Albemarle (NYSE: ALB) stock is down 8%. The ALB stock price fall is a result of falling lithium prices. As the bellwether stock among lithium miners of course Albemarle is the first to get it in the neck as that output price falls. But there’s a difficult question to be asked about this. Is this some temporary imbalance in the marketplace, a fall in lithium for immediate delivery? Or is the entire sector lining itself up for a bust? That’s a difficult economic question but it is the one that has to be answered to be able to get a grip upon, or have a view upon, the sector.
The news itself: “Albemarle (NYSE:ALB) closed -6.3% and Lithium Americas (NYSE:LAC) -6% to lead lithium miners (LIT) broadly lower in Monday's trading, as Chinese prices for lithium carbonate have dropped 20% so far in November and 75% YTD.” That lithium price can be seen here. It is 80% or so down from peaks. Remember, all miners are commodity producers. The material made by Albemarle is no different from that by Pilbara. Everyone is simply a price take - the price anyone gets paid is that global lithium market price (with lithium, true, there are complications over caps and collars but broadly, still true). The world lithium price changes then so do the revenues and profits of all lithium miners.
Albemarle stock price from Google Finance
But to really work out what is going on here we’ve got to take a view. It’s possible that this is correct: “A supply glut has weighed on prices in 2023, and the Benchmark Mineral Intelligence consultancy forecasts the global lithium market will not return to deficit until 2028; high interest rates also are leading to uncertainty over global demand for electric vehicles, with some automakers rethinking their strategies.” It’s a short term mismatch and lithium will go back into deficit in a few years - one estimation is 2028.
Our opinion is that that is not true. We think this is a long term phenomenon. People tend to forget how large the world is - and how much of any element there is out there. There’s been a massive burst of lithium exploration this past few years - potential production is hugely greater than forecast demand. We think the lithium price is going to decline to around production cost whatever happens to the EV market. That makes us bear the large lithium miners, obviously, while still leaving room for some of the exploration juniors to rise by finding new deposits.
But the really big question is whether this is a signal that the EV market itself is going to fail? Sure, lower lithium prices will lower EV prices, but by enough to make them mainstream and mass market? That has implications for the likes of Tesla and so on. No, we don’t have the answer to that but it is something to worry about.
