EM LATAM CREDIT: SQM: 2Q 2025 Earnings - Negative
(SQM; Baa1neg/BBB+/NR)
Similar to recent past quarters, Lithium prices were down which resulted in much weaker EBITDA overall as that business contributed 36% of gross profit for the past 12 months.
Total revenue was up slightly .6% QoQ while it was down 19% YoY. EBITDA fell 14% QoQ and 28% YoY due to margin contraction as Lithium prices dropped 34% YoY. Overall 2Q EBITDA margin declined 350bp to 29.5% from 33% a year ago.
Similar to last quarter, Iodine prices were up 9% YoY which offset lower sales volume. The Iodine business contributed 46% of gross profit past twelve months.
The fertilizer business saw a similar pattern with an increase of 23% in sales prices but an decline of 55% in volume and was only 2% of gross profit past twelve months.
We posted a few days ago on possible improvement in Lithium prices going forward with the Chinese trying to more tightly regulate production:
https://mni.marketnews.com/46ZsdjI
Moody's moved to a negative outlook a few weeks ago as a result of increased gross leverage at 3.3x as of 1Q 2025, above their downgrade threshold of 2.5x driven by downward pressure on lithium prices.
Significant capex and dividend payments were also cited as cause for concern as it increased reliance on debt financing and might limit the company's ability to restore the balance sheet to a more acceptable leverage position.
SQM 34s were last quoted T+131bp, 27bp tighter QTD and 31bp tighter YTD. The bonds are quoted at the tight end of the range relative to government owned Codelco (CDEL; Baa2/BBB+/BBB+), last at 11bp spread relative to a LTM range of 5-32bp.
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GILTS: Rally Holds, Futures Still Below First Resistance
Bulls haven’t managed to test resistance at the 20-day EMA (91.99), despite the extension through Thursday’s highs, with global cues still dominating.
- Yields 3.5-6.5bp lower, curve flatter.
- 10s back into the range that has prevailed for much of July, after registering the highest close seen since May on Friday. Similar picture seen in 30s.
- The early rally in SONIA futures extends alongside the bid in the long end, contracts last flat to +7.0, retracing a little after some contracts registered fresh multi-week lows in recent sessions.
- Little net movement in BoE pricing on the day, ~48bp cuts priced through Dec.
- Public finance data and financial stability-centric comments from BoE Governor Bailey are due tomorrow.
EQUITY TECHS: E-MINI S&P: (U5) Trend Needle Points North
- RES 4: 6439.884 1.500 proj of the May 23 - Jun 11 - 23 price swing
- RES 3: 6402.44 1.382 proj of the May 23 - Jun 11 - 23 price swing
- RES 2: 6381.50 1.764 proj of the Apr 7 - 10 - 21 price swing
- RES 1: 6357.00 High Jul 18
- PRICE: 6343.00 @ 14:17 BST Jul 21
- SUP 1: 6288.25 Low Jul 17
- SUP 2: 6246.73/6101.83 20- and 50-day EMA values
- SUP 3: 5811.50 Low May 23
- SUP 4: 5645.75 Low May 7
S&P E-Minis traded high last week resulting in a fresh cycle high. The climb confirms a resumption of the uptrend and maintains the price sequence of higher highs and higher lows. Note that moving average studies are in a bull-mode position highlighting a clear dominant uptrend. Sights are on 6381.50, a Fibonacci projection. Key support is at the 50-day EMA, at 6101.83. Support at the 20-day EMA is at 6246.73.
EQUITIES: Some Selling Creeping In
Downside In equites as Euro Stoxx 50 futures retest session lows and e-minis edge further away from session highs. No clear driver once again, maybe some looking more closely at the reports of increased hawkishness in EU-U.S. trade relations as we move towards the NY cash open, but the latest moves are modest in the grander scheme of things.
