Albemarle’s share price is tumbling today on the news that the company is experiencing cost over-runs in its lithium business and that this resulted in a 4Q loss. The company has tried to deflect with some very bullish views of potential lithium demand, based on EV production growth estimates, but the cost over-runs are another indication of how much inflationary pressure is within all industries today and this news will likely have a negative sentiment impact for any company with material capital spending plans for 2022. The loss at Albemarle comes despite higher lithium selling prices for existing output. We remain very concerned that, despite high capital costs, the technology barriers to entry for the more commodity grades of lithium required for most batteries are very low, and that with the hype around potential demand – as indicated by Albemarle – too much lithium capacity will be built, ultimately causing wild swings in prices. If we get a negative swing in pricing coincident with new capacity start-ups, where the new capacity cost more than planned, we could see some poor returns on investment periods during this decade. To be clear, we expect lithium demand to grow very quickly, but we expect supply to grow quickly also. See more in today's daily report.
Source: Albemarle – 4Q21 Results Presentation, February 2022
