Stung by sliding prices, lithium industry pares back expansions

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

Albemarle Corp, SQM and other lithium producers have been scaling back expansion plans as near-term oversupply concerns drag on prices, unnerving investors who are pushing the industry to focus more on profitability.

Volkswagen, BMW and other automakers planning to produce all-electric fleets of vehicles during the next decade with lithium-ion batteries are expected to help global demand for the white metal more than triple by 2025 to 917,469 tonnes, according to Canaccord Genuity.

But shareholders worry lithium producers have boosted production to levels far above current needs. Global supply is 5% higher than demand, the Canaccord Genuity data showed.

“The problem in lithium is the growth rate is so high, that when producers over-deliver, they over-deliver big,” said Jon Hykawy, a battery minerals analyst at Stormcrow Capital.

Shareholders worry lithium producers have boosted production to levels far above current needs

Battery metals are expected to be a major part of the discussion this week as the world’s metals industry gathers in London for the London Metal Exchange (LME) Week.

Lithium shareholders seem keen not to repeat the mistakes made by early investors in the U.S. shale boom, which prioritized growth over cash flow in a push to make the United States the world’s largest oil and natural gas producer. A decade after that boom began, many U.S. shale companies are not profitable.

Albemarle, the world’s largest lithium producer, is delaying construction plans for about 125,000 tonnes of additional lithium processing capacity, part of a plan to be cash flow positive within two years.

Based in Charlotte, North Carolina, Albemarle last week cut its sales and profit forecasts for the year, citing the continued slump in prices for the metal.

“When I talk to shareholders, the number one thing I hear is, ‘When are you going to be free cash flow positive?'” Albemarle Chief Executive Officer Luke Kissam said.

Automakers push ahead

Santiago-based rival SQM, the world’s second-largest lithium producer, is delaying an expansion in Chile’s Atacama salt flat until the end of 2021.

Sliding spot prices around the globe, particularly in China, have hurt large and small producers alike.

Global trade tensions, slowing growth and the scaling back of Chinese electric vehicle (EV) subsidies have undermined demand. Lithium carbonate prices in China are down 65% to $8,500 per tonne since the start of 2018, according to data from Benchmark Minerals Intelligence.

Prices for lithium derived from Australian hard rock, also known as spodumene, are down 38% to $543 per tonne. A Benchmark global price index is down about 52% in the same time period.

There may be a short-term boost in prices as protesters from indigenous communities in the Atacama block access to lithium operations amid Chilean rallies over inequality.

Automakers, meanwhile, are pushing ahead. South Korea’s LG Chem, the battery maker that counts General Motors and Volkswagen as customers, expects global EV sales to jump from 2.4 million last year to 13.2 million in 2024, which would account for 15% of total vehicle sales that year.

The divergence in lithium prices, even as EV projections rise, is confusing for investors, much to the chagrin of Kissam and other industry executives.

“Wall Street is struggling to differentiate lithium stories,” said Paul Graves, CEO of Livent Corp, which operates in northern Argentina. “There’s an oversimplification among analysts. They just look at Chinese spot prices, but the lithium market is so much more than that.”

(By Ernest Scheyder; Editing by Paul Simao)

1359 0


Your email address will not be published. Required fields are marked *

More Latin America News