In 2022, Albemarle had famously profited from the sometimes absurdly high lithium prices. In the meantime, market prices for the battery raw material have dropped significantly – and so have Albemarle’s enormously high profits.

Albemarle in crisis mode: New numbers published In the fourth quarter of 2023, the US counter generated $2.36 billion in revenues, according to the recently published numbers. This represents a -10% decrease in revenue. For the whole year, Albemarle managed to achieve revenues of $9.6 billion, setting a new record.

However, the effects of the difficult lithium environment are more significant on the company’s results. The adjusted earnings per share in the fourth quarter of 2023 were $1.85. In comparison: in the fourth quarter of 2022, this figure was $8.62. For the full year 2023, net profit was around $1.6 billion, more than -40% below the previous year’s value.

Source: www.aktienscreener.com

Exceeding expectations: Lithium leader impressively resilient Nevertheless, the new numbers were only devastating at first glance. Both in terms of revenue and profit, Albemarle performed significantly better in the full year 2023 and especially in the fourth quarter than the market had expected. The stock subsequently went on a rollercoaster ride. Initially, the stock market punished the lithium company after the new numbers were announced, only to buy back the losses at the end of last week.

The fact that Albemarle was able to maintain a relatively solid operational performance in the face of the enormous drop in lithium prices is not a coincidence. The US company is currently focusing on efficiency. This means that Albemarle is reducing investments in less advanced projects and cutting jobs. As a result, the company can maintain its cash flow and ensure its liquidity.

For example, the construction of a processing plant in Richburg, USA, and the Albemarle Technology Park in North Carolina, which is being promoted by the company’s management, are expected to be significantly delayed. Overall, spending in the current year is expected to be between $1.6 and $1.8 billion. Last year, Albemarle spent a total of $2.1 billion.

Market scarcity meets demand potential: CEO Kent Masters sees opportunities Nevertheless, Albemarle is not alone in this. Due to the significantly less lucrative pricing of the battery raw material, other players are also slowing down. Albemarle boss Kent Masters sees this as an opportunity. The currently circulating lithium prices are not sustainable and would have to rise in order to trigger new supply investments, Masters recently said, according to a report by Bloomberg news agency. The current supply cuts should help to tighten the market again, the manager continued.

In any case, the company boss continues to rely on the strong demand potential for lithium. According to him, demand for electric cars is expected to increase by +30% globally this year. The short-term supply of lithium is relatively balanced with demand. By the end of the decade, Albemarle expects lithium demand to increase by 2.5 times.

„Even though the price environment has weakened at the moment, we should not lose sight of the fact that we continue to see significant long-term growth in demand for a limited supply,“ Masters said, according to Bloomberg.

Albemarle: 2024 forecast marked by uncertainties In any case, the company was unable to dispel all uncertainties for 2024 during the recent presentation of the numbers. Accordingly, EBITDA is expected to range from $0.9 to $2.6 billion this year. This is, of course, an extremely wide range.

As usual, the specialty chemical company’s profit will depend on the development of lithium prices. If prices remain at their current level, an EBITDA of $1 billion or less would be possible. To maximize the range (2.6 billion USD), prices would have to rise by more than +66%, according to Albemarle.

My conclusion for you Albemarle’s new numbers are not that bad. Sure, the drop in profits is significant. But it could have been much worse. Due to its sheer size as the world’s leading lithium company, Albemarle is able to compensate for market weaknesses much better than smaller players who are currently on the brink of extinction.

Albemarle can easily put certain projects on hold and still maintain a lot of growth potential in its portfolio. The company could even make acquisitions at relatively affordable prices if there is a revival in lithium prices. In my opinion, the lithium sector currently offers interesting opportunities, but with high risks – especially in the area of smaller stocks. In any case, the comeback potential of lithium prices is present, also because the industry is currently striving for artificial scarcity. However, how long it will take for market prices to rise sustainably remains unclear for now.

The fact is: As an established large corporation, Albemarle has the necessary flexibility and simply has the longer breath to survive the crisis. If you want to reduce your investment risk in lithium, the stock is a rock in the storm in the medium to long term.

The post Albemarle stock after numbers: Is the lithium story really over? appeared first on Investor Verlag.