Albemarle increases exposure to variable pricing to boost 2022 sales
United States-based lithium and bromine miner Albemarle has been working for more than a year to increase the proportion of its supply contracts that are linked to variable pricing because it wants to “move with the market”
Albemarle has historically worked more commonly with fixed-price arrangements.
The earnings call on Thursday, May 5 followed publication of the company’s first-quarter results for 2022. These showed that Albemarle generated net sales across all its businesses of $1.1 billion, up by 44% year-on-year, citing “lithium momentum” as a key driver.
“The supply/demand balance remains tight in the markets we serve,” chairman, president and chief executive officer Jerry Masters said. “This has enabled us to significantly increase our 2022 outlook, based on continued pricing strength in our lithium and bromine businesses.”
According to a company presentation published alongside the quarterly results, the lithium battery-grade business was expected to account for 70-80% of overall lithium revenues for 2022, with 20% of that share linked to spot pricing deals, and 50% linked to index-referenced short-term contracts, while the remaining 30% would be linked to fixed-price long-term contracts.
“These fixed contracts also have price-opener mechanisms to change prices over time,” chief financial officer Scott Tozier said. “We continue to work with these customers to transition to contracts with variable index reference pricing. These negotiations are continuing and progressing well.
“If we are successful,” he added, “this could provide additional upside to our current outlook for the lithium business.” He was referring to the 30% share of battery-grade lithium deals remaining under long-term contracts for the time being.
Lithium is a key component used in batteries that power electric vehicles (EVs), demand for which was likely to grow in the near and medium terms.
Market prices surged last year following the multi-year lows of 2020; the commodity entered a new bullish cycle, supported by high demand for EV batteries. This supported a price uptrend across the lithium complex, including technical grades, battery grades and spodumene concentrate feedstock.
Fastmarkets’ price assessment for lithium carbonate, 99.5% Li2CO3 min, battery grade, spot prices, cif China, Japan and Korea, was $72-78 per kg on May 6, unchanged since April 25.
The price at the beginning of 2021 was $6.00-7.50 per kg, Fastmarkets’ assessment history showed.
Due to the continuing Covid-19-related lockdown measures in China, taken against the backdrop of a resurgence in infections in the country, demand for lithium salts in China has weakened in recent months, with prices also softening.
Fastmarkets’ price assessment for lithium carbonate 99.5% Li2CO3 min, battery grade, spot price range, exw domestic China, was 440,000-470,000 yuan ($66,066-70,571) per tonne on May 5, unchanged week on week but down from 500,000-525,000 yuan per tonne on March 10. The price was assessed at 50,000-58,000 yuan per tonne on January 7, 2021.
Despite the softness seen in China’s domestic lithium prices recently, Albemarle’s outlook for the remainder of 2022 remained bright.
“It’s a little bit of an imbalance, and that’s what has driven pricing,” Masters said. “We feel we understand second-quarter pricing very well, and we don’t see it dropping dramatically. That’s why we’re comfortable giving guidance [that retains] what we see in the second quarter for the balance of the year.
“What it will do after that is difficult to foretell,” he added. “But the market is still tight. It has become a little soft because demand is off in China as a result of Covid-19 issues. Some of the EV plants were shut down.”
The company now expected the realized lithium pricing for 2022 to be up by about 100% year-on-year, on the implementation of index-referenced variable price contracts and increased market pricing. The revised outlook reflected higher market prices, it said, and assumed that the realized selling price in the second quarter would remain constant for the remainder of this year.