All (back) aboard the lithium bullet train

The Financial Times and other global business media have just woken up to the very bullish quarterly report issued last week by Albemarle (see Saturday’s story) that contained a stunning upgrade to its outlook for this year.

The bottom line is that lithium is ‘hot’ as demand for electric vehicles of all types continues to grow and despite the ham-fisted attempts of car companies and energy firms to slow the growth in demand, shows no sign of slackening.

The FT pointed out that Albemarle’s CEO, Kent Masters, had said that carmakers would find it difficult to get all the battery metals, especially lithium for the next eight years.

Judging by the performance of some leading lithium stocks on the ASX on Monday, local investors were slow to catch up to the contents of the Albemarle quarterly.

Shares in Lake Resources jumped more than 15%, Pilbara Minerals shares closed 3.5% higher, IGO shares rose 2.6% and Liontown Resources shares added 7%.

The quarterly financial performance and raised guidance for Albemarle makes the point that the gains for producers are already here (as they are for local companies like Allkem, Pilbara Minerals, IGO and a host of rivals).

Albemarle now expects the price at which it sells its lithium to jump at least 225% in 2022 and adjusted profit in its lithium division to rise at least 500%.

“We have shifted our lithium contracting strategy to realize greater benefits from these strong market dynamics,” Albemarle CEO Kent Masters said in a statement with the results.

In fact the company says it now expects “significant growth in full-year 2022 results including net sales of $US7.1 – $US7.5 billion,” or twice the 2021 figure.

Adjusted EBITDA for 2022 is now forecast to be three times the 2021 figure in a range of $US3.2 – $US3.5 billion.

Net sales surged 91% to $US1.48 billion in the quarter. Adjusted EBITDA was $US610.2 million up a huge $US415.6 million from the June, 2021 quarter primarily due to higher net sales, partially offset by inflationary cost pressures including natural gas prices in Europe and raw materials. Adjusted profit in the company’s lithium division more than quadrupled.

And in a briefing late last week Masters made it clear it’s not going to get any better for carmakers.

Masters said the market will remain tight despite efforts to unlock more of the metal.

“It’s systemic for a pretty long period of time,” Masters said of the challenge facing the industry. “For seven to eight years it stays pretty tight.”

The forecast from Albemarle – which counts Tesla and other major carmakers as customers – comes after a more than eightfold surge in the price of lithium compounds since the start of the pandemic in 2020.

The global price may have steadied around the record $US70,000 level since April as demand continues to grow but that has boosted Albemarle’s earnings and seen it lift guidance three times this year.

Some banks and research houses, however, are less optimistic about the prospect for lithium prices, with analysts at Goldman Sachs pointing to technological advances that could yield more supply within a couple of years. That was in a note issued in June and saw a brief sell off in the prices of lithium mining and exploration companies.

But the impact didn’t last and the points raised by Goldman Sachs have been undermined by experts at Benchmark Mineral Intelligence and other analysts who point out there will be no technological breakthrough of the type claimed by Goldman Sachs because Chinese lithium ores are low grade and expensive to convert as a result.

More important though is the mismatch between producer expectations for new mines and processing facilities and actual performance (A point made for a while by Benchmark).

Several proposals in Western Australia for lithium mining and processing operations (IGO/Greenbushes, Albemarle, Tianqi of China and Albemarle’s Kemerton plant) have proven to be unrealistic with the lithium metal production end of the process lagging behind by a couple of years.

Eric Norris, head of Albemarle’s lithium business confirmed that last week in saying hopes for a rush of supply overestimated the ability of producers to match demand from carmakers that has become “broader, deeper and more certain”.

“The ability to execute capital projects is not widely held,” said Norris, adding that lithium companies have historically delivered as much as 25% less production than promised in a given year because of chronic delays and technical mishaps.

Lithium mining projects typically take between six and 19 years from an initial feasibility study to actual production, the longest of any of the technologies involved in electric batteries, according to a report last month from the International Energy Agency.

The IEA said the world needs another 60 lithium mines by 2030 to meet all the decarbonisation and electric vehicle plans of national governments. There are a lot of willing candidates in Australia, Chile, Argentina and parts of the US and Europe will have ambitions to build those mines and processing facilities.

Benchmark said in late July that the battery industry needs to invest $US200 billion in gigafactories to meet the growing demand for electric vehicles and energy storage by 2030.

“The demand for lithium-ion batteries is expected to increase six-fold by the end of the decade compared to 2021. Given that a factory takes at least two to three years to build, the $200 billion equates to nearly $29 billion every year to 2028.

“Automakers from Tesla to Rivian have warned of an impending shortage of batteries, as sales of electric vehicles have remained strong this year despite Covid.”

Leave a Comment