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Albemarle, the largest lithium company in the world, has issued a warning that it may surrender market share to Chinese producers following a $4.2 billion transaction to acquire an Australian competitor, while expansion plans have been placed on hold due to falling prices.
In response to investor concerns over substantial expenditures amidst the market downturn, the US company recently announced a review of its capital expenditure plans, involving cuts and realignments.
Last month, Gina Rinehart, the wealthiest woman in Australia, foiled Albemarle’s attempt to acquire Liontown Resources, a crucial acquisition intended to expand the company’s resource base following a strategic stake.
Albemarle’s CEO, Kent Masters, acknowledged that the group is likely to lose market share to Chinese competitors due to declining prices of the metal essential for electric car batteries, prompting the company to adopt a more cautious approach.
“We’re exercising more caution and investing cautiously, so there is a risk of losing that share,” he stated. “This could potentially benefit Chinese suppliers.”
According to FastMarket, Albemarle is on track to hold 13 percent of the global market this year, while Chinese companies possess 63 percent, positioning them as the largest lithium group in terms of market capitalization.
Albemarle’s reduction in development plans underscores the strategic conundrum faced by Western metal firms as they grapple with investing during a period of declining commodity prices, whereas Chinese companies continue to pursue growth plans despite a weak market.
According to metals analysts, the inability of Western companies to invest during a cash flow downturn presents a challenge for the US and Europe in the race against Beijing for crucial minerals in the EV supply chain.
Despite substantial profits over the past two years, lithium producers face significant expenses to meet forecasts of a massive surge in demand. Albemarle anticipates the market to quadruple by 2030.
Lithium prices have plummeted over 70 percent this year to over $22,000 per tonne due to weak EV demand in China and the battery supply chain’s reliance on stockpiled materials rather than fresh purchases, as reported by Benchmark Mineral Intelligence.
Consequently, Albemarle’s net income in the third quarter declined by 65 percent to $320 million, and its annual sales growth forecast was revised down to 30-35 percent from the previous estimate of 40-55 percent three months prior.
Albemarle officials express perplexity over the significant decline in lithium prices, even though they believe that EV demand remains strong.
Despite warnings from LG Energy Solution, Tesla, and General Motors that higher interest rates will negatively impact EV expansion plans, Albemarle remains confident that global sales are still on track to reach approximately 15 million units in 2023, representing a year-on-year increase of over 40 percent.
“What we thought and believed was that they would not have dropped below $25 per kilogram. They have,” stated Eric Norris, president of Albemarle’s lithium business unit. “I think all this indicates that we are heading towards more volatility.”
“When prices are so low, inventory is scarce, and the market continues to rise, we can expect a significant rebound at some point,” he added.
Rinehart has also intensified preparations for another Australian deal involving battery metals after securing a strategic stake in Azure Minerals, which Chile’s lithium powerhouse SQM had agreed to acquire.
Despite the risk of deals being disrupted, Masters insisted that Albemarle still maintains the willingness to consider acquiring Australian producers and mentioned that they have not yet seriously entertained a partnership with Rinehart.