Column: Top five contrarian commodity scenarios for 2025
Overall, the first part of 2025 is likely to be defined by a period of uncertainty.
Low lithium prices are “unsustainable” and will have to rise in order to trigger the supply investments needed to meet long-term demand growth, according to Albemarle Corp., the world’s biggest producer.
Lithium suppliers around the world are reining in spending and, in some cases, production after demand for the key component in electric-vehicle batteries slowed just as new mines started up, whiplashing the market from shortages to oversupply. One measure of prices has slumped more than 80% from record highs in late 2022.
The pullback means some operations are losing money, while “the economics for new greenfield projects, particularly in the West, are not supported,” chief executive office Kent Masters told analysts Thursday after the company reported fourth-quarter results.
Supply curtailments should help tighten the market, he said. Australia’s Core Lithium Ltd. is suspending mining, while output at the giant Greenbushes mine, in which Albemarle has a stake, is likely to be reduced as sales drop and inventories rise, said part-owner IGO Ltd.
Lithium’s longer-term outlook is supported by the shift away from fossil fuels and prices have steadied in recent months. While Albemarle is limiting work at its new Kings Mountain mine in North Carolina to permitting and is deferring spending on a South Carolina plant, it’s plowing ahead with advanced projects in Chile, Australia and China.
Masters vowed to take a disciplined approach to growth, with deal-making likely minimal. To be sure, as one of the biggest and lowest-cost producers, Albemarle is well positioned to capitalize on long-term growth trends, he said, citing a supply deal signed with BMW that takes effect in 2025. It’s also been selling lithium above global indexes.
Albemarle sees EV demand growing above 30% this year and near-term lithium supply relatively balanced with demand. The Charlotte, North Carolina-based firm expects its sales volume to grow 10% to 20% this year versus about 35% last year. But in the switch to EVs, lithium demand is set to increase 2.5 times by the end of the decade, Albermarle said.
“While the pricing environment has softened for the moment, we should not lose sight of the fact that we continue to see significant long-term growth in demand for limited supply,” Masters said.
Inventory draw-downs help explain the softness, said Joe Lowry, the veteran industry consultant dubbed Mr. Lithium, adding that lower prices will flush out poorer projects while continuing to support strong projects.
“I don’t think the sky is falling,” Lowry said in an interview. “I’m perfectly comfortable with where things are, actually.”
Albemarle shares were up by 4% at 10:56 a.m. in New York after losing more than half their value in the past year. In the fourth quarter, Albemarle delivered net sales that beat analyst estimates but booked an unexpected adjusted loss before interest, taxes and depreciation.
It delivered 2024 guidance in the form of different price scenarios. The firm sees Ebitda of about $1.05 billion if current lithium prices persist and about $2.45 billion if prices get back to $25 a kilogram. That compares with the $1.6 billion average estimate among analysts.
(By James Attwood)
Read More: Despite weak lithium prices, Albemarle beats on cost cuts
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