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Albemarle Set to Gain on Lithium Demand Amid Pricing Woes

Zacks Equity Research

We issued an updated research report on leading lithium producer, Albemarle Corporation ALB on Jan 15.

Shares of Albemarle, a Zacks Rank #3 (Hold) company, are up 6.4% over a year, against the 23.4% decline of its industry.


 

The NC-based company is well placed to leverage strong expected growth in the battery-grade lithium market. It should gain from rising demand for lithium-ion batteries that are used to power electric cars.

Albemarle is seeing healthy demand for lithium in battery-grade applications. The company expects strong demand for lithium over the long term. Demand for lithium-ion batteries are expected to go up with their increasing adoption in consumer electronic products as well as efforts to promote the use of electric cars by several governments to curb pollution.

The company is executing a number of projects aimed at boosting its global lithium derivative capacity. As part of its lithium growth strategy, the company last year completed its joint venture (JV) transaction with Mineral Resources Limited. The 60/40 JV between Albemarle and Mineral Resources is named as MARBL Lithium Joint Venture (MARBL). Under the deal, Albemarle purchased a 60% stake in Mineral Resources’ Wodgina spodumene mine in Western Australia for $1.3 billion.

Albemarle, in 2019, also completed a 20,000-metric ton lithium hydroxide expansion in China at the Xinyu II facility. The company has also commenced work at its lithium hydroxide conversion plant in Kemerton, Western Australia.

Moreover, Albemarle is benefiting from continued strong demand for flame retardants, especially in electronics, which is supporting volume growth in its Bromine Specialties unit. Demand in the oilfield market also remains healthy.

However, Albemarle is challenged by pricing pressure for both lithium carbonate and hydroxide in specific markets, especially in China. Lithium prices remain under pressure amid oversupply of the white metal in the market. According to Albemarle, lithium supply capacity grew faster than demand last year, leading to oversupply in the market. This has caused a sharp decline in lithium prices.

The company, in its third-quarter call, noted that it expects global pricing weakness to continue in the fourth quarter as well as in 2020. It envisions price pressure along with the use of tollers to meet customer commitments and address operating issues in Chile, to lead to lower-than-expected performance in its Lithium unit in the fourth quarter.

Albemarle also faces currency headwinds. Unfavorable currency swings, stemming from a stronger dollar, impacted its sales by $7.6 million in the third quarter. Unfavorable impact on sales for the Lithium unit was $3 million in the quarter. Impact for Bromine and Catalysts units were $1.3 million and $3.2 million, respectively. Currency will likely continue to impact its fourth- quarter results.

Albemarle Corporation Price and Consensus

 

Albemarle Corporation Price and Consensus

Albemarle Corporation price-consensus-chart | Albemarle Corporation Quote

Stocks to Consider

Better-ranked stocks worth considering in the basic materials space include Daqo New Energy Corp. DQ, Pan American Silver Corp. PAAS and Sibanye Gold Limited SBGL.  

Daqo New Energy has projected earnings growth rate of 315.4% for 2020 and sports a Zacks Rank #1 (Strong Buy). The company’s shares have rallied roughly 103% in a year’s time. You can see the complete list of today’s Zacks #1 Rank stocks here.

Pan American Silver has estimated earnings growth rate of 46.7% for 2020 and carries a Zacks Rank #1. The company’s shares have shot up roughly 56% in a year’s time.

Sibanye Gold has projected earnings growth rate of 587.5% for 2020 and carries a Zacks Rank #2 (Buy). The company’s shares have surged around 274% over a year.

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Albemarle Corporation (ALB) : Free Stock Analysis Report
 
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