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General Market Commentary
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General Energy
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General Market Commentary
Stung by sliding prices, lithium industry pares back expansions
LONDON – Albemarle, SQM and other lithium producers have been scaling back expansion plans as near-term oversupply concerns drag on prices, unnerving investors who are pushing the industry to focus more on profitability.
Volkswagen, BMW and other automakers planning to produce all-electric fleets of vehicles during the next decade with lithium-ion batteries are expected to help global demand for the white metal more than triple by 2025 to 917 469 t, according to Canaccord Genuity.
But shareholders worry lithium producers have boosted production to levels far above current needs. Global supply is 5% higher than demand, the Canaccord Genuity data showed.
"The problem in lithium is the growth rate is so high, that when producers over-deliver, they over-deliver big," said Jon Hykawy, a battery minerals analyst at Stormcrow Capital.
Battery metals are expected to be a major part of the discussion this week as the world's metals industry gathers in London for the London Metal Exchange (LME) Week.
Lithium shareholders seem keen not to repeat the mistakes made by early investors in the US shale boom, which prioritized growth over cash flow in a push to make the United States the world's largest oil and natural gas producer. A decade after that boom began, many US shale companies are not profitable.
Albemarle, the world's largest lithium producer, is delaying construction plans for about 125 000 t of additional lithium processing capacity, part of a plan to be cash flow positive within two years.
Based in Charlotte, North Carolina, Albemarle last week cut its sales and profit forecasts for the year, citing the continued slump in prices for the metal.
"When I talk to shareholders, the number one thing I hear is, 'When are you going to be free cash flow positive?'" Albemarle CEO Luke Kissam said.
AUTOMAKERS PUSH AHEAD
Santiago-based rival SQM, the world's second-largest lithium producer, is delaying an expansion in Chile's Atacama salt flat until the end of 2021.