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On Thursday, Citi Materials Team adjusted their stance on lithium, now rating it as the least preferred sector within their coverage. The downgrade was prompted by concerns over the potential decline in battery demand, particularly from the Energy Storage Systems (ESS) end, an ongoing increase in supply, and rising inventory levels. This sentiment is reflected in the performance of major industry player Albemarle (NYSE:ALB) Corporation, which has seen its stock decline by approximately 41% over the past six months. According to InvestingPro data, the company’s revenue has contracted by 44% in the last twelve months.
Tianqi Lithium, a significant player in the industry, issued a profit warning on Wednesday, forecasting first-quarter net profits to be between 82 million and 123 million renminbi. This projection falls short of Citi’s expectations of 200 million renminbi. The shortfall is believed to be due to a downward revision of consensus on Sociedad Química y Minera de Chile S.A.’s (SQM) first-quarter net profit and increased processing costs associated with rising Original Equipment Manufacturer (OEM) processing. Industry-wide challenges are evident in Albemarle’s financial metrics, with InvestingPro analysis showing weak gross profit margins and negative returns on invested capital.
Despite a roughly 15% decline in lithium shares over the past 30 days, Citi anticipates further downside risks to lithium stocks. The team cites impending tariff hikes that could negatively impact battery demand, suggesting a worsening supply/demand dynamic for the sector moving forward. For deeper insights into the lithium sector’s outlook and comprehensive analysis of key players like Albemarle, investors can access detailed Pro Research Reports and additional financial metrics through InvestingPro.
The reported profit alert from Tianqi Lithium underscores the challenges facing the lithium market. The company’s ability to navigate high raw material costs and maintain resilient downstream demand during the quarter was not sufficient to meet analysts’ expectations.
Investors in lithium stocks may face headwinds if Citi’s analysis proves accurate. The anticipated tariff hikes and the potential for further demand reduction could lead to continued pressure on share prices in the lithium sector.
In other recent news, Albemarle Corporation is preparing to release its first-quarter earnings report on May 1, as investors closely watch for performance insights amidst a challenging lithium market. Citi analysts have revised their price assumptions for Albemarle, projecting a lithium carbonate equivalent price of approximately $12,000 per ton by 2026, reflecting caution due to tariff disputes and potential impacts on global automobile sales. Mizuho (NYSE:MFG) Securities also adjusted its outlook, lowering Albemarle’s stock target to $85, maintaining a Neutral rating, and noting that lithium prices are expected to remain subdued through 2025. Additionally, Piper Sandler reduced Albemarle’s stock target to $85, retaining an Underweight rating based on a comprehensive analysis of the company’s recent earnings and broader market conditions.
Moody’s Ratings changed Albemarle’s outlook from stable to negative, maintaining a Baa3 senior unsecured rating, due to ongoing lithium market challenges. Despite these hurdles, Albemarle achieved a 26% annual sales volume growth in its Energy Storage segment in 2024, with an adjusted EBITDA of $1.1 billion. The company has taken steps to reduce capital expenditure and improve cost efficiency, aiming for $300-400 million in productivity improvements by the end of 2025. Meanwhile, Albemarle declared a quarterly dividend of $0.405 per share, scheduled for payment in April 2025, reflecting its commitment to shareholder value. These developments provide investors with a clearer picture of Albemarle’s current standing and future potential amidst fluctuating market conditions.
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