Chile's SQM shares rally on Tesla lithium factory hopes

Thu Feb 27, 2014 2:30pm EST
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SANTIAGO Feb 27 (Reuters) - Shares in Chile's SQM , the world's biggest lithium producer, rallied 8 percent on Thursday on hopes of rising demand for the chemical after U.S. automaker Tesla Motors announced plans to build a new mega-plant manufacturing lithium-ion batteries.

The factory, which is aimed at helping Tesla produce mass-market electric cars, will cost an estimated $5 billion to $6 billion to build, analysts estimate.

Shares in chemicals and fertilizer group SQM, which were hit hard in 2013 by falling potash prices, were up 8.2 percent at 16,767 pesos each by 1606 local time (1906 GMT), while the wider Chilean stock market rose 0.49 percent.

However, analysts at Banchile Inversiones, who have a 'hold'recommendation on the stock, cautioned that it may be some time before SQM felt the benefits of the new plant.

"Although an increase in demand for lithium would be positive for SQM, given its exposure to the product, the impact on the supply/demand balance is likely between 2017 and 2020," they said. "In the short term, we think the fundamentals of lithium remain challenging," they said.

Further support was also lent to SQM shares by renewed chatter of takeover interest from stakeholder Potash Corp , they added. (Reporting by Felipe Iturrieta, Writing by Rosalba O'Brien, Editing by W Simon)