Albemarle and FMC Forecast Lithium Price Increase Following Positive Q1 Results

Top lithium producers FMC (NYSE:FMC) and Albemarle (NYSE:ABM) posted positive Q1 results in the past week, keeping an optimistic outlook for prices and the overall lithium market.

Despite the oversupply worries seen in the first three months of the year, prices of lithium, a key element in electric car batteries, continued to trend upwards, boosting the US-based companies’ quarterly results.

Many investors are now wondering what’s next for the top producers, as more and more carmakers are looking to reach long-term supply deals to meet the expected increasing demand in the coming decades.

Here’s an overview of each company’s results for the first three months of the year, what they forecast for the market and what’s ahead for the rest of 2018.

Albemarle: Lithium expansion plans “on track”

Top lithium producer Albemarle reported Q1 net sales of US$821.6 million, up 13.8 percent from the previous year, and earnings of US$131.8 million, up 162 percent over the prior year on Wednesday (May 9).

Albemarle also grew adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) by 18 percent and adjusted diluted earnings per share (EPS) by 24 percent compared to the first quarter of 2017.

Sales from the company’s lithium unit climbed to US$298 million, an increase of of 37.8 percent from the first quarter of 2017. For the full year, Albemarle expects its lithium segment adjusted EBITDA to increase by more than 20 percent compared to 2017.

“The US$81.8 million increase in net sales as compared to prior year was primarily due to favorable pricing impacts, increased sales volumes and US$10.8 million of favorable currency exchange impacts,” the company said in a statement.

In the first three months of the year, Albemarle received approval from development agency Corfo to increase its lithium production quota in Chile to as much as 145,000 metric tons of lithium carbonate equivalent annually through 2043.

“Our lithium capital projects remain on schedule, and, other than some increased raw material costs, the general market dynamics in our business remain positive,” said Luke Kissam, Albemarle’s chairman, president and CEO.

During a conference call to discuss its quarterly results, Kissam said that the company’s expansion plan is not about market share gain, but instead it’s aimed at meeting its long-term commitment to customers.

Speaking about lithium deals, President John Mitchell said the company has almost 100 percent of its 2018 volume committed in long-term contracts. In fact, he added that most battery/cathode customers are pushing for longer agreements, from 3 to 5 years to 10 years.

In terms of prices, Albemarle sees prices increasing overall in 2018 by single digits on a percentage basis compared to last year.

On Thursday (May 10), shares of Albemarle closed down 3.30 percent in New York at US$98.39. The company’s share price has been on a downtrend since the start of the year, down 25.20 percent year-to-date.

FMC: Lithium IPO expected in October

During the first three months of the year, FMC increased its revenues to US$1.2 billion, up 103 percent year-on-year, while net profits reached US$267.2 million against a net loss of US$124 million a year ago.

FMC’s lithium unit reported revenues of US$103 million, an increase of 57 percent compared to the previous year. The segment’s EBITDA nearly doubled year-over-year to US$50 million in the quarter.

“Our lithium hydroxide expansion in China and price increases of about 30 percent on hydroxide led to a near doubling of lithium segment EBITDA year-over-year,” Pierre Brondeau, FMC president, CEO and chairman said.

Looking ahead, FMC confirmed that it’s still on track to sell off part of its lithium business in an initial public offering (IPO) in October. After the IPO, the company plans to spin out the remaining stake to existing shareholders within six months.

Additionally, FMC continues to see demand for lithium increasing five-fold by 2025. Furthermore, the company expects 80 percent of its 2020 lithium hydroxide capacity to be committed under long-term contracts by the end of the year.

During a conference call to discuss Q1 results, CFO Paul Graves said lithium hydroxide customers are “far more focused” on security of supply than price, as demand is poised to grow.

In terms of prices, Graves added he is “pretty sure” of lithium price increases in 2018 and 2019, which are reflected in the annual price escalation in its contracts and the industry supply-demand outlook.

FMC forecasts revenues in the range of US$430 million to US$460 million for its lithium unit in 2018.

On Thursday (May 10), shares of FMC closed up 1.09 percent in New York at US$87.43.The company’s share price has been on a downtrend since the start of the year, down 8.67 year-to-date.

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