After a furious rally that saw prices climb 500%, a two-year buying frenzy in the lithium market is showing signs of cooling off as the huge EV wave especially in China moderates. Consequently, leading lithium stocks have been selling off quite heavily: Albemarle Corp. (NYSE: ALB) is down 13.0% over the last five trading sessions; SQM (NYSE: SQM) has cratered 16.7%, Livent Corp. (NYSE: LTHM) is down 15.1% while Lithium Americas (NYSE: LAC) has contracted 9.0% over the timeframe. Of the lithium majors, only FMC Corp. (NYSE: FMC) has escaped that fate after adding 1.2%. This is a good opportunity to use the selloff to buy these stocks on the cheap. After all, the long-term lithium outlook remains as bright as ever, as the EV market continues to expand at a breakneck speed with global EV sales hitting one million for the first time in September.
The lithium majors had a good earnings season this term. Albemarle posted Q3 net sales of $2.1 billion, a jump of 152% but still missed the Wall Street consensus by $120M. Adjusted EBITDA clocked in at $1.2 billion, an increase of 447% while adjusted diluted EPS of $7.50 was good for a massive increase of 614%. The company tightened FY2022 guidance: net sales of $7.1B - $7.4Bfrom prior view of $7.1B - $7.5B vs. consensus of $7.51B; adjusted EBITDA of $3.3B - $3.5B from a prior view of $3.2B - $3.5B; Adjusted EPS of $19.75 - $21.75 from the previous outlook of $19.25 - $22.25 vs. consensus of $21.31.
SQM posted Q3 revenue of $2.96B (+347.4% Y/Y), beating the Wall Street consensus by $180M while Q3 GAAP EPADR of $3.85 beats by $0.47. SQM reported a net income for the nine months ended September 30, 2022, of US$2,755.3 million compared to US$263.9 million for the same period the year before. Earnings per share totaled US$9.65 for the first nine months of 2022, higher than the US$0.92 reported for the first nine months of 2021. The company said its positive results in the lithium market were due to significantly higher sales volumes and average prices. Q3 sales volume grew about 22% Y/Y to 41.6K metric tons.
FMC reported revenue of $1.38B (+16.0% Y/Y), beating estimates by $50M while consolidated GAAP earnings of $0.95 per diluted share, down 23 percent versus Q3 2021. However,Q3 Non-GAAP EPS of $1.23 beat by $0.12. The company narrowed its adjusted EBITDA outlook to a range of $1.37 to $1.43 billion, reflecting 7 percent growth at the midpoint versus 2021
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It also narrowed adjusted earnings per diluted share outlook to a range of $7.10 to $7.60 (from the prior outlook of $7.00-$7.70 vs. $7.41 consensus), reflecting 7 percent growth at the midpoint versus 2021.
Oil Traders Moving To Lithium
Lithium has grown from a niche market and is beginning to garner serious attention from giant oil and commodity traders.
Indeed, several key commodity traders enter into the lithium business using various avenues. Back in January, metals and minerals trader Traxys Europe S.A. signed an offtake agreement with Austrian lithium producer European Lithium Limited (ASX: EUR, FRA: PF8, OTC: EULIF) to support the development and commercialisation of the Wolfsberg Lithium Project in Austria. Under the MOA, European Lithium will work with Traxys to negotiate suitable commercial terms for a product offtake and/or marketing agreement for EUR’s Lithium Hydroxide (LiOH) including any by-products from the Wolfsberg Project.
In May, giant Swiss trading firm Trafigura bought a stake in lithium processing company Green Lithium. The equity investment will support Green Lithium's development phase funding round and the development of one of the first centralized commercial lithium refineries in Europe, which will supply European electric vehicle and battery manufacturers with battery-grade lithium chemicals. Trafigura estimates lithium demand will hit 800,000 tons of lithium carbonate equivalent this year, exceeding supply by a good 140,000 tons, and has predicted that demand will rise by a further 200,000 to 250,000 tons annually through 2025.
Market experts see the latest developments as a big positive for the lithium industry. Until fairly recently, lithium was almost impossible to trade due to prices being fixed in long-term private contracts between the handful of dominant suppliers and their customers, with no need for middlemen. But surging demand is now shaking up the way lithium is bought and sold, and in a good way: according to Blomberg, supply deals have become dramatically shorter, with floating prices linked to the spot market while exchanges from Chicago to Singapore are encouraged enough to experiment with new futures contracts.
“The activity of traders in the lithium market should make this a more transparent and efficient market over time. It's like oil in the 70s when governments would sell to consumers but then traders started providing services and that helped growing and developing the market faster. Lithium's starting to go through that process,” Martim Facada, a lithium trader at Traxys, has told Bloomberg.
But lithium and green energy investments are by no means the sole preserve of independent trading desks with scores on fossil fuel companies also at it. To wit, Koch Industries, the conglomerate with its fingers in a range of industries, from oil refining to chemical production, lumber and paper mills, glass, and electronics, is reportedly investing hundreds of millions of dollars in battery companies.
According to the Wall Street Journal, Koch has sunk at least $750 million into battery makers and battery material companies over at least 10 investments.
Meanwhile, in spring 2022, Tesla Inc. (NASDAQ: TSLA) reportedly signed two significant contracts with Australian mining operators as it continues to localize and secure the supply of critical components and materials.
By Alex Kimani for Oilprice.com
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