Market and product

SQM unveiled a gloomy outlook for world potash demand this year, forecasting a bigger drop than expected by some rivals - and adding that its own volumes look set to fall even faster.

"We expect that total world potash demand will be at least 10% lower in 2015," Patricio de Solminihac, the SQM chief executive, said, with the group putting a figure on demand of about 58m tonnes.

That is at the bottom of the range of 58m-60m tonnes expected by Canada's PotashCorp, although it estimates world consumption last year at a bit over 61m tonnes, implying a decline of more like 5%.

Mosaic has forecast world demand of 59.1m tonnes this year, a drop of 6% on its estimates from the 62.7m tonnes consumed in 2014.

Brazilian exposure

While SQM gave no reasons for its forecast, the Chilean company is particularly exposed to the Brazilian market which has been notably weak, undermined by weakness in the real, which reduces the affordability to growers of imported inputs such as fertilizers.

SQM, which typically makes about one-third of its sales in Brazil, has also suffered itself from a poor start to the year, when shipments suffered severe delays – with volumes in the January-to-March quarter plunging 48%.

While the group had cut the shortfall to 3.4% in the July-to-September quarter, it forecast that its volumes for the full year "will reach close to 1.3m tonnes".

That compares with 1.56m tonnes in 2014 – implying a drop of some 17%.

Earnings fall

The comments came as SQM unveiled a drop of 79% to $13.7m in earnings for the July-to-September quarter, on revenues down 4.5% at $445.2m.

The company attributed the drop in earnings, which came in below market expectations of a $46m result, primarily to a one-off mine closure.

"As announced in September, we are stopping the mining and nitrate operations and reducing our iodine production in Pedro de Valdivia," said Mr de Solminihac.

Lower potash sales

In potash itself, revenues fell by 16.2% to $113.4m, a drop attributed to "lower prices and lower sales volumes".

The average potash price was 13.3% down year on year, thanks to "decreased demand and stronger competition".

However, SQM reported better fortunes at its lithium division, where revenues rose by 18.7% to $59.7m, bolstered by "strong" demand.

"Prices continue to feel upward pressure," the group said, reporting a rise of nearly 9% to more than $5,700 a tonne in the price it achieved in the first nine months of 2015.

Financial turmoil

SQM has faced a series of financial scandals, which saw its chief executive and chairman step down earlier in the year.

And last week it was announced that controversial former-chairman, Julio Ponce took a step closer to relinquishing his controlling stake in the company.

Mr Ponce took his stake in SQM when the miner was privatised in the 1980s, when his then-father in law Augusto Pinochet was Chile's military dictator.

SQM was fined this year for making illegal untaxed payments to right-wing political parties.

Mr Ponce is said to be studying options for the sale of one of the holding companies through which he controls SQM.

Canadian fertilizer giant Potash Corp holds as 30% in SQM, and has made attempts to gain control of the company.

'Sound dynamics'

BTG Pactual maintained a buy rating on SQM, citing "sound operating dynamics".

LarrainVial also restated a buy recommendation, but struck a downbeat note on potash prospects, citing "the current low international oil prices", and the weak Brazilian real.

SQM also announced a provisional dividend of $0.31915 a share.

Shares in SQM in New York were trading down 3.4% at $17.86 in early afternoon deals.

The share price remains more than 40% above the lows it reached earlier in the year, before Mr Ponce resigned from the board.