....a worsening lithium pricing environment that can only be...

....a worsening lithium pricing environment that can only be exacerbated by a recession outcome.
Albemarle stock target cut, retains underweight on decline in lithium prices


EditorNatashya Angelica
Published 26/06/2024, 04:50 am

On Tuesday, Piper Sandler adjusted its outlook on Albemarle Corporation (NYSE:NYSE:ALB), a global specialty chemicals company. The firm's analyst has reduced the price target for the company's stock to $95.00, down from the previous target of $122.00, while maintaining an Underweight rating.

The decision to lower the price target is based on the ongoing decline in lithium prices, which are essential to the company's operations. The analyst cites a worsening supply/demand (S/D) environment as the primary reason for the reduction.

Factors contributing to the decline in lithium prices include supply growth exceeding demand, inventory levels being reduced, and tariffs impacting Chinese electric vehicle (EV) sales, where the bulk of lithium demand is concentrated.

As a result of these market dynamics, Piper Sandler has also revised its earnings before interest, taxes, depreciation, and amortization (EBITDA) estimates for Albemarle. The revision is primarily due to lowered price expectations, rather than a decrease in volume. The firm anticipates that while production volumes will increase as new capacity is introduced, this will lead to lower average selling prices for lithium products.

The impact of these changes is expected to become more pronounced in the coming quarters. According to the analyst, the nature of Albemarle's contract structures suggests that the company will see a drop in realized prices in the third quarter compared to the second quarter, with the lowest prices likely to be reached in the fourth quarter of the year.

In other recent news, over 50 companies have shown interest in developing lithium projects in Chile, including Albemarle Corporation. This comes after the Chilean government's call for proposals to explore and develop lithium resources.

Meanwhile, Albemarle's stock target was cut by UBS, although the firm maintained a neutral stance. The company's 2024 adjusted net income saw a significant decrease, down to $2.4 million from $1.24 billion in the previous year, due to an 89% decline in lithium pricing.

Despite this, Albemarle reiterated its financial guidance. Analysts from Argus and Piper Sandler maintained their Buy and Underweight ratings on Albemarle respectively, while Scotiabank downgraded the company from "Sector Outperform" to "Sector Perform".

In recent developments, Albemarle reached an agreement with the Chilean Economic Development Agency that could potentially increase its lithium production quota by approximately 50%.