US miner Albemarle, the world’s largest lithium producer, has raised its earnings guidance and sales targets, saying the US Inflation Reduction Act has boosted the outlook for electric cars.
“We’ve increased our demand forecast once again, primarily due to higher electric vehicle production,” said Eric Norris, president of lithium at Albemarle. “We now expect 2030 lithium demand at 3.7mn tonnes, up 15 per cent from our prior outlook,” he added, citing the Inflation Reduction Act, the US clean energy bill that was passed in August, as a major factor.
Lithium is a key ingredient in electric car batteries, and prices for the material have soared more than 10-fold since 2020, to record highs of almost $80,000 per tonne.
Norris believes prices can keep rising due to limited supply, and said Albemarle’s realised price for lithium could be as much as 40 per cent higher this year than 2022 as it moves to more contracts linked to current prices.
New York-listed Albemarle, the world’s biggest lithium producer by market capitalisation, said it was well-placed to benefit from the Inflation Reduction Act because of its geographical spread. It produces lithium in the US, and in American free trade partners Australia and Chile.
Its share price rose 5 per cent in early trading on Tuesday.
However, analysts cautioned that meeting the new targets would be a challenge.
“They are obviously very emboldened by the macro conditions, and they want to grow all of the resourcing capacity,” said David Deckelbaum, analyst at Cowen. “The path to getting there . . . certainly has to be paved with impeccable execution.”
The broader industry is divided over whether lithium — which underwent a glut before the pandemic — will remain at its current price levels. Lithium prices crashed between 2018 and 2020 because of oversupply and reduced demand, causing prices to dive from $25,000 per tonne to below $6,000.
Lithium prices are currently around $76,000 per tonne of battery-grade lithium carbonate, according to Benchmark Mineral Intelligence.
However, Goldman Sachs forecasts a sharp price correction to $11,000 per tonne of lithium carbonate equivalent by 2024, as high lithium prices prompt the development of new sources that will leave the market oversupplied.
Albermarle expects a market deficit of 800,000 tonnes annually by the end of this decade because of the growth of EVs and the long time it takes to develop new lithium resources.
In its update, Albemarle said it expected its annual earnings before interest, taxes, depreciation and amortisation to nearly double, reaching $7.2bn to $8.4bn by 2027, compared with preliminary ebitda of $3.4bn to $3.5bn in 2022. The company reports full-year results on February 15.