ALB: Lithium Supply Gets a Fresh Charge

Summary:

Supply-side pressure is mounting in lithium. Followers of our research on Albemarle will recall that we have a mixed view of the fundamental outlook for lithium. While we are encouraged by prospects for robust sustainable demand, which we expect to grow at a CAGR of 14% through 2020, we harbor three concerns: (1) we believe that investors are being asked to pay handsomely for growth at an implied multiple of 21.0x Lithium-linked EBITDA in 2017E; (2) our analysis suggests that the market structure is likely to become increasingly fragmented in the years to come; and (3) we project that growth in lithium carbonate equivalent (LCE) supply is likely to outpace demand with consequent pressure on global operating rates and pricing power through 2020+. SQM’s new expansion plan in Chile, announced yesterday, reinforces our supply-side concern.