Nasdaq: Albemarle gains on lithium expansions amid pricing woes

Albemarle is poised to gain from strong long-term growth in the battery-grade lithium market and its actions to expand capacity amid headwind from global lithium pricing weakness, an updated Nasdaq research reports.

Shares of Albemarle are down 23% over a year, compared with the 35.5% decline of its industry. Albemarle expects strong long-term demand for lithium. The market for lithium-ion batteries has a lot of untapped potential. Demand for these batteries are expected to go up with their increasing adoption in consumer electronic products as well as efforts to promote the use of electric cars by several governments to curb pollution.

The company is also executing a number of projects aimed at boosting its global lithium derivative capacity. Last year, it completed a 20,000-metric ton lithium hydroxide expansion in China at the Xinyu II facility. It also increased lithium carbonate production in La Negra I and II by roughly 5%. The company has also commenced work at its lithium hydroxide conversion plant in Kemerton, Western Australia.

As part of its lithium growth strategy, Albemarle, in 2019, also completed its joint venture (JV) transaction with Mineral Resources Limited under an Asset Sale and Share Subscription Agreement. The 60/40 JV between Albemarle and Mineral Resources is named as MARBL Lithium Joint Venture (MARBL). Under the deal, Albemarle purchased a 60% stake in Mineral Resources’ Wodgina spodumene mine in Western Australia for $1.3 billion.

Albemarle also remains committed to deliver incremental returns to shareholders. The company paid dividend worth around $152 million to its shareholders in 2019.

The company’s board, earlier this year, also declared an increase in its quarterly dividend. The revised dividend of 38.5 cents per share is roughly 5% higher than the previous quarterly dividend.

However, Albemarle is witnessing pricing pressure for both lithium carbonate and hydroxide in specific markets. Lithium prices remain under pressure amid oversupply of the white metal in the market. According to the company, lithium supply capacity grew faster than demand last year, leading to oversupply in the market. This has caused a sharp decline in lithium prices. Moreover, the coronavirus outbreak is likely to hurt demand in the automotive market in China.

The company envisions lower results from the Lithium segment in 2020. It expects adjusted EBITDA for the unit to be down around 20% this year on lower pricing.

Albemarle also expects its results in 2020 to be lower on a year-over-year basis factoring in lower expected results from the Lithium segment. The company sees net sales for 2020 to be between $3.48 billion and $3.53 billion, representing 2-3% year over year decline. Moreover, adjusted earnings for 2020 are forecast in the band of $4.80-$5.10 per share, a year-over-year drop of 16-21%.

Albemarle is also facing some headwinds associated with its bromine specialties business. The unit faces challenges from weakness in the automotive market. The company expects demand in China to remain flat this year.

Full report HERE

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