FMC Aiming for $500-million Lithium IPO in the Fall

Top lithium producer FMC (NYSE:FMC) is planning a $500-million initial public offering (IPO) of a stake in its lithium business this fall, Reuters reported on Wednesday (February 28).

US-based FMC, which is primarily a pesticides maker, is planning to sell off around 15 percent of its lithium business in the IPO late in the third quarter or early fourth quarter, CFO Paul Graves said. That would give FMC’s lithium business a market value of more than $3 billion.

“We think there is a lot of merit in separating it and allowing lithium to have access to its own equity financing, its own balance sheet, to attract, develop and retain its own management team,” he said.

After the IPO, the company plans to spin out its remaining 85-percent stake in the lithium business to existing shareholders.

Demand for lithium, a key element in electric car batteries, is expected to surge in the coming decades as sales of electric cars increase. In order to fulfill increasing demand, supply of lithium will need to reach 550,000 tonnes by 2026 from just over 75,000 tonnes in 2016, Benchmark Mineral Intelligence says.

Most analysts agree oversupply is out of the cards in the next few years, as most projects take a long time to ramp up to production.

But a recent forecast report from Morgan Stanley (NYSE:MS), which says prices could fall by 45 percent by 2021, has many investors wondering if prices are heading for a crash.

According to the bank, new lithium projects and planned expansions by the largest producers in Chile “threaten to add” around 500,000 tonnes per year to global supply by 2025. Analysts at the firm say 2018 will be the last year of a global lithium deficit, as they forecast “significant surpluses” from 2019 onwards.

FMC expects a lithium deficit in 2025, with estimated demand of around 1 million tonnes not being met by supply of around 700,000 tonnes. “This is an industry that has repeatedly failed to bring on its supply in the way it predicted. It is always late and it is always more expensive to operate,” Graves said.

Other lithium experts and market participants have also voiced their concerns about supply, saying that the scenario forecast by Morgan Stanley has little chance of happening.

However, shares of lithium producers, including FMC, plunged after the bank released its report. On Wednesday, the company’s share price closed down 4.94 percent in New York at US$78.48.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.