source : stockhead.com.au
- Albemarle seems as perplexed as anyone that lithium prices have fallen so far, but says there isn’t much slack left in the supply chain
- The US giant has tempered expectations that it could face another tough M&A deal after withdrawing from Liontown’s $6.6 billion bid.
- Battery metal shares charge ASX, with intrigue, Azure, now almost 50c above sq m acquisition price
North Asian lithium prices – the agglomeration of spot sales in China, Japan and Korea – continued their slump, trading at US$22,000/ton yesterday, according to Fastmarkets, with one deal reported at $23.37 per kilo.
That’s being dragged down by China, where lithium hydroxide and carbonate prices are down slightly at around $20,800/ton and $22,000/ton respectively.
There are plenty of physical and conspiratorial reasons for this.
Prices are currently at breakeven or lower for converters at the top of the cost curve. Prices above $20,000 per tonne would have been very strong a few years ago, weak as they appear in the context of the extraordinary $80,000 per tonne and above that some cathode producers went bankrupt last year.
But they are now a tricky wicket for producers as spodumene prices are significantly higher and the increase in the number of commercial converters in China, who have to pay high prices for spodumene or expensive lepidolite, means many are currently losing money.
But at the same time, demand for electric vehicles is increasing by about 35% and occupancy rates are in the mid-nineties even at these prices.
Speaking to analysts yesterday after negative financial results, Albemarle’s president of energy storage Eric Norris said the price drop had confused even the world’s largest producer.
“We do a lot of work to model supply and demand and if you look at last year, this year, next year, just remove what we know happened this year: an inventory correction in the supply chain, the industry. According to our calculations, the demand exceeds supply around an occupancy rate in the mid-nineties,” he said.
“That’s the part that’s mind-boggling, and in any other market at this level you wouldn’t see prices drop like they are. Now that we’ve had an inventory correction this year, it has largely run its course, at least at the cathode level in the world’s largest market.
“Any inventory adjustment further down the supply chain, on balance, we would expect to be behind us or certainly behind us in the remainder of this year.”
If prices were to fall further, Norris said there would be concerns about meeting electric vehicle demand targets by the end of this decade, when Albemarle expects lithium demand to be five times higher than in 2022.
“They are below the reinvestment economics. As we have said many times, our concern by the end of the decade would be to have sufficient capacity to serve the EV market,” said Norris.
“Here we operate with a relatively healthy utilization of supply and demand, with prices where they are, so it’s very difficult to explain… but obviously we are well positioned with our cost position and our go-to-market strategy to weather that storm to endure.
“It’s just going to be a challenge for the industry at these levels.”
READ: High voltage: Metal battery bears are in force, but ‘the demand for lithium is absolutely there’, says PLS boss
M&A at a low level
The impact of the recent decline in lithium prices on Albemarle’s business has been significant.
While just three months ago it forecast $1.2 billion to $1.8 billion in net cash by 2023, it now expects its operations to generate $600 to $800 million.
While net sales rose 10.5% year over year to $2.31 billion in the September quarter, net profit fell 66.3% year over year to $302.5 million.
Forecasts for 2024 will not be available until February. The volatility of lithium prices makes profits difficult to predict.
Amid all that, you may be relieved that it isn’t chasing debt to finance its proposed $6.6 billion takeover of Liontown Resources (ASX:LTR), which also meant financing a significant portion of its WA 500,000 tonne per annum spodumene mine, due to open mid next year. year at a cost of $951 million.
The purchase was halted after Gina Rinehart’s Hancock Prospecting spent $1.3 billion building a blocking stake of about 19.9%.
J. Kent Masters, head of Albemarle, now says mergers and acquisitions will be more modest in nature.
The company also announced in the quarter that it would spend C$109 million on an approximately 5% stake in Patriot Battery Metals (ASX:PMT), owner of the Corvette discovery in Canada’s James Bay region.
“We want to maintain our organic growth plan because we have the resources to do so. Our acquisitions are concentrated in a number of different areas,” he said. “We will still look at mergers and acquisitions, but it won’t be on the same scale as what we were looking at, frankly, six months ago.”
Despite falling prices, Albemarle is maintaining its capital building programme, including doubling capacity at its Kemerton lithium hydroxide plant near Bunbury, its Qinzhou plant in China and its Meishan conversion plant, also in Middle Kingdom, due to open next year.
Both were subject to a potential joint venture with Wodgina JV partner Mineral Resources (ASX:MIN), which pulled out of the $1 billion deal in favor of studying options for processing midstream lithium products in Australia.
The US company’s lithium sales growth plan remains double-digit for next year, with another surge in EV penetration expected and floors in sales contracts providing the company with “protection” against lower price scenarios.
Albemarle has been hit by delays that saw it generate strong earnings from its shares in the Greenbushes and Wodgina mines, paying yesterday’s higher concentrate prices while receiving today’s lower chemical prices from its plants in China.
This dynamic has led to Greenbushes partners IGO (ASX:IGO) and Tianqi announcing plans not to withdraw their full entitlement from the 1.5Mtpa mine, the largest in the world, which could result in lower production expectations for FY24.
Who’s making waves today?
The major lithium players on the ASX were all, perhaps counterintuitively, leading the ASX large caps with big gains this morning, while the materials sector rose 0.85%.
Allkem (ASX:AKE) posted a gain of 4.68%, with IGO up 4.06%, MinRes up 3.13% and Pilbara Minerals (ASX:PLS) growing 3.98%.
More curious was a 7.8% run in Azure Minerals (ASX:AZS), a huge move towards a higher price after the company’s board backed a $3.52 per share bid from Chilean lithium giant SQM .
That happened ahead of a major share buyback by Rinehart, who now owns almost 19% of the company, with MinRes also reportedly stalking the register with a stake of less than 5%.
Regardless of how it all turns out, Andover’s lithium discovery has been stunningly lucrative for the company’s directors.
A swag of 60c options approved at a general meeting in June as an incentive for MD Tony Rovira, Brian Thomas and Hansjoerg Plaggemars were exercised by the trio yesterday.
Rovira’s stake has roughly doubled as a result of the option exercise, bringing the value of its shares to approximately $26 million at the current Azure share price.
Company Secretary Brett Dickson also got in on the action, with a total of 10.5 million options exercised and converted into 8,546,717 fully paid ordinary shares at an issue price of $3.50.
Fellow lithium miners and developers were heavily supported, along with graphite producers, with Core Lithium (ASX:CXO) up 6.2% and Syrah Resources (ASX:SYR) up 5.84% despite the negativity around EV forecasts, with UBS lowered its 2030 EV penetration estimate from 54% to 47% this week.
Battery metals stock prices today
source : stockhead.com.au