Joe Lowry
One of the World's Leading Lithium Market Experts
Feb 24, 2016
Since the Rockwood acquisition, the lithium portion of Albemarle earnings calls always contain interesting comments. Last week was no exception.
While the market (and note my use of the word market not "spot market") price for lithium in China has gone up almost 3X in the past few months and shows no signs of returning to former levels any time soon, ALB seems determined to be the low price supplier in addition to a low cost supplier. Nothing wrong with that strategy if it is within reason.
As they did in 2015, ALB will again have the lowest average price for upstream lithium carbonate equivalent (LCE) units in the industry. Given that ALB is sold out in 2016, it seems curious that they were willing to "lock in" what are now incredibly favorable prices for their customers. My estimate is that you will find that FMC's 2016 average upstream prices are at least 30% higher than ALB. Yes, FMC has a smaller volume to sell but since both companies are in a "sold out" position that factor doesn't really matter.
Last week ALB had this to say about pricing:
I agree that ALB is better served by not appearing greedy but there is a difference between "greed" and missing a long term price trend at the expense of your shareholders. Does ALB really think prices above $10 or $15/kg are going to destroy demand? China has eclipsed Korea and Japan as the largest producer of lithium ion battery materials. Demand for lithium carbonate in China going into batteries is more than Korea and Japan combined. The current average price for lithium carbonate in China (again not the spot price) is almost triple what ALB is selling carbonate for in Japan and Korea. If ALB's CEO is correct in his thinking then one would expect the lithium price in China will "drive demand out of the market" in 2016. Only time will tell but I am willing to bet lithium price in China at the end of the year is still in the $20/kg range and that demand in China grows faster than Korea and Japan again in 2016. ALB could double their pricing to lithium ion battery material makers and still be selling at less than 70% of the China price (ex VAT).
I am personally active in the market. In the past month I have sold FCLs of carbonate above $15/kg and hydroxide at $20/kg - outside of China. My access to supply is limited so I have had to turn down more than 10 FCL of business outside of China in the past week. The current shortage is real.
In addition to keeping price low, ALB wants to go longer on contracts rather than shorter which is normally the case in supply constrained markets. The following Q&A interaction is interesting. Yes, ALB mentions trying to get price escalators in their longer term agreements but the focus seems on giving customers security of supply which is hard to do when you are sold out and customer demand is growing. It seems like we are entering the golden age of being an ALB customer outside of China.
Yes, I would expect ALB customers are very receptive to longer contracts at below world market pricing. It seems for now, despite being part of the "Evil Empire" in China, ALB is behaving as a benevolent superpower in the rest of of the world. Perhaps ALB feels they need to curry favor with customers because of their coming expansion but given they are unlikely to expand beyond demand growth in the next decade it seems more like ALB is simply leaving more profit on the table than is prudent.
