Albemarle shares outpace lithium rivals Ganfeng and Rio Tinto

Three major players in the global lithium industry, Ganfeng Lithium, Rio Tinto and Albemarle, benefitted from a surge in demand for the metal as electric vehicle makers ramped up production. While lithium stocks have faced difficulties in 2022, analysts still see reason to be optimistic for the industry. 

Ganfeng Lithium [002460.SZ], Albemarle [ALB] and Rio Tinto [RIO.L] have had mixed success this year. Shares in the three companies that have considerable positions in lithium extraction soared in the coronavirus pandemic as investors pumped up the price of the metal. However, this year has not been as fortunate for the industry favourites.

The Ganfeng share price has fallen 15.7% year-to-date as of 31 August, with the shares down 44.3% in the past 12 months as the company risks being caught up in US-Chinese tensions. Australian giant Rio Tinto has also struggled with falling commodity prices impacting the other metals it mines, but the stock is trading 2.9% higher than the start of the year. US speciality chemicals company Albemarle, meanwhile, has had the most successful year with its share price up 15% over the same period.

Compared with the strong gains made in the last couple of years, the lithium industry has pulled back so far this year. The Global X Lithium & Battery Tech ETF [LIT], which includes Ganfeng and Albemarle among its holdings, has fallen 12.6% in 2022, though it is up 87.5% in the past two years. The industry was boosted by the soaring price of lithium, which has been accelerated by the global shift towards electric vehicles (EVs).

Analysts bullish on Ganfeng Lithium shares

The Chinese group has become a significant global player in turning raw materials into battery-grade lithium compounds. In the first quarter of the year, the group’s operating income increased 233.9% to RMB5.4bn as lithium prices soared, while earnings per share grew 580.6% to RMB2.45. Prices for the metal have grown more than 13 times in the past two years, which has helped to boost the group’s margins.

The group has been seeking to cement its international footprint following a series of global investments. In July, it agreed to acquire Argentinia-focused mining group Lithea for $962m. Last month, Ganfeng also completed its £190m takeover of UK firm Bacanora Lithium, which is developing the world’s largest lithium project in Mexico.

However, there are some concerns that the Chinese government will ask Ganfeng to prioritise Chinese EV makers if the supply of lithium is weak in the next few years. These fears, alongside slower Chinese demand for raw materials as its economy slows, have pushed its shares down slightly this year.

Morgan Stanley recently picked Ganfeng as a share the banks thinks is set to outperform in the coming years, with a 58.8% potential upside. Alongside this, out of 11 analysts polled by the Financial Times, five gave the shares a ‘buy’ rating, with the remaining six thinking shares will ‘outperform’.

Albemarle: A favourite among lithium stocks

Albemarle, the US lithium producer which has Tesla [TSLA] and other carmakers as major customers, has been able to profit off strong demand for the metal. At its second quarter earnings update on 3 August, it reported net sales of $1.48bn, up 91% from the year before.

It was also able to revise guidance for the full year once again. The company now expects fiscal 2022 EBITDA to sit between $3.2bn and $3.5bn, which was an improvement from the previous guidance set in May of $2.2bn to $2.5bn. This strong performance and improved outlook have helped push the shares up 37.3% in the past six months to 31 August.

With demand for lithium expected to remain robust as EV production numbers rise, analysts have an optimistic outlook on the shares. Out of 25 analysts polled for the Financial Times, four gave a ‘buy’ rating, 11 ‘outperform’, eight ‘hold’ and the remaining two rated the stock an ‘underperform’.

Rio Tinto suffers as wider metal prices fall

Unlike Albemarle, Anglo-Australian miner Rio Tinto has not recorded soaring earnings this year. Instead, the miner has suffered from its large presence in several different commodities that have declined in value. While the price of lithium has remained relatively stable, metal prices in the company’s other operations have decreased as recession fears cause a slowdown in global demand.

Rio Tinto reported half-year underlying earnings of $8.6bn, which was down from a record $12.2bn in the year-ago period and failed to meet consensus expectations. The company, which prides itself on a high dividend, will pay out $4.3bn in dividends in 2022, down from $9.1bn in the year-ago period.

The company is expected to continue to struggle, with lower demand from China, the world’s largest metal consumer, forecasted to continue. Analysts offer a mixed outlook on Rio Tinto shares. Out of 25 analysts polled by the Financial Times, four rated the shares a ‘buy’, six ‘outperform’, 11 ‘hold’, three ‘underperform’ and one ‘sell’.