Shares of Albemarle (ALB 1.65%), the world's largest lithium producer, rose by an impressive 20.1% in February, according to data provided by S&P Global Market Intelligence. That rise was powered by a combination of its fourth-quarter earnings report (which it released on Valentine's Day), an uptick in the price of lithium, and the earnings report and commentary of the world's second-largest lithium producer, Sociedad Quimica y Miera de Chile (SQM 1.45%), aka SQM.
Falling prices, rising volume
There's very little lithium producers can do about falling prices in the near term, and Albemarle's sales declined by 10.1% year over year in Q4 on the back of a significantly weaker price of lithium. That particularly hit home because Albemarle's core energy storage sales volume actually rose 35% year over year in the quarter. Underlying demand for lithium is still strong, driven by the demand for electric vehicle (EV) batteries.
However, a near 80% slump in the price of lithium over 2023 means that in 2024 Albemarle is on track for a significant slump in its revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). On average, Wall Street analysts are forecasting a 38.5% decline in Albemarle's sales this year, and some analysts recently downgraded the stock.
What changed in February
While all of those issues continue to influence investors' thinking, Albemarle received some good news in February.
First, despite the doom and gloom, the price of lithium carbonate is actually up 8.2% in 2024, and most of that increase came at the end of February.
Second, both Albemarle and SQM reported earnings, and both sets of management said they expect sales volume increases in 2024. Albemarle's management thinks its energy storage volume will increase by 10% to 20% this year, while SQM expects its "sales volumes to increase approximately 5-10% during 2024, subject to market conditions" with "global demand increasing by at least 20%, supported by electric vehicle sales growth globally and increasing demand for battery materials."
Image source: Getty Images.
Where next for Albemarle
SQM CEO Ricardo Ramos believes average lithium prices will be "relatively stable" throughout the year. If Ramos is right, Albemarle management's projection of adjusted EBITDA of $700 million to $800 million for 2024 (based on the year-end price of lithium of $15 per kilogram) will ring true.
The hope is that volume demand will catch up with the market's oversupply, leading to a price increase -- and growth in Albemarle's EBITDA -- in 2025. That's the scenario that investors bought into in February.
