2.28 billion.
Lithium sales rocketed just over 1,000% to $1.847 billion. The company said 70% of sales volume is sold via contracts with completely variable prices, up from 50% in Q1, after renegotiations.
So what accounted for the earnings miss? SQM did note higher energy costs and overall inflation.
SQM’s earning presentation also shows that lithium sales volume fell 10% from Q1, partially offsetting the 42% price increase.
SQM isn’t just a lithium play. It’s also the largest producer of potassium nitrate, used for fertilizer, and a leading producer of iodine. But lithium sales now account for 71% of company revenue, and that could keep rising. SQM has previously said that an additional 70,000 tons of capacity is seen coming online in Chile and via an Australian joint venture in 2023 and 2024.
SQM stock fell 7.6% to 96.51 in Thursday afternoon stock market action. Having retreated 5.1% on Tuesday and 1.2% on Wednesday, SQM stock undercut a 99.82 early entry from a cup base with a less-than-perfect handle.
SQM was featured as IBD Stock Of The Day on Aug. 8, when it was still below that early entry point. SQM stock kept surging through Monday. Thursday’s decline is a reminder that buying ahead of earnings comes with higher risk.
SQM stock bounced off its 50-day line as it came off Thursday morning lows.
Other Lithium Stocks
On Thursday, ALB added 0.6% to 279.15. Albemarle (ALB) was featured as IBD Stock Of The Day last Wednesday as it cleared a 250.25 handle entry point. ALB stock, part of the IBD Leaderboard portfolio of elite stocks, surged 18.3% last week.
ALB stock is currently in buy range from a 273.78 buy point from a 37-week cup-with-handle base. However, it’s a bit extended from it’s 50-day line.
Piedmont Lithium (PLL) rose 1% to 64.36. Still, PLL has pulled back 3.6% this week. But PLL stock surged 42.2% month to date, after rising 24% in July.
Lithium Americas Corp. (LAC), which is awaiting a final court ruling this fall before it can start work on its Thacker Pass, Nev., mine, rose 2.3% to 30.20 on Thursday. LAC stock may be carving out a handle-type entry with a 31.91 buy point.
EV Tax Credits
To the extent that excitement over the newly approved Inflation Reduction Act helped fuel lithium stocks lately, a pullback shouldn’t be unexpected. That’s because the law’s new system of EV tax credits won’t do much to boost EV demand in the short run.
The law, like its predecessor, provides a $7,500 tax credit to purchase a new EV. The good news is that the old cap of 200,000 EVs per automaker has expired. The credit had already phased out for the likes of Tesla and General Motors.
However, there are new requirements for automakers to qualify for the tax credits, which is likely to limit their usefulness for some time. Final assembly has to occur in the U.S. In addition, the law requires that the bulk of key EV materials such as lithium be produced domestically or in a country that has a free-trade agreement with the U.S.
Chile and Australia, both key lithium producers, are free-trade partners with the U.S. Argentina, an up-and-coming lithium supplier, is not. Nor, of course, is China.
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