Lithium stock in crisis mode: Important update!

Last Updated: 23. Januar 2024By

The American lithium leader Albemarle had already pointed out the problems of the market in its quarterly presentations in 2023.

Albemarle: Hangover Mood after Profit Rush Maybe you still remember: For the third quarter of 2023, the company had to accept a significant drop in profits. The adjusted operating profit (adjusted EBITDA) crashed by almost 62% to $453.3 million, while net profit fell by 66% to $302.5 million. The previously massive drop in lithium prices was responsible for this.

In 2022, the battery metal had experienced a considerable rally and reached record prices. In the graph, you can see the blatant jump in sales and profits that Albemarle achieved at that time:


But the bubble burst – also due to macroeconomic challenges and the sluggish progress of electromobility – and with it, the profit margins of the major lithium providers.

How Albemarle is now reacting to the crisis Albemarle, at least, had already announced measures last year to respond to the crisis. Now there is some more concrete information. According to this, the lithium leader announced job cuts and investment cuts. In 2023, Albemarle had invested a total of $2.1 billion. In 2024, it will now only be $1.6 to $1.8 billion. However, the management did not disclose how many jobs will be cut.

According to its own statements, Albemarle wants to focus primarily on those projects that are already well advanced, close to completion, or in the starting phase. Specifically, this means:

the commissioning of the lithium processing plant Meishan (China) the completion of the commissioning work for phases 1 and 2 of the plant in Kemerton (Australia) and the focus on phase 3 prioritizing approval activities for the spodumene resource Kings Mountain and the postponement of expenses for the Mega-Flex plant in Richburg (both USA) as well as the postponement of investments for the Albemarle Technology Park in North Carolina (USA) Hope for Kings Mountain: Red pen at Richburg? The company, however, has special hope for the Kings Mountain project in North Carolina. According to the company, Kings Mountain contains one of the few known hard rock lithium deposits in the USA. The site could supply 1.2 million electric cars per year in the future. This is how Albemarle wants to meet the White House’s political agenda, which provides for or supports a stronger domestic lithium production.

The project in Richburg (also North Carolina) could now be streamlined. Last year, the company had announced a $1.3 billion investment in a lithium hydroxide processing plant there, which was supposed to create around 300 jobs. In February, during the upcoming quarterly presentation, it should become clear to what extent the project will now be cut. That’s when the management wants to provide detailed information about the investment shifts.

After failed Liontown takeover: Albemarle wants to sell stake In the meantime, the focus is also on the stake in the Australian company Liontown. Albemarle had originally planned to take over the lithium developer completely, but failed due to the intervention of the Australian mining company Hancock Prospecting, which had previously increased its stake in Liontown. Now Albemarle apparently wants to sell its 96 million Liontown shares worth around 121 million AUD. The selling price would then be around 1.26 AUD per share, which would correspond to a discount. On January 17, the Liontown share closed at 1.36 AUD on the Australian market.

Background: With Kathleen Valley, Liontown is advancing one of the most promising lithium projects in Australia. According to the company, there are 156 million tonnes of mineral resources with a high-grade content of 1.4% lithium oxide. The project is expected to start commercial production in mid-2024 and initially produce around 500,000 tonnes of spodumene concentrate per year, later 700,000 tonnes. According to Liontown, it has already signed supply contracts with Tesla, Ford, and the South Korean battery company LG Energy Solution.

My conclusion for you The fact that Albemarle wants to improve its cost structure is, in my opinion, a good signal for the share. The company can thereby optimize its cash flow despite the crisis. However, as an investor, you should still expect the profit rush from Albemarle to come to an end for the time being. Many experts do not expect lithium to see significant value increases anytime soon. On the contrary: In the worst case, there could be another downgrade in 2024, albeit on a smaller scale.

However, the fundamental lithium story is by no means history. The battery metal is still crucial for electromobility and many mobile tech devices. The pure demand perspective should not be underestimated, as well as the growth potential for Albemarle – albeit probably at a lower level.

In my opinion, the stock market has already priced in this downgrade in the share price. The important thing now is the upcoming quarterly presentation in February. If the company convinces with its presentation of concrete cost-cutting measures and forecasts for future profit margins, the share could receive a boost.