The drop in the price of lithium resulted in a drop in the profits of both firms. This, in turn, sent the stock price tumbling, and a recovery is not on the horizon. What do the experts say?
“The market is not improving. In fact, it’s probably getting a little worse.”
The phrase collected this week by Reuters belongs to the executive director of Albemarle, Kent Masters and reflects the situation that the American firm, one of the largest lithium producers in the world, is going through.
The world's largest lithium producer will cut costs for the second time this year, which would involve layoffs and asset sales, to avoid cutting dividends after the company posted a loss in the second quarter.
Albemarle reported a net loss of $188.2 million, or $1.96 per share, compared with a net income of $650 million, or $5.52 per share, in the same quarter a year earlier.
That in turn sent shares down 2.9% to $91 while for the full year Albemarle shares have lost 53.8%, compared with a 9.1% drop for the industry.
What happens to one lithium giant affects the other.
Thus, the shares of the Chilean SQM declined to their lowest price in two years, echoing a sell-off in stock markets around the world, and taking note of the disappointing results that its rival Albermarle published on Wednesday afternoon
SQM fell 2.83% to $34,784 per share, at the close of this Thursday on the Santiago Stock Exchange, its lowest price since January 2022, Chilean media highlighted.
All this is because of the drop in lithium prices, which is the basis for building electric vehicle batteries. The cause would be an oversupply of lithium from China and a moderation in aggressive rates of electric vehicle adoption that has depressed prices of the ultralight metal and delayed expectations about how long the energy transition could take.
Lithium prices have continued to fall, from an average of $20 per kilogram late last year to a range of $12 to $15 per kilogram, Albermarle said.
For example, today a metric ton of industrial grade lithium metal is at an average of US$ 100,000, at the spot price according to the metal.com portal, while the metric ton of battery grade lithium reaches US$ 108,000
In the case of lithium carbonate grade lithium carbonate, the metric ton has an average of US$ 11,160.
Despite the price decline, Albemarle and its peers have repeatedly said they expect lithium demand to increase later this decade as electric vehicles become more widespread.
“We use the term 'lower prices for longer' from a pricing perspective, and we have to be able to operate during that recession (…) We will look at everything to get a more moderate and agile position,” Kent Masters said yesterday, adding that Additional layoffs and asset sales are on the table.
A LOW PRICE FOR THE WHOLE YEAR
The lithium market has entered a period of “new normal” stability in which sustained price increases are a thing of the past, analysts at FitchSolutions BMI said in a web conference Thursday.
The drop in lithium prices over the past year means prices are expected to remain low for the next decade, said Sabrin Chowdhury, head of commodities analysis at BMI, from Singapore.
This outlook is reshaping the industry landscape, presenting opportunities and challenges for top producers and junior developers.
“The problem here is an oversupply: when the price reached maximum historical levels, what happened is that many lithium deposits began to be discovered around the world, in geological, but also competitive conditions that were much better than those in Chile. So today Chile, in addition to Atacama, has salt flats that are of, I would say, medium-low quality. And the rest outside Chile are deposits of very good quality. This suggests that in the long term the price of lithium should be closer to today's prices than to the prices it was when the lithium strategy was designed," explains Juan Ignacio Guzmán, general manager of GEM, to AméricaEconomía. Mining Consorting.
Something that Domingo Ruiz León, doctor in Chemistry and academic at the University of Santiago de Chile, agrees with, who points out that the price of lithium has been showing a continuous decline for some years in international markets, to date it has already registered a decline. of almost 80%, which obviously has consequences for the countries that export this metal, including Chile.
“The sustained drop in the price comes in part as a result of a slowdown in the Chinese economy, which to date is the main consumer and manufacturer of products associated with lithium, particularly in the entire ecosystem associated with the driving source of energy in the “Electromobility that is already so talked about is lithium batteries and electric cars,” Ruiz details.
On the other hand, there is a drop in demand at a global level, particularly due to the interest of non-producing countries that try to continue on the path by incorporating alternative technologies such as hydrogen, although without much success due to the lower energy efficiency of this technology.
But he agrees with Guzmán that there is an increase in the production rate of lithium carbonate and hydroxide by countries such as China, Australia, Argentina, which compete with Chile.
"All of the above has obviously brought and will bring consequences in terms of investment, particularly for lithium-producing countries, although it is nevertheless important to emphasize that in terms of production cost, countries such as Argentina, Bolivia and, in particular, Chile still have comparative advantages given that its brine extraction process is lower cost compared to the mineral-based extraction process used by countries like Australia, which is the largest producer of lithium globally,” he specifies.
Obviously it is bad news for the country, because it means much less income, says Guzman, since companies today are selling between US$ 12 thousand and US$ 15 thousand per ton of lithium carbonate.
“But we also have to think that this is a commodity and as such it is cyclical, and therefore the truth is that the prices that were in lithium two years ago were unsustainable. That is something that I think we also have to think about, and as a country we have to take advantage of the high prices, save that money, save it, invest it, and when prices fall, actually draw on the resources that we have saved over time," he says. .
AND THE FUTURE OF LITHIUM?
Despite falling prices, many major producers remain profitable. This is mainly due to its ability to keep production costs low.
In Australia, for example, the production cost of spodumene mining is significantly lower for projects such as Tianqi Lithium and IGO's joint Greenbushes mine and Pilbara Minerals' Pilgangoora.
Higher-cost producers Galaxy Resources, Altura Mining and Nemaska Lithium had to reduce production or go bankrupt.
Lithium demand is expected to continue its vigorous growth, driven primarily by the electric vehicle (EV) sector. However, advances in battery technologies, including the rise of lithium-iron-phosphate (LFP) batteries and possible advances in solid-state batteries, could influence needs, analysts said.
Global demand for lithium from EVs is expected to increase by around 14% in 2024 and 2025. The EV sector is expected to account for the majority of lithium demand, and global EV sales are expected to passengers reach 17.6 million units in 2024, which represents a year-on-year growth of 21.3%.
Australia and mainland China will be the main drivers of this growth. Australia, already a leading producer of hard rock lithium, will continue to dominate due to its strong project pipeline, BMI said. Mainland China will continue to import lithium for its battery industry while expanding its domestic production capacity and securing supplies by developing overseas projects.
Emerging players such as Argentina and Zimbabwe are also expected to contribute significantly to global supply.
“This is why countries like Chile should seriously think that investment processes should not only be mainly focused on extractive processes as we have been doing. We have already seen that in a very lukewarm way we have dared to venture into the value-added chain, but until we understand that the true value and potential of lithium lies in the value-added chain, we will continue to be a country that watches from the stands. the ups and downs of the economy around this precious element that is lithium,” adds the Usach academic.
Back to the case of Albemarle, after the latest results, the consensus of several Albemarle analysts is for revenues of US$5.55 billion in 2024, which would reflect a worrying 26% decrease in revenues compared to the last year of results.
All in all, earnings are expected to improve, with Albemarle expected to report statutory earnings of $2.90 per share. In the lead-up to this report, analysts had been modeling revenues of $5.75b and earnings per share (EPS) of $2.90 in 2024. The consensus seems perhaps a little more pessimistic, cutting their revenue forecasts following the latest results, although there were no changes to its EPS estimates.
The consensus has reconfirmed its $130 price target, showing that analysts do not expect lower revenue expectations next year to have a material impact on Albemarle's market value.
The company's dividend, which has been increased annually for 30 years, will likely be unaffected. “It is important for our shareholders. That's why our plan is to keep it," said Masters.
