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When Albemarle gained control of Rockwood Lithium as part of a $6.2-billion transaction earlier this year, it became one of the world’s top lithium producers.
When Albemarle (NYSE:ALB) took control of Rockwood Lithium as part of a $6.2-billion transaction announced last July, it became one of the world’s top lithium producers.
The global lithium market is fairly small, and as with other leading lithium producers, lithium makes up just one facet of Albemarle’s business. Still, for investors interested in the lithium space, it’s worth staying up to date with what the major players are up to and what they see happening in the market.
According to Albemarle’s vice president of energy solutions, David Klanecky, lithium made up 15 percent of the company’s core business revenues for the last financial year, even after its acquisition of Rockwood. That said, lithium sales were up 9 percent last quarter, as per the company’s Q2 results conference call, and Klanecky said that the company sees the lithium market growing.
“Lithium and its derivatives are a key material in a number of important applications, such as glass, lubricants, greases and energy storage,” he said. “We see continued growth in these areas due to its key physical properties. While energy storage gets much of the attention due to the very rapid growth in consumer electronics and transportation, we expect growth to continue in the other areas as well.”
That view isn’t surprising given that the growing lithium market has been spoken about by numerous lithium market watchers and analysts. That said, it’s another thing to see the point borne out in the results of a major producer.
Giving weight to its confidence in the lithium market, and in battery-grade products in particular, Albemarle began commissioning a new lithium carbonate production plant in Chile in July, and is also moving ahead with plans for a lithium hydroxide plant based on the direct conversion of spodumene ore from its Talison joint venture in Australia. Currently, Talison’s Greenbushes mine produces a hefty portion of the world’s technical-grade lithium supply, but battery-grade products are more in demand from China’s Tianqi Group, which has a controlling interest in the mine.
The company’s interest in battery-grade products raises the question of whether Albemarle may supply Tesla Motors (NASDAQ:TSLA) with lithium for its lithium-ion battery gigafactory. The company has been getting a disproportionate amount of attention from the lithium space — even though it’s definitely not the only game in town in terms of battery megafactories — and Rockwood Lithium’s Silver Peak lithium operation is less than four hours away from the gigafactory construction site.
“Because of our geographical diversity and strategically located asset base, we believe we have numerous options to supply the lithium materials required for the gigafactory,” said Klanecky. However, he did not confirm whether there have been any discussions on the matter between Tesla and Albemarle, stating, “the discussions we have with our customers regarding material supply are confidential in nature.”
Tesla has not announced any supply agreements for the gigafactory yet, although lithium, graphite and cobalt investors are eagerly awaiting the news.
Certainly, it can be difficult for lithium investors to get a handle on the space. Lithium prices are hard to come by — Albemarle does not disclose pricing information, although it is possible to obtain estimates and forecasts. Furthermore, as mentioned above, lithium only makes up a small portion of revenues for major lithium producers, making it difficult to gain exposure to the mineral.
Still, with rising demand for lithium-ion batteries, and falling prices for other metals, investors are certainly still interested in the lithium market. When it comes to junior lithium companies, Klanecky echoed a point that is frequently forgotten, but often repeated by Chris Berry of House Mountain Partners and the Disruptive Discoveries Journal: production costs are the name of the game.
“The lithium market is currently tight and we are expecting lithium demand to grow,” said Klanecky. “However, it’s hard to say what that ultimately means for lithium exploration companies. The challenge with lithium is not to find it, but to find reserves that can be developed economically.”
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.
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