Can the Albemarle share price continue its surge?

The Albemarle [ALB] share price gained 145.1% year-on-year to 29 July to close at $202.82. The stock got off to a rapid start, gaining 24.73% in the first week of the year to close 7 January at $183.12, but these gains were quickly reversed, and the Albemarle share price sank to $140.78 at close on 18 February. A stilted recovery then saw the Albemarle share price drop even lower to $140.02 on 8 March.

Since then, however, the Albemarle share price has been on a disjointed but overall upward trend, closing 26 April at $170.19 and 8 June at $175.62. From a bottom of $157.97 on 18 June, the Albemarle share price has since gained 28.4% to a high of $202.82 on 29 July.

 

Lithium’s price surge

Albemarle has led a resurgence in lithium stocks over recent weeks, with its gains since 19 July joined by climbing prices for competitors such as Standard Lithium [SLI] and Lithium Americas [LAC]. These stocks gained 17.5% and 9.3%, respectively, in the five sessions following 19 July, during which time the Albemarle share price gained 9.4%.

Chris Kapsch, managing director and senior equity research analyst at Loop Capital Markets, upgraded the full-year 2022 earnings and EBITDA estimates and share price target for the Albemarle up from $199 to $208. Kapsch said, “Lithium fundamentals remain encouraging [and the] industry’s upward pricing trajectory should portend an upward bias for established lithium suppliers.” He added that Albemarle’s removal of structural costs from its lithium business should increase its operating leverage as lithium prices rise.

“Lithium fundamentals remain encouraging [and the] industry’s upward pricing trajectory should portend an upward bias for established lithium suppliers” - Chris Kapsch

 

Credit Suisse and Macquarie both upgraded their lithium price forecasts in the week to 2 July, with the metal tipped by Macquarie analysts to be in “perpetual deficit” over the long term. Lithium prices fell from $20,000 a ton to $5,000 between 2018 and 2020 but have doubled in the last year to around $10,000 a ton. This price increase hasn’t yet reached a point where previously closed mines or processing plants have reopened, so supply is still tight even as demand is increasing, pushing lithium prices up rapidly.

“Lithium prices have risen sharply since February, and we do not believe it is temporary,” Credit Suisse wrote in a report.

 

EV Revolution

“Following production cuts… the lithium supply glut has ended, and the market is now tightening as the EV [electric vehicle] revolution accelerates,” the firm also noted.

It isn’t just the increase in EV demand that is fuelling this growth in demand for lithium. The metal is a key component of the lithium-ion batteries that power smartphones and laptops, as well as being used for industrial greases and to treat bipolar disorder.

“We now forecast a wider market deficit for lithium in calendar 2021 than previously. The deficit is expected to grow in calendar 2022 and widen further in 2023 before some supply response starts to close the gap” - Macquarie analysts

 

“We now forecast a wider market deficit for lithium in calendar 2021 than previously,” said Macquarie. “The deficit is expected to grow in calendar 2022 and widen further in 2023 before some supply response starts to close the gap.”

 

LIT up

However, lithium and battery tech ETFs have had mixed performances so far in 2021 (through 29 July). The Global X Lithium & Battery Tech ETF [LIT] has surged 33.6% during the period, comfortably outperforming the market, with the S&P 500 having risen 17.6% during the same period. However, the Amplify Lithium & Battery Technology ETF [BATT] underperformed the broader stock market, with gains of 15.7%.

Weighing down the fund is the emphasis of lithium consumers rather than lithium producers. The Global X Lithium & Battery Tech ETF’s top two holdings (as of 29 July), Albemarle (12.77%) and Ganfeng Lithium [002460.SZ] (7.11%), both sell lithium products as raw materials, and as such, have benefited from surging lithium prices. Ganfeng Lithium’s stock has outperformed Albemarle’s in the year to 29 July, with gains of 89%.

  

By contrast, the Amplify Lithium & Battery Technology ETF’s top two holdings, Contemporary Amperex Technology [300750.SZ], with 8.83% of fund’s value, and Tesla [TSLA], with 6.44% as of 30 July, both produce lithium products, which has increased costs as lithium prices have risen. Tesla fell 4% in the year to 29 July, while Contemporary Amperex gained 58.6% — beating the Albemarle share price but trailing Ganfeng Lithium.

Over the past 12 months, the Global X Lithium & Battery Tech ETF gained 135.6%, while the Amplify Lithium & Battery Technology ETF gained 76.3%, compared to the S&P 500’s rise of 37.3% in the same period.