SQM - Lithium Producers Fall on Bearish Price Outlook for 2020

Despite maintaining a positive long-term outlook for the sector, top lithium producers fell on Monday (February 24) after posting quarterly and yearly results last week.

Argentina-focused Livent (NYSE:LTHM) sank more than 15 percent after saying it expects lithium prices to remain depressed, which will in turn impact its profits in 2020. Livent is expecting its hydroxide prices to be “low-to-mid-teens percent lower than its average realized pricing in 2019.”

The coronavirus epidemic could also bring some “headwinds” to the lithium sector, said Paul Graves, president and CEO of Livent.

“Despite another record year of lithium compound demand, pricing has been severely impacted by oversupply conditions. Lithium producers and resource developers are responding to this by reducing output and delaying or canceling capacity expansion projects,” Graves said.

Livent has slowed down the pace of its carbonate expansion in Argentina by approximately six months, resulting in Phase 1 completion in mid-2021. The company is also pausing its current lithium hydroxide expansion project.

“We recognize the financial challenges current pricing levels are creating, and as a result, have elected to slow down our own capacity expansion program in order to preserve our financial flexibility and align our additional supply with future demand growth,” Graves said. “While the battery producer and OEM supply chains continue to evolve, the fundamentals driving automotive electrification remain strong.”

Shares of Livent were trading at US$11.86 on Thursday (February 20), falling more than 18 percent by Monday to US$9.62. Even so, the company is still up more than 9 percent year-to-date.

Charlotte, North Carolina-headquartered Albemarle (NYSE:ALB) is also expecting a decline in earnings on the back of weak lithium prices, and posted a weaker-than-expected quarterly profit on Wednesday (February 19). CEO Luke Kissam, who is retiring for health reasons later this year, said in a conference call that part of the outlook is related to the coronavirus epidemic.

“Our ability to integrate, execute and adapt to market conditions contributed to our strong growth and notable achievements this year,” said Kissam. “We have the best lithium resources in the world and they will serve demand over the next 10 to 15 years.”

Shares of the US-based company fell slightly after the results, but jumped more than 9 percent on Thursday. However, by Monday, shares of Albemarle were trading down more than 5 percent when markets opened at US$87.87. As with Livent, Albemarle is still up more than 23 percent year-to-date.

Chile’s SQM (NYSE:SQM) saw a spike in its share price last week, but kicked off Monday down more than 7 percent at US$29.44. Shares of SQM are up more than 13 percent year to-date.

Chinese lithium producer Ganfeng (OTC Pink:GNENF,SZSE:002460) also fell more than 9 percent on Monday, while Tianqi (SZSE:002466) opened almost 7 percent lower compared to its Friday (February 21) closing price.

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