Albemarle Corporation (NYSE: ALB) is cutting costs for the second time this year in response to falling lithium spot prices.
The company explained on Wednesday that everything but its dividend would not be safe from scrutiny after it endured its second quarter loss.
The Tesla Inc (NASDAQ: TSLA) supplier and its peers have faced challenges over the past year due to an oversupply of lithium from China and a slowdown in aggressive electric vehicle (EV) adoption rates.
This situation has lowered prices for the metal and delayed expectations for the energy transition. Earlier this month, General Motors Company (NYSE: GM) backed away from its goal of producing 1 million EVs annually in North America by 2025.
Albemarle, with operations worldwide, had already reduced staff in January. However, lithium prices have continued to fall, dropping from an average of USD$20 per kilogram at the end of last year to a current range of approximately USD$12 to USD$15 per kg, according to the company.
“The market is not improving. It’s actually probably getting a little worse,” Albemarle CEO Kent Masters told Reuters. “We’re using the term ‘lower for longer’ from a pricing perspective, and we have to be able to operate through that downturn.”
Albemarle is implementing cost cutting measures, including a review of its operating structure. It anticipates anticipates this being complete by October.
The company also plans to pause construction of an Australian processing unit and idle production at a second unit at the site.
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Not all companies have responded the same to the slowdown
In response to a market slowdown, Sociedad Química y Minera de Chile S.A. (SQM) (NYSE: SQM) has chosen not to curtail production but instead to lean in and continue producing lithium. SQM is the second biggest lithium producer in the world, behind Albemarle.
This strategic decision demonstrates the company’s confidence in the long-term growth prospects of the lithium market in spite of the decrease in demand for electric vehicles. By maintaining robust production levels, SQM aims to strengthen its market position and ensure a steady supply of lithium to meet future demand surges. This approach reflects a commitment to long-term investment and resilience amidst short-term market fluctuations.
The company recorded revenues of $1.08 billion in Q1, down by a hefty 52 per cent compared to the previous year’s quarter. Weak lithium pricing caused this decline, even though SQM did not see a drop in sales volumes.
In fact, the company increased its lithium sales volumes by around 30 per cent compared to the first quarter of the previous year. However, pricing headwinds more than offset the increased volumes made possible by SQM’s ongoing investments in new production.
A few producers continuing with lithium production include Lithium South Development Corporation (TSXV: LIS) (OTCQB: LISMF) (Frankfurt: OGPQ) and POSCO Holdings (NYSE: PKX). These two companies formed a partnership to develop the Hombre North Lithium Project (HMN Li Project) in the Salta Province of Argentina, where both companies have significant operations.
Lithium South Development Corporation is a sponsor of Mugglehead News Coverage
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joseph@mugglehead.com
