Lithium prices might be rising strongly but not so the shares in Albemarle Corp, the world’s biggest lithium company and a major player in the WA industry.
Albemarle shares saw their biggest ever fall on Thursday after its profit forecast disappointed investors who were expecting a bigger windfall from record-high prices of the key battery metal.
The shares lost nearly 20% in value in the wake of 4th quarter results announcement and ended Thursday’s session off more than 18%.
That was after the company raised its 2022 outlook for earnings per share to a range of $US5.65 to $US6.65 which analysts thought was “surprisingly low,” according to Aleksey Yefremov, senior analyst of US chemicals at KeyBanc Capital Markets.
Investors “were hoping it’d be a blowout because the spot lithium prices are so high,” Yefremov said in a note after an online analysts’ briefing.
Supplies into the already tight lithium market are being hit by a series of adverse factors from plant maintenance and the Winter Olympics in China 9and small Covid lockdowns), to pandemic-related labour shortages in WA.
Yefremov expected the company’s lithium business to increase Ebitda by 89%, a number he said is conservative. That compares with company guidance of 65% to 85%.
It’s not that Albemarle wasn’t bullish – the company boosted its lithium-demand outlook by more than 30% to 1.5 million tons by 2025, and sees demand of more than 3 million tons by 2030 – its just it wasn’t bullish enough for investors.
Investors ignored the strong guidance for revenue of $US4.2 billion to $US4.5 billion was above analysts’ expectations of $US4.01 billion.
That’s well above net sales for 2021 which rose 11% to $US3.3 billion. Albemarle earned a profit of $US123.7 million for 2021.
What worried investors them though was the 4th quarter loss and the reason for the red ink.
Albemarle reported a loss of $US3.8 million for the quarter against a profit of $US84.64 million for the December, 2020 quarter and blamed labour- and pandemic-related issues at its Kemerton project in WA (it’s a processing plant that will handle spodumene produced at the Greenbushes mine in southwestern WA. The mine is the world’s largest).
Sales of lithium, the company’s largest business, rose 13% to $US404.7 million in the December quarter which again was a little light on given the surge in global prices.
“EV sales growth is accelerating as consumers become more energy conscious, governments incentivize clean energy, technology improves and EVs approach pricing parity with internal combustion vehicles,” Albemarle CEO Kent Masters said during an earnings call with analysts.
To try and boost earnings from soaring spot lithium prices, Albemarle has moved part of its contract pricing to more variable-rate structures, according to Scott Tozier, Albemarle’s. Chief Financial Officer.
We now expect volume growth to be up 20% to 30% for the year with the new capacity coming online as well as ongoing efficiency improvements,” he told the analysts briefing.
“Average realized pricing is now expected to increase 40% to 45% compared to 2021 due to strong market pricing as well as the expiration of pricing concessions originally agreed to in late 2019.”
And the reason for all of this? The rapid growth in EV sales. Masters said growth is accelerating as consumers become more energy-conscious, governments incentivize clean energy, technology improves, and EVs approach pricing parity with internal combustion vehicles.
“In 2021, global EV production nearly doubled to over 6 million vehicles from 3 million in 2020. By the end of the decade, EVs are expected to account for close to 40% of automotive sales. When you look at last year’s growth rate of nearly 50% and the auto industry’s ambitions for a rapid transition to EVs, it’s easy to see why demand expectations are so bullish.”
Lithium is still long on promise and short on the sort of performance many investors have been led to believe will follow.
