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Chile's SQM to hold back lithium production as global supply grows

Santiago, Chile — Chile's SQM plans to hold around a sixth of its 2019 lithium production off the market as a raft of projects come on stream worldwide, CEO Ricardo Ramos said Thursday.

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In a conference call with analysts, the executive said the company plans to produce just over 60,000 mt of lithium this year.

However, the company only plans to sell just under 50,000 mt to consumers, compared with 45,100 mt, with the rest being used to build stocks.

"We want to have more strategic inventory, as it is way to have more flexibility," said Ramos, who took the helm at SQM at the start of the year.

The company recently expanded its lithium production capacity on the Salar de Atacama in northern Chile to 70,000 mt/year and is currently preparing a second expansion to 120,000 mt/year from next year.

The Salar de Atacama's huge reserves and ideal production conditions mean it is expected make Chile a key supplier of lithium to the growing electric vehicle manufacturing sector. However, a lengthy dispute between the government and SQM over production quotas saw the country lose market share to producers in Australia and elsewhere.

Although SQM is predicting another bumper year for the lithium market in 2019, with demand set to grow more than 20%, uncertainty about the timing of the launch and ramp-up of projects in development, especially in Australia and Argentina, make it difficult to assess how much of that additional consumption will be met by new sources of supply.

"Projecting sales volumes over the next 30 months is more difficult, as while we have good estimates about the capacity of the projects, the industry has a poor record for forecasting production," Ramos said.

Building up lithium inventories would give the company greater flexibility to deal with changing market conditions, he said.

Recent heavy rains forced SQM to halt some of its operations in northern Chile for as long as a week, but the executive said this would not affect its ability to supply the market.

Ramos dismissed concerns the strategy will result in SQM losing market share, noting that its focus was on maintaining margins and growing the overall lithium market.

SQM is currently in talks with several clients over potential long-term sales contracts.

The company had previously pursued a commercial strategy based on spot sales that obtained higher prices than the long-term contracts used by rivals, but this advantage is expected to narrow this year.

-- Tom Azzopardi, newsdesk@spglobal.com

-- Edited by Keiron Greenhalgh, newsdesk@spglobal.com