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Albemarle (NYSE: ALB), the world’s top lithium producer, faces the risk of losing market share to China after the company had to pump the breaks on expansion plans amid falling prices for the battery metal.
The US lithium giant controls about 13% of the global market this year, according to Fastmarkets. Chinese producers have grown their share to 63%.
Chief executive Kent Master acknowledged in a conference call last week that the company will likely cede market share to Chinese rivals.
“We’re being a little more cautious and investing behind the market, so there’s a risk we lose that share,” he said, the Financial Times reported. “This will probably be helpful for Chinese suppliers.”
Master’s comments came after Albemarle’s announced lower annual production forecasts, kicking off a review of its expenditure plans in response to investor concerns over the company’s spending pattern in the currently weak market.
The review followed the company’s withdrawal of its $4.2 billion bid for Australian lithium developer Liontown Resources (ASX: LTR), citing “growing complexities.” One of the main difficulties the Charlotte, North Carolina-based giant encountered was the intervention of Australian billionaire Gina Rinehart, who built up a blocking stake in the takeover target.
Analysts at UBS responded to Albemarle’s latest announcements by downgrading it to “Neutral” from “Buy”. They also cut their target price to $140 per share from $253.
“The firm has ~80% of volumes on contracts, with lags and floors, which helps limit downside, but it isn’t clear 1) where those floors kick in and 2) if they will hold in a prolonged downturn,” UBS experts wrote on Monday.
Morgan Stanley also said it sees increased downside risks to holding Albermarle’s shares, including a potential dispute between Europe and China over electric vehicles (EVs) imports into the continent.
The investment firm kept its underweight rating on the company and cut its price target to $90 from $155.
Albemarle’s decision to cut back on its growth plans illustrates the main issue western mining companies are facing — how to invest less without losing ground.
Miners also have to add to the equation the fact that Chinese companies continue to push with their development projects, despite the weak market.
Lithium prices have fallen more than 60% this year on worries that global demand for EVS is softening and can not longer keep pace with ambitious growth targets set by automakers and regulators.
