SQM, Chilean lithium and specialty chemicals producer, reported a second-quarter net profit of $88.4 million, down 59% year on year, as realized lithium prices fell and legacy contract floors curtailed volumes. Revenue came in at $1.04 billion, broadly in line with the $1.064 billion analyst consensus, but earnings missed the $143.01 million expected by LSEG-compiled estimates.
Earnings pressure from price resets and volume effects
Management pointed to weaker realized pricing and contract mechanics as the main drag. “During the second quarter, we navigated a period of lower lithium market prices… some of the contracts we had in place hit the lower limits set in those contracts, affecting the volumes agreed,” CEO Ricardo Ramos said. Lithium prices were about 34% lower year on year in the quarter, and spot benchmarks remain far below late-2022 peaks. Contract floors can stabilize pricing for buyers but compress seller margins when market levels fall toward those minima; once hit, they also tend to limit take-or-pay volumes or trigger re-nomination clauses, which can crimp quarterly shipments.
The earnings miss against consensus underscores how quickly pricing reset through SQM’s portfolio relative to hedges and indexation lags. Revenue resilience versus estimates suggests sales volumes were roughly aligned with expectations, but mix and realized prices pressured profitability.
Cost actions and credit signals
SQM began laying off about 5% of its Chilean workforce in June to align costs with the prolonged downturn in battery-grade lithium prices. The move follows months of industry-wide cash preservation, with producers deferring capex, paring development pipelines, and renegotiating offtakes.
In July, Moody’s affirmed SQM’s rating but revised the outlook to negative, citing uncertainty around lithium revenue. The stance reflects narrower headroom for leverage and coverage cushions if prices remain depressed or if recovery is slower than modeled. While the rating affirmation points to an otherwise solid balance sheet and diversified specialty chemicals earnings, the outlook shift highlights sensitivity to commodity pricing through the remainder of 2025.
Regulatory pathway in Atacama
SQM, one of two lithium producers in Chile, is working to finalize this year a partnership with state-owned copper company Codelco to produce lithium in the Atacama salt flat. The arrangement is pivotal to long-term tenure under Chile’s policy framework, which envisages a greater state role in strategic salars. A concluded agreement would clarify operating terms and investment cadence in Atacama, where brine-to-carbonate/hydroxide output underpins SQM’s cost position and supply commitments to cathode and auto OEMs.
Market impact and pricing
Global lithium prices have fallen by nearly 90% from late-2022 highs as supply growth outpaced demand during an inventory correction in the EV supply chain. The year-on-year 34% decline cited by SQM for the quarter captures the pass-through of lower spot and index-linked references into contract realizations. For producers with higher exposure to carbonate versus hydroxide or with less downstream integration, margin compression has been more acute, prompting workforce reductions and project deferrals across the sector.
