A deep dive from Investor's Business Daily, October 7:
Albemarle Plots Decade-Long Lithium Charge With Demand Racing Past Supply
Back in February, lithium giant Albemarle (ALB) looked like the stodgiest player in an industry known for its conservatism — instilled by periodic supply gluts and price crashes. Though lithium prices were surging and the EV boom demanded aggressive expansion, Albemarle's fourth-quarter earnings showed output slipping in 2021, with little revenue uplift due to contracts largely tied to 2020 prices.
But since Albemarle stock crashed on its Q4 2021 results and outlook, Wall Street perceptions have turned upside down. It's now clear that Albemarle management was merely demonstrating the patience and confidence afforded by a winning hand.
Despite some big ups and downs, Albemarle stock has rallied more than 20% in a tough 2022, near record highs.
Now, partly thanks to the Inflation Reduction Act, Albemarle's cards have only gotten better. Its winning streak appears likely to last through the decade.
Inflating Lithium Prices
Despite the law's name, tens of billions of dollars of government incentives to buy and build EVs and batteries in the U.S. will help to keep lithium prices high.
"The government's effectively subsidizing certain battery related materials" such as lithium, Cowen analyst David Deckelbaum told IBD.
Those subsidies, including $7,500 for a new EV and $45 per kilowatt-hour of battery capacity, could add up to $12 billion for General Motors (GM) alone by 2025, Wolfe Research analyst Rod Lache wrote in a Sept. 6 note.
Even if lithium prices stay high, those subsidies will grease the wheels for higher EV demand in the U.S., which has lagged behind China and Europe.
The law also includes a 10% tax credit to offset production costs of key battery materials like lithium.
That will help Albemarle to "build more flagship assets in North America," Deckelbaum said.
Albemarle's U.S. Lithium Plans
Albemarle has the only working lithium mine in the U.S., a relatively modest-scale operation that produces lithium from brine in Silver Peak, Nevada. A multiyear expansion should double the output in coming years.
But it also has aspirations to reopen its Kings Mountain, N.C., lithium mine. Albemarle closed it in the 1980s as its lower-cost brine operations ramped up in Chile.
On its Aug. 4, second-quarter earnings call, CEO Jerry Masters called Kings Mountain a "top-tier resource." He said Albemarle plans to build a major lithium processing facility in the Southeast later this decade. That will have capacity to convert 100,000 tons of lithium ore annually from Kings Mountain and elsewhere into battery-grade lithium....
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The stock closed at $272.53 on Friday, down $8.41 (-2.99%), not much worse than the S&P 500 which was down 2.80%.
