Albemarle : Value Chain

Before understanding information related to Albemarle stock price, it’s necessary to look at the lithium value chain. The value chain includes stages of exploration and development, mining, refining and processing, battery manufacturing, end-product usage, and recycling.

1. Exploration and Development: Explore and develop regions rich in lithium. Conduct geological surveys and lithium reserve assessments.

2. Mining: The process of mining lithium ores. Lithium is mainly mined in the form of spodumene or petalite ores, and is also extracted from some salt lakes.

3. Refining and Processing: The mined lithium is refined into a high-purity form. It is transformed into various forms such as lithium carbonate and lithium hydroxide.

4. Battery Manufacturing: Lithium compounds are used to manufacture lithium-ion batteries. This process includes manufacturing battery cells, assembly, and testing.

5. End-Product Usage and Recycling: After the battery’s life ends, the lithium and other useful materials are recovered through recycling processes.

Albemarle : Company Overview

Albemarle started not as a raw materials company, but as a paper company. Lithium business accounts for over 60% of Albemarle’s revenue. It has the best competitive edge both quantitatively and qualitatively in producing lithium chemicals. The company is 100% vertically integrated, from mining and refining to final product production.

As a U.S. lithium company, it held the top position in the world in 2021 by accounting for about 35% of global lithium demand. Founded in 1994, Albemarle is headquartered in North Carolina, USA, and is listed on the New York Stock Exchange (NYSE). Its market capitalization is $26.8 billion. As the world’s leading lithium company, it has employees in over 100 countries. In addition to lithium, it also produces bromine (brom), used in pharmaceuticals and drilling, and catalysts used in petrochemical processes. Lithium business accounts for 37% of Albemarle’s total revenue.

Lithium is mined from salt lakes or mines and processed into lithium carbonate or lithium hydroxide for use in battery materials. The International Energy Agency (IEA) predicts that the demand for lithium for electric vehicles could increase by at least 8 times and up to 17 times by 2030 compared to current levels.

The structural increase in lithium demand leads to price rises. Naturally, companies that mine and process lithium can benefit.

Albemarle is the only company that extracts and mines lithium from both salt lakes and mines. The key materials for the cathode of secondary batteries are lithium carbonate and lithium hydroxide. Generally, extracting lithium carbonate from salt lakes and mining lithium hydroxide from mines helps reduce costs. Albemarle extracts and mines lithium from the Atacama salt flats in Chile and the Greenbushes mine in Australia. Chile and Australia account for 43.8% and 22.4% of the total lithium reserves, respectively.

Albemarle is also the only lithium company that has achieved vertical integration. It not only owns mines but also facilities for producing lithium carbonate and lithium hydroxide. It has control over the entire lithium supply chain, allowing it to procure lithium at a price lower than the market rate.

Its strong fundamental strength is also considered a strong point. Albemarle’s EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) as a percentage of revenue exceeded 30% last year, even when lithium prices were low.”

Attention to Rapid Business Expansion Albemarle is also proactive in expanding its business. The company is moving quickly to secure additional lithium production capacity. It has announced expansions in locations such as Chile and Australia by the end of this year. In August, Kent Masters, the CEO of Albemarle, stated, ‘We are focusing on strengthening our lithium business division. Two plants in Chile are currently in pilot operation, and one plant in Australia is expected to complete construction by the end of this year.’ They plan to expand further in the United States and Australia by 2025.

Lithium is mined from salt lakes or mines and processed into lithium carbonate or lithium hydroxide, then used as a material for batteries. The International Energy Agency (IEA) predicts that the demand for lithium for electric vehicles could increase by at least 8 times and up to 17 times by 2030 compared to current levels.

The structural increase in lithium demand leads to price rises. Naturally, companies that mine and process lithium can benefit.

Albemarle : Correlation with Lithium Prices

Albemarle’s stock price reached its highest in the latter half of 2022 when lithium prices were high. However, in 2023, the price continuously declined due to a fall in lithium prices. This indicates that while the stock is influenced by lithium prices, the correlation is not exceedingly direct.

The price of lithium ultimately rises with increased demand. The price changes according to the dynamics of supply and demand.

China’s policy of subsidizing electric vehicles has played a decisive role in the explosive growth of the EV market in the country over the past few years. Thanks to subsidies, the sales of so-called ‘New Energy Vehicles (NEVs)’, including pure electric and plug-in hybrid cars, surged by 90% year-over-year last year.

Although electric vehicle sales in China revived in February, the January sales volume was 408,000 units, a 6.3% decrease compared to the same period last year, according to recent statistics from the China Passenger Car Association (CPCA). This sparked concerns about a slowdown in EV demand.

For lithium prices to rise, electric vehicle sales need to recover. Although EVs are a hot topic, their sales are not living up to expectations. Despite the reopening, passenger car sales have not fully revived. Additionally, a price reduction due to inventory clearance of internal combustion engines makes a sudden surge in demand for electric vehicles unlikely.

Lithium prices typically rise in the fourth quarter as producers secure raw materials in advance. However, this year, contrary to usual, a decline in lithium prices is expected. Despite the initial rise in lithium prices due to the Russo-Ukrainian War’s impact on raw material volatility and a surge in EV demand, an oversupply is leading to lower lithium prices. Experts predict that lithium prices will continue to fall in 2024.

Thus, it seems it will not have a positive impact on Albemarle.

A warning has emerged that Albemarle (ALB), the world’s leading lithium producer, could face margin pressure in the short to medium term if the phase of lithium oversupply continues.

On the 18th (local time), according to the American economic media Barron’s, Bank of America analyst Steve Byrne downgraded Albemarle’s investment rating from ‘neutral’ to ‘underperform market returns’ and also lowered the target price from $212 to $161, a 24% reduction. There are only two analysts on Wall Street, including Steve Byrne, who have issued a sell opinion on Albemarle.

Albemarle : Demand and Supply Outlook

The equation ‘Secondary Battery = Electric Vehicle’ might be true only for the present. Secondary batteries can be used in various fields where they are not currently used. With applications in ESS (Energy Save System), UAM, and other areas, the supply can diversify. In other words, it’s limited to only consider the current supply.

Albemarle has established a strategic partnership with Ford and is also in supply agreements with Tesla. Moreover, the relationships with lithium resource countries (Chile, Argentina, Bolivia) should be considered. However, it seems hard to ignore the premium of being a top company in the U.S. The relationship can improve easily if pressed by other means.

Furthermore, Albemarle (NYSE:ALB) Corporation is not far behind in the race for lithium production in Arkansas. The company plans to expand its bromine operations to include lithium extraction and operates the Esmeralda County mine among its global resources. With support from a Defense Department grant, Albemarle is committed to adopting eco-friendly brine extraction methods as part of its overall strategy.

Source : Exxon Mobil to launch expansive lithium operation in Arkansas by 2027

Albemarle Stock Price: Impact of the IRA

The Inflation Reduction Act offers a $7,500 (about 9.76 million KRW) tax deduction for new electric vehicles, but to receive the full deduction, from 2023, the EV manufacturer must source at least two-thirds of the battery materials from the U.S. or from U.S. Free Trade Agreement (FTA) partners like Canada, Chile, Australia.

The guidelines exclude key metal suppliers like Indonesia and Argentina for nickel and lithium and increase the sourcing target for battery materials to 80% by 2026. In other words, 80% of the battery materials must be sourced either from within the U.S. or from countries that have an FTA with the U.S. Car companies have pressured Congress to expand the list of eligible countries for sourcing.

The U.S. is home to some of the world’s largest automakers, such as Ford and GM. However, the capability for in-house development of battery manufacturing and refining in the U.S. is limited, not just for auto parts. Movements to quickly build factories in the U.S. due to the Inflation Reduction Act are expected to accelerate.

Albemarle Corp, the world’s leading lithium producer planning to build a lithium processing plant in the Southeastern U.S. by the end of 2030, said the Inflation Reduction Act is a positive move to attract investment in U.S. supply chains.

An Albemarle spokesperson stated, “The battery industry is primarily operated in Asia, and the supply chain in the U.S. is in the early stages of development, so the conditions and timelines for electric vehicle subsidies are not easy.”

Global mining giant Rio Tinto, which conducts refining and smelting operations in Utah, USA, and Canada, welcomed the legislation for mining and processing in the U.S., saying it is collaborating with customers in the automotive sector.

Among key mineral producers for electric vehicles, Albemarle (ALB.US), a leading U.S. lithium producer, is recommended as the top pick. As a global top-tier lithium producer, owning lithium production bases and mining rights in the U.S. (Nevada Silver Peak, North Carolina Kings Mountain) and through additional investments, it is expected to benefit from mid-to-long-term policies with its global expansion, including the U.S., Australia, and Chile.

Albemarle Stock Price: Overall Assessment

The decline in lithium prices is a phenomenon brought on by changes in China’s lithium prices due to the IRA. However, lithium prices will not always be low. With the restriction of Chinese products in the North American market, a new situation of diverse demand and limited supply might arise. Furthermore, with lithium expected to be used in various places beyond electric vehicles in the future, the outlook does not seem bleak.

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