Tesla Pulls Up Lithium Producer Stocks Despite Glut
February 11 2020 - 11:41AM
Dow Jones News
By Micah Maidenberg
Tesla's surge has helped lift shares of lithium producers to
double-digit gains in 2020, powered by investors' bets that demand
for the electric-car battery component will outpace a recent supply
glut.
Shares of Livent Corp., which has a lithium-extraction site in
Argentina, have moved up 19% this year, while the stock for
Albemarle Corp., a major producer with facilities in Chile and
elsewhere, is up about 16%. American depositary receipts for
Chile-based Sociedad Química y Minera de Chile SA, or SQM, have
risen 12%.
The increases show how investors' enthusiasm for Tesla has
spread to companies and industries tied to the electric-vehicle
market. Tesla's stock is up around 84% so far in 2020, fueled in
part by many investors' belief that the company and Chief Executive
Elon Musk stand poised to upend the automotive industry.
"I think whenever you have something like that going on,
generating renewed excitement around electric vehicles and around
batteries, you have people looking around and saying, 'Who else
could benefit from this?'" Seaport Global Securities analyst
Michael Harrison said.
Lithium prices, weighed down by excess supply, have fallen 22
consecutive months through January, according to an index
maintained by research firm Benchmark Mineral Intelligence. While
the metal has industrial applications and other uses, producers
have pitched the link to electric vehicles explicitly, saying the
projected adoption of such cars and trucks will support long-term
growth.
"Once the sticker price of an EV becomes at or below that of a
combustion engine, the whole conversation changes," Albemarle's top
technology executive for its lithium business, Glen Merfeld, told
investors in December. The Charlotte-based company at the time
projected lithium demand to rise 24% on a compound annual basis
between last year and 2025.
There are other factors supporting stock-price gains among
lithium producers. China has indicated it will stick to its target
of 2 million electric-vehicle sales this year, which would be up
from 1.2 million last year, according to Andrew Miller, product
director at Benchmark. Panasonic Corp. last week said automotive
battery sales increased in its latest quarter and the battery
factory in Nevada it funded with Tesla turned profitable in the
period.
Electric-vehicle adoption is still in its infancy, however. Last
year, 2.2 million light-duty electric vehicles were sold around the
world, a fraction of the 78.2 million total car and light-truck
sales, according to S&P Global Platts. This year, analysts
forecast electric vehicles sales to rise to 2.5 million as total
light-duty sales move lower.
"The supply side has overshot where the industry is today," Mr.
Miller said. Benchmark's lithium price index fell 39% between
January and the year earlier.
Some producers have considered cutting back on adding more
capacity, as prices hover near 2016 levels for two types of
lithium, according to Benchmark. In January, lithium carbonate cost
$7,508 a ton on average, while lithium hydroxide prices stood at
$9,619 a ton. Both grades can be used in batteries.
SQM said in January the company and a partner had deferred
making a final investment decision on moving ahead with a lithium
development in Australia called Mount Holland until the first
quarter of next year. The companies said over the coming months
they will look for ways to potentially improve operations at the
development and reduce capital spending there.
Livent last month cut its financial outlook for the fourth
quarter and for 2019, citing in part lower prices for lithium. The
company also disclosed it was reviewing current capacity expansion
plans due to what Chief Executive Paul Graves described as
challenging market conditions.
"In an oversupplied market, things turn rapidly," Eric Norris,
Albemarle's president overseeing lithium, said in December.
Write to Micah Maidenberg at micah.maidenberg@wsj.com
(END) Dow Jones Newswires
February 11, 2020 11:26 ET (16:26 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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