Albemarle Corporation (NYSE: ALB) the leading global lithium producer, faced a decline in its quarterly profit, primarily attributed to the combination of reduced lithium market pricing and increased spodumene pricing.
On Wednesday, Albemarle reported a third-quarter net income of $302.5 million which is a 66.3 per cent decrease from $892.2 million in the same period last year. Adjusted earnings before interest, taxes and depreciation was $453.3 million which is a decrease of $736.7 million from the prior year.
Albermarle reported that its income tax rate in the third quarter stood at 5.4 per cent, a significant drop from the 22.7 per cent recorded in the corresponding period of 2022. After making adjustments, the effective income tax rates for the third quarter were 3.1 per cent for 2023 and 23.2 per cent for 2022.
The substantial decrease in tax rates was largely attributed to shifts in the distribution of income across different geographic regions.
Albermarle sales jump by 10 per cent despite revenue decrease
On the positive side, Albemarle sales increased by 10 per cent to $2.3 billion from $2.1 billion in the previous year. Higher volumes in energy storage and higher pricing in Ketjen drove this increase.
“In the third quarter, we formed new strategic partnerships and streamlined our existing MARBL joint venture to better position Albemarle for long-term growth,” Albemarle CEO Kent Masters said. “Our investments across the globe continue to progress, with the Meishan project ahead of schedule for completion in early 2024.”
Through its Albermarle Way of Excellence operating model, Masters says the company is on track to achieve more than $170 million in productivity benefits in 2023 and expects to achieve additional benefits in 2024.
During the quarter, the company signed agreements with Caterpillar Inc. (NYSE: CAT) to collaborate on solutions that support a circular battery value chain and sustainable mining operations. Albermarle also received a $90 million award from the U.S. Department of Defense to support the Kings Mountain, North Carolina mine.
In October, the company made commercial arrangements related to the MARBL joint venture, where it will take full ownership of the Kemerton lithium processing facility. It will also acquire 50 per cent ownership of the Widgina spodumene mine in Australia and assume full ownership of the Qinzhou and Meishan processing facilities in China.
The company recently announced its decision to withdraw its $6.6 billion bid to acquire Liontown Resources Limited (ASX: LTR), a move attributed to the increasing complexities surrounding the transaction.
The takeover attempt faced opposition from Hancock Prospecting, an iron ore mining company owned by Australia’s wealthiest woman, Gina Rinehart, which significantly raised its ownership stake in Liontown to 19.9 percent. This strategic move conferred upon Rinehart the status of the largest shareholder in the company, potentially granting her enough influence to hinder the progression of the deal.
China is buying fewer electric cars, lowering the price of lithium
The latest drop in electric vehicle demand caused a significant 60 per cent decrease in lithium prices. Several factors can contribute to this decline in lithium prices. Primarily, the reduced demand for electric vehicles in China has played a pivotal role in this drop. Because of the shift to green technologies, the global supply of mined lithium has notably increased, further contributing to the lower prices.
Notably, major car manufacturers like Ford and Volkswagen, driven by their ambition to challenge Tesla and other competitors, previously entered into battery-supply agreements at elevated prices in the preceding year. Albemarle supplies lithium to Tesla Inc. (NASDAQ: TSLA) and other automakers.
While these factors have contributed to the significant drop in lithium prices, there are signs that demand will revive. For instance, the chief of the China Passenger Car Association said he expected sales of EVs in the country to rise by 30 per cent this year. The bank JPMorgan Chase reckons a rebound will tip the lithium market into a deficit in 2023 and 2024. Moreover, EV sales elsewhere remain healthy, indicating a broader and sustained interest in electric vehicles.
Despite the recent challenges faced by the lithium market, the emergence of these positive indicators and projections suggests a promising outlook for the future of electric vehicle demand and lithium prices.