(Bloomberg) -- The world’s largest producer of lithium warned of a “shakeout” in the industry amid a rout in the market for the mineral essential in making rechargeable batteries for electric cars.
Albemarle Corp. Chief Executive Officer Luke Kissam said the company and its biggest rivals Soc. Quimica y Minera de Chile SA, Tianqi Lithium Corp. and Ganfeng Lithium Co. are the only producers with the size, volumes and cost position to serve large customers. These producers that account for about half of the world’s lithium will continue to dominate the market in the future as the entire electric vehicle supply chain matures and consolidates, he said.
“This industry is an infant, a baby that came home from the hospital, and it’s going to grow,” Kissam said in an interview at the company’s headquarters in Charlotte, North Carolina. “There will be dips and spurs and we’re going to have to adapt and evolve. There will be a lot of shakeout over the next decade.”
Lithium prices have plunged by about a third from a record in May of last year as supply from new mines in Australia flooded the market at a time when demand growth is slowing. Electric-car sales in China declined in August for a second straight month, adding to signs of weakness after monthly worldwide sales fell in July for the first time on record.
Albemarle has halted expansion plans worth a combined $1.5 billion and is focusing on being cash flow positive by 2021. The company will be in a strong position when prices start to recover by the end of 2020, Kissam said Wednesday in an interview at the producer’s headquarters in Charlotte, North Carolina.
“It’s going to be tough for newcomers,” Kissam said. “Battery producers are going to be looking for companies that can supply big volumes at a consistent price, and that’s going to be coming from four or five companies.”
Prices for the mineral, especially for lithium carbonate, will stay under pressure during 2020 as the market grapples with a glut, Kissam said. Prices will start to rebound toward the end of next year when consumers begin to draw down inventories, he said.
Demand for lithium will continue to rise at double-digit rates, a pace unseen by any other industrial metal, he said. In such a young, fast-changing market, demand might “blip” one year, but overall the trend will be positive, Kissam said. “I’m not worried about that.”
Albemarle predicted that demand for lithium will soar to around 1 million tons by 2025. Consumption of the mineral totaled 300,000 metric tons last year, according to a BloombergNEF estimate. Its competitor, second-largest producer SQM, cut its forecast from 1 million to between 744,000 metric tons and 914,000 tons earlier this week as China eased subsidies for electric vehicles.
When demand soars, “we’ll be ready to respond because our balance sheet is going to be so nice,” Kissam said. “We have the ability to expand, to buy conversion assets in China, we have plans on the drawing board right now that we could take off the shelf.”
Junior companies that start developing new mines will do so in the hope that one of the bigger producers will buy them out, he said. Albemarle, which owns mines in Chile’s Atacama salt flat and Western Australia, has all the resources it needs for the next decade, but is weighing whether to buy or build assets that will convert brine and hard rock into lithium products such as carbonate and hydroxide.
Investor sentiment for the producers has been subdued. Shares of SQM and Albemarle are down about 30% in the past year, while Livent has plunged 56% since it listed in October. Things have brightened somewhat for Albemarle more recently, with the stock posting a seventh straight gain on Thursday, the longest rally since February.
The company is hopeful that the shares will further mend as it delivers on its promise to generate positive cash flow by 2021.
“Investors like predictability and consistency and we haven’t had that,” Kissam said. “We need to be cash positive by 2021, they need to see it, we need to deliver and ultimately we’ll be fine.”
(Updates with Albemarle share price in 12th paragraph)
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