Shares of Albemarle (ALB 2.09%) plunged 31% last month, according to data provided by S&P Global Market Intelligence. Global lithium markets were already suffering from a mismatch in supply and demand, which forced them into the first major downturn since lithium became an essential global commodity a few years ago. The coronavirus pandemic will surely exacerbate the imbalance by curtailing short-term demand for electric vehicles (EVs), which are by far the largest source of demand.
That's not the only point of exposure for Albemarle. The business owns dominant market positions in both refining catalysts (for petrochemicals and fuels) and bromine chemicals (for various industrial applications). With demand for transportation fuels down by at least half -- and as much as 80% in some parts of the globe -- investors should expect a rough year ahead for the company. That likely explains why the dividend stock hasn't seen much relief despite the stock market's broader recovery in recent weeks.
Major lithium producers have made responsible decisions to delay near-term expansion plans in an effort to help balance supply and demand. Albemarle, Sociedad Quimica y Minera, and Livent Corporation have each backed off ambitious timelines for production growth in the last year or so.
Despite decisions to intentionally reduce near-term production, Albemarle expected global lithium demand to triple from 2019 to 2025 on the heels of surging lithium demand for EV applications. Those expectations are probably unrealistic now.
The coronavirus pandemic has forced over half of the world's population indoors. Orders to stay inside will probably last for one or two months in each country, while restarting economies will take many more months after that. To be blunt, the pandemic has taken a big bite out of demand for everything from everyday purchases of transportation fuels (and refining catalysts) to big purchases of EVs (and lithium materials), which suggests 2020 is going to be a little uncomfortable for Albemarle.
Investors with a long-term mindset might be more willing to cut Albemarle some slack. The business is well run, comfortably profitable, and has considerable long-term potential. It's also possible that governments will offer generous subsidies for EVs in future stimulus packages in an effort to jump-start economic growth, which could provide a tailwind for lithium producers. But without more details about how the coronavirus pandemic is affecting the company's operations, there's simply no way to know for sure. That makes the next quarterly update in early May a pretty important one for investors.