Albemarle strikes less optimistic note on near-term lithium recovery

US miner and processor Albemarle is decidedly less bullish on any immediate relief from a recovery in lithium prices compared to fellow mining firm Mineral Resources (Minres). The company in instead further reigning in capex and looking for more cost cuts in order to achieve breakeven free cash flow (FCF) even in the current market environment.

While Minres at the end of last month was talking of a better January and anticipating improved pricing even as early as mid-year, Albemarle is more circumspect. It continues to present a range of price scenarios to help analysts guide for its 2025 performance at different price points — rather than making any sort of price forecast.

But it is notable that it has introduced a $9/kg, or $9,000/t, lithium carbonate equivalent (LCE) scenario to reflect prices at the end of 2004 to go alongside its $12-15/kg and $20/kg projections. And, notably, it is at current prices that the firm says it has a “line of sight” to breakeven FCF in 2025, suggesting that its base internal planning is not for material price increases this year.

One factor that may be tempering Albemarle’s hopes of a price recovery is its estimate that around a quarter of lithium production is loss-making at current prices, but only half of that is currently shuttered. Producers’ tolerance to sustain unprofitable output, and potentially even to turn supply back on at any sign of price uptick, may make bullishness more difficult.

On the other hand, the firm does seem to believe that prices are unlikely to do any lower. “ We are pretty focused on making sure we can compete at the bottom of the cycle,” says Albemarle CEO Kent Masters.

Alongside cost and productivity improvements — including pivoting one Chinese processing facility to output more lithium carbonate and less hydroxide and mothballing another hydroxide plant in China — with a savings target of $300-400mn, Albemarle is continuing to slash projected capex in light of a market that could be lower than longer. It now plans to spend another $100mn less than expected in 2025 at $700-800mn, less than half of 2024’s $1.7bn capex.

The firm is adamant that the reduced spending will not compromise its ability to ramp up mining production if and when the market does rebound, arguing that most of the capex cuts have been around conversion. But Masters concedes that “we have pushed out on some resources, and we are getting very focused of the highest-quality, lowest-cost resources”.

“We are not out pursuing as many resources as we were at one time,” he admits. And, while Albemarle stands by forecasts of 15pc compound annual growth rate (CAGR) in the period 2022-27, but that may then tail off unless the firm gets access to more rock.

“We start running out of the theme a little bit,” Masters confesses. “Those growth rates come down after 2027 and most of that is about resource.”

Nonetheless, despite the spending slowdown, Masters is confident that Albemarle can “pivot when the market comes back to take advantage of more growth and higher prices”.