14th March 2018
Data source: S&P Global Market Intelligence
Chilean fears over Chinese domination in the lithium sector may hurt the price Nutrien Ltd. gets for its lucrative 32% stake in key lithium producer Sociedad Quimica y Minera de Chile SA as Chile seeks to block the divestment to any Chinese company, analysts say.
“It probably takes away from the price a little bit,” said Laurentian Bank mining analyst John Chu, who covers Nutrien. “The more buyers you have, obviously, that creates a bit more of a bidding war.”
Chinese companies, sometimes state backed, are also known to aggressively pursue assets they consider strategic, said an analyst in Chile who is familiar with the lithium producer, or SQM. “Those guys will pay a meaningful premium,” said the analyst, who preferred not to be named.
In other words, the loss of competitors could be felt by Nutrien.
Nutrien must sell its minority interest in SQM to meet regulatory requirements that cleared the way for Agrium Inc. and Potash Corp. of Saskatchewan to merge and create the now dominant player in the fertilizer market. But the head of Corfo, a Chilean development agency, recently sought to quash bids from Chinese buyers.
On Mar. 9, Eduardo Bitran, head of Corfo until this week, threw a wrench in the works asking antitrust regulators in Chile to prevent SQM from selling the stake to a Chinese company. In the petition, Bitran argued the Chinese would control too much of the lithium market — which is already dominated by a few players including SQM, Tianqi Lithium Industries Inc. and Albemarle Corp. — if it owned Nutrien’s chunk of SQM, according to media reports and the analyst in Chile.
Bitran, whose Corfo tenure ended over the weekend as a new Chilean president takes office, sees Chinese control of lithium as an obstacle to growth in the electrical vehicle market, according to the Chilean analyst. Lithium is a key component in batteries that underpin increasing growth in the sector, and SQM controls about 23% of the lithium market, the company has said.
Bitran could not be reached for comment.
The move also took direct aim at Chinese interest in the stake. In early 2018, according to Chilean media, Bitran raised fears about Chinese market control should a Chinese company acquire the minority stake. He reportedly pushed for other companies, including Antofagasta Plc or Rio Tinto, to buy the stake.
Nutrien declined comment on the antitrust petition and past media reports about its interactions with Corfo over the sale.
Still, Laurentian’s Chu questioned if blocking the sale, should it transpire, will punish the price Nutrien might get for the minority stake. Lithium is a “pretty hot commodity” and that has driven gains in SQM’s share price and increased interest in the sector, he said. There could still be multiple buyers for the stake and the negative impact, should there be one, “may not be that meaningful in the end.”
The Chilean analyst agreed. Rio Tinto, among others, may still make bids. Would it hurt Nutrien? “We’ll see.”
