Albemarle puts brakes on growing plans amid lithium market weakness

Albemarle’s Silver Peak lithium operations, Nevada. (Image courtesy of Albemarle)

Albemarle Corp (NYSE: ALB), the world’s No. 1 lithium producer, is delaying plans to add about 125,000 tonnes of processing capacity as an oversupply of the white metal used to make the batteries that power electric vehicles (EVs) and high tech devices continues to drive down prices.

The US-based lithium giant said the move would reduce its capital expenditure by about $1.5 billion over the next five years, adding it expected to become cash flow positive in 2021.

Albemarle’s decision comes as lithium prices are expected to remain subdued this year after changes to Beijing’s EV subsidy regime have injected noticeable short-term unpredictability, while undermining demand from Chinese consumers.

Supply, meanwhile, has been surging in response to the 2016-2017 price spike.

According to Fastmarkets estimates, the global lithium market glut will grow from 28,000 tonnes in 2018 to 68,000 tonnes this year and 146,000 tonnes in 2021.

The decision comes as lithium prices are expected to remain subdued this year after China’s cuts to EV subsidies and increasing supply

It means the expected recovery in the lithium market might take longer than anticipated, according to some analysts.

Morgan Stanley said earlier this month that lithium prices would continue their downward trend until 2025, compared with an previous forecast of 2021.

“We believe most investors and the sell side underestimate the ability of companies to ramp up production of high-quality material and lower production costs in the medium term [thanks to new technologies becoming available],” the bank said.

Albemarle’s announcement comes only a week after the Charlotte, North Carolina-based company revised a deal to buy into Australia’s Mineral Resources’(ASX: MIN) Wodgina mine.

It also follows the company’s second quarter results, which showed lithium sales were not affected by global trade tensions and China’s cuts to EV subsidies in June.

The lithium giant also expects to delay building 75,000 tonnes of processing capacity at Kemerton, in Australia. The plant processes hard rock from the Greenbushes mine to produce lithium hydroxide.

In November, the miner put plans on the back burner to increase output capacity at its operations in Chile beyond 2021. That project would have produced lithium carbonate. 

“The recently announced amendments to our transaction with Mineral Resources Limited and our decision to delay indefinitely certain lithium expansion projects will allow us to reduce capital expenditures significantly,” Chief executive officer Luke Kissam said on Wednesday.

Albemarle operates two world-class raw material resources based on brine. One is located in Clayton Valley near Silver Peak, Nevada (US) and the other in Salar de Atacama (Chile), which hosts the miner’s main operations.

(With files from Reuters)