The usual high news traffic for the lithium and EV space this week – here are some updates from Albemarle, Livent and battery giant Contemporary Amperex Technology to get you up to speed.
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The surging price of lithium has flowed through to the March quarter results from two major US players, Albemarle and Livent Corp.
The price boom saw Albemarle Corp, one of the world’s biggest producers of lithium, raise its full-year forecasts on Wednesday after its March quarterly profit more than doubled on strong demand for the key electric-vehicle battery metal.
Albemarle posted a net income of $253.4 million, or $2.15 per share, for the first quarter ended March 31, compared with $95.7 million, or 84 cents per share, a year earlier.
The company said it now expects full-year net sales to come between $US5.2 billion and $US5.6 billion, compared with the February forecast of $US4.2 billion to $US4.5 billion.
Albemarle posted a net income of $US253.4 million for the first quarter, compared with $US95.7 million in the March quarter of 2021.
The price surge is not new news – what it is confirmation that there is a lot of money to be made by companies already in production or about to become producers.
Lithium’s huge role in the production of EV batteries has made it a ‘hot’ commodity. That has pushed up prices of the metal to record highs in a boost for producers.
Yet demand is still forecast to outstrip supply, with Tesla’s Elon Musk complaining last month that lithium is “a limiting factor” in the growth of EVs. He has both trailed the idea of getting into lithium production, and also rejected the idea.
Albemarle earned $US2.15 a share in the first quarter, up from 84 US cents a share a year ago. It now expects earnings per share to surge to between $US9.25 and $US12.25 a share, from $US5.65 a share to $US6.65 a share.
Albemarle CEO Kent Masters said in the earnings release “We achieved a strong start to the year by focusing on execution and building on the momentum we created in the second half of 2021. Many of the end markets we serve are critical for transitioning to greener energy and advancing electrification and digitalization.
“Our ongoing investments capitalize on the rapid growth and strong pricing trends in these markets. We continue to explore sustainable options to expand our conversion capacity and resources, including opportunities in North America and Europe.”
“Albemarle’s outlook for 2022 has improved based on expectations of continued demand growth and tightness in the markets it serves.
“Net sales guidance was revised upward primarily due to continued strength in pricing in its Lithium and Bromine businesses.
“Adjusted EBITDA guidance is higher based on pricing expectations partially offset by inflationary cost pressures, particularly for natural gas in Europe.”
Adjusted EBITDA for the full year 2022 is expected to grow approximately 200-225% year over year, up from the previous outlook. Average realized pricing is now expected to be up approximately 100% year over year resulting from the renegotiated index-referenced variable price contracts and increased market pricing.
Full-year 2022 volume is expected to be up +20-30% year over year (unchanged) primarily due to new capacity coming online.
The revised outlook assumes the company’s Q2 realized selling price remains constant for the remainder of the year.
“There is potential upside if market pricing remains at historically strong levels or if current contract renegotiations result in additional index-referenced, variable pricing.
“There is potential downside in the event of a material correction in lithium market pricing or potential volume shortfalls (e.g., delays in acquisitions or expansion projects).
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Meanwhile smaller producer Livent Corp posted a better-than-expected quarterly profit and boosted its 2022 revenue forecast as it benefited from rising demand for lithium.
The Philadelphia-based company now expects annual revenue of $US755 million to $US835 million from its previous forecast of $US540 million to $US600 million.
Livent posted a net profit of $US53.2 million for the first quarter, compared with a loss of $US800,000 – a massive turnaround.
“Strong lithium demand growth has continued in 2022,” said Livent CEO Paul Graves in a statement, adding that Livent saw higher realized prices across its entire product portfolio.
Revenue rose 56% to $US143.5 million.
Livent says it expects to boost investment in its businesses in Argentina, north America and perhaps Europe by a billion dollars from this year to 2024. This will be funded from cash flows not loans.
In its first expansion in Argentina, Livent says it is on track to add 10,000 tonnes of lithium carbonate capacity by the first quarter of 2023, the firm said.
Another 10,000 metric tons of lithium carbonate capacity is expected to be added in Argentina by the end of next year, which will nearly double Livent’s total available lithium carbonate equivalents from 2021 levels.
Livent expects to add another 15,000 metric tons of lithium hydroxide capacity at a new location in China by the end of 2023.
The company says it was also evaluating building a new facility in either North America or Europe that would process lithium material from battery recycling processes into lithium hydroxide.
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On the other hand, the lithium boom and surging demand for electric vehicles and batteries have hindered, rather than helped, the world’s biggest EV battery maker Contemporary Amperex Technology (CATL), which saw its shares slide on Thursday after releasing its results on the eve of the long Chinese May Day holiday break.
But there was evidence in the accounts that the company had been caught short by hedging the cost of raw materials – the company later confirmed it was nickel.
The weak results came as China’s economy struggles with Covid-19 lockdowns, which slowed production at Tesla’s plant in Shanghai – a top CATL customer, and as the Russia-Ukraine war increases the cost of raw materials, along with the EV boom which has sent the price of lithium soaring (and boosting returns for the likes of Albemarle and Pilbara Minerals in Australia).
CATL’s shares fell as much as 14% when Chinese markets reopened on Wednesday after the long labour day holiday. the shares fell another 8% on Thursday and are down more than 27% in the past month.
(In contrast, shares in Albemarle jumped 9.7% on Thursday after its very strong results and was one of the few S&P 500 shares to rise in the huge selloff. In Australia Pilbara Minerals shares were up nearly 8%. Livent shares eased 1.7% on Thursday after a big gain the day before.)
The share price fall came after CATL said late last week its net profit had fallen 24% for the first quarter of this year to 1.49 billion Renminbi (Rmb, or $US224 million) compared with the same quarter the year before, which was up to half market forecasts.
And looking through the report, investors called out a puzzling entry in the accounts which perhaps might explain the slide in earnings and the recent weakness in the share price (besides the impact of the Covid lockdowns).
CATL recorded Rmb1.8bn ($US270 million) in “derivative financial liabilities” for the first time and hedging losses of Rmb1.2 billion ($US180 million).
The Financial Times reported that the company told analysts this week, “To deal with the risk of raw material price volatility, the company hedges nickel-related products. Overall, [hedging] has a small impact on the company’s business.”
Nickel prices soared 250% over two days in March to more than $US100,000 a tonne thanks to a vicious short squeeze, sparked by fears of supply shortages after Russia invaded Ukraine. Russia is the world’s biggest supplier of battery-grade nickel.
(As I’m sure you remember, front and centre in this was China’s Tsingshan Holding Group, the world’s largest nickel producer. It hedged the wrong way – looking for a big price fall – but the Russian invasion of Ukraine triggered a surge, huge paper losses, trading confusion, a loss of reputation for them, the London Metal Exchange and a massive bailout for Tsingshan, which was helped by thousands of trades being cancelled on the day trading blew up.)
But CATL said its lower profit was also in part due to the price of raw materials, such as lithium carbonate, rising more than expected, meaning the profits for the likes of Albemarle, Livent and Pilbara Minerals, plus smaller Australian groups, have become CATL’s losses, which indicates that CATL has not been able to offset these higher costs with higher prices. That should be a warning.
The price of lithium is up more than 60% since the start of the year, while nickel is up almost 50%, thanks to the Russian invasion, western sanctions on Russia and its nickel exports and the LME squeeze debacle.
Now the impact of the lockdowns in Shanghai and other car making centres means demand for batteries is slowing (at least until the lockdowns are ended and activity returns to normal, which could take months. CATL makes batteries for Tesla in Shanghai.
Putting the odd hedging losses and accounting for them to one side, perhaps the real message from CATL’s results and the lockdowns across much of China, is that lithium prices at current levels are not sustainable and could be about to take a hit.
The sharp slide in the CATL share price in the past month should be seen as a big hint in this regard.
