Albemarle says 75-80% of its contracts are now long-term variable

Albermarle’s Eric Norris told a webcast for the company’s 2023 investor day that the change to long-term variable contracts for its lithium sales, originally flagged last year, was designed to achieve higher prices and avoid market volatility.

“By evolving our contract strategy to include more index reference variable price contracts, we’ve been able to realize the benefits of higher pricing while moderating volatility. Over the past year, we have renegotiated our legacy, fixed-price contracts, resulting in a portfolio that is split roughly 20-25% spot and short-term purchase orders, and 75-80% long-term variable contracts,” he said.

In 2022, the US-headquartered company’s sales contracts were split around 20% spot, 60% variable index-referenced with a three-month lag, and 20% fixed on a multi-year basis.

The new long-term variable contracts are typically between two and five years in duration, and the company is negotiating for contracts in 2023 onward, Norris noted.

The move comes as lithium producers continue to shift to market-based pricing amid extreme swings in pricing for the raw material, a key ingredient in batteries for electric vehicles (EVs).

The impact of this push to secure access to lithium has been reflected in prices, which increased sharply in the past two years after bottoming out in 2020, following a revival in demand from the downstream battery sector for EVs.

“Assuming year-end 2022 pricing, we expect our full-year realized pricing to be up over 40% versus the prior year. We estimate that every $10 per kg change in full-year 2023 market pricing would equate to a $5-7 per kg change in our own full-year realized pricing,” Norris added.

According to Norris, the tight supply-demand situation has led the company to “become more selective in partnering with our customers, and these partnerships have become more strategic.”

“We’ve established a diversified contract mix across cathode, battery, and original equipment manufacturers (OEM) customers, and are entering into partnerships in advanced energy storage and recycling,” he said.

According to Fastmarkets’ analysts, lithium has been in a supply-demand deficit for the past two years and is expected to be in a 14,300-tonne deficit in 2023.

Albemarle realigned its business units in August, creating two divisions, of which energy storage is one. The unit includes lithium hydroxide, carbonate, battery-grade metal and advanced energy storage businesses.

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