Albemarle pauses lithium expansions on market oversupply, low prices
Albemarle has put its lithium production expansion plans on hold due to current market oversupply and lower prices, Luke Kissam, the company chief executive officer said.
Changes to China’s new energy vehicles (NEVs) subsidies, shifts in cathode chemistry and the oversupply of lithium carbonate have raised concerns among the energy storage value chain, Kissam said during the company’s second-quarter earnings call.
“All of this has put downward pressure on prices and we expect to see this pressure on carbonate pricing continue in the near term, but we also expect supply and demand dynamics to tighten in 2020. We have always stated that we would add production capacity to meet demand,” Luke Kissam said.
“Albemarle has decided to delay all work related to the planning, engineering and construction of approximately 125,000 metric tons of previously announced additional conversion capacity. We anticipate these changes will reduce our capital expenditures by approximately $1.5 billion over the next five years and allow Albemarle to become free cash-flow positive in 2021,” Kissam added.
Over the course of the past year, the oversupply of both battery-grade lithium carbonate and hydroxide lithium compounds and lower than expected demand, due to delays in the adoption and mass production of nickel-rich batteries such as NCM 811, have been pushing Asian seaborne lithium spot prices progressively down.
Fastmarkets’ assessment of the lithium carbonate 99.5% Li2CO3 min, battery grade, spot price cif China, Japan & Korea was $10-12 per kg on Thursday August 8, a 37.14% year-on-year decrease from $16.50-18.50 per kg on August 9, 2018.
Fastmarkets’ assessment of the lithium hydroxide 56.5% LiOH.H2O min, battery grade, spot price cif China, Japan & Korea was $12-14 per kg on Thursday August 8, falling by 33.3% year on year from $19-20 per kg on August 9, 2018.
Asian seaborne lithium contract and spot prices followed the price trend in China due to a significant amount of lithium compounds being produced in China. For more details on the latest lithium spot prices in China click here.
China’s production of lithium compounds is expected to reach 240,000 tonnes in 2019, against an expected global lithium production of 355,000 tonnes in 2019. Global demand is expected to reach 304,000 tonnes of lithium-carbonate equivalent for all of 2019, according to Fastmarkets research team.
Albemarle’s production adjustments
Albemarle has put some of its production expansions on hold in response to the global oversupply of lithium compounds and to adjust its capital expansions plans to market conditions while meeting long-term commitments with customers.
The decision to delay all work at the Salar de Atacama yield improvement in Chile is set to limit La Negra III and IV’s initial nameplate capacity, which is set to complete in the first half of 2021 with a production capacity of 40,000 tonnes per year of lithium carbonate.
The company will be producing 40,000 tpy of lithium carbonate throughout 2019, however, at the two existing operating units at La Negra at the Salar de Atacama in Chile.
On July 31, Albemarle agreed to a larger stake for a smaller price in its joint venture with Mineral Resources to develop Wodgina lithium mine and Kemerton lithium hydroxide plant in Western Australia to reduce capital expenditure.
Kemerton’s first phase of lithium-hydroxide output will have two production lines of 25,000 tpy with commissioning due in the first half of 2021. The production expansion will depend on the market and demand forecasts, however. Kemerton’s first phase of production was previously expected to reach 75,000 tpy.
Moreover, in China, Xinyu II is on track to reach a full production capacity of 20,000 tonnes of lithium hydroxide by the year’s end to supply customers, Albemarle said.
Albemarle could be producing close to a total of 65,000 tpy of lithium compound in 2019, up from roughly 53,000 tpy in 2018, excluding tolling, according to Fastmarkets research.
Favorable prices and increased sales volumes contributed to the second-quarter 2019 results for lithium, Albemarle said.
Albemarle’s sales earnings were up by 2.3% year on year, making $324.8 million in new lithium sales throughout the second quarter of 2019, up from $317.6 million sales in the same quarter of 2018. Quarter on quarter, net sales were up by 11.27% from the first quarter of 2019.
The company expects its lithium sales prices across 2019 to trade flat or slightly up compared with the prices achieved in 2018. In its first-quarter results, the company had said that its lithium sales prices were up year on year due to long-term agreements with customers preventing the company from reaching spot market levels.
Albemarle’s total net sales - including its bromine and catalyst businesses - grew by 3.7% year on year to $885.1 million in the second quarter of 2019 from $853.8 million in the second quarter of 2018. This is also up by 6.36% quarter on quarter from $832.1 million in the first quarter of 2019.