Company Reports

The US on May 13, 2024, announced a series of new tariffs on Chinese imports. These include a 100% tariff on electric vehicles and a 25% tariff on lithium-ion batteries and battery parts. There was also a 25% tariff on critical minerals, which include graphite, permanent magnets, and cobalt.

Arcadium's first-quarter results reflected cyclically low lithium prices, partially offset by the company's fixed-price contracts. As a result, Arcadium reported averaged realized lithium carbonate and hydroxide prices of $20,500 per metric ton, above the average index prices of just under $14,000. As Arcadium ramps up its new lithium production capacity, we expect these volumes will be sold at variable prices, most likely on a spot or index-referenced basis. As a result, we expect Arcadium's realized price will increasingly reflect short-term prices as the company progresses through 2024.

Arcadium Lithium is a pure-play lithium producer created in the Livent-Allkem merger in early 2024. The company is a top five lithium producer globally by capacity on a lithium carbonate equivalent basis. Arcadium's two lithium carbonate production resources in Argentina are among the world's lowest-cost lithium sources on an all-in sustaining cost basis.

On April 29, lithium stocks rallied on the news of China's recently issued automobile subsidy. Consumers who trade in an older vehicle and buy a new vehicle that meets energy-saving requirements, including electric vehicles, can get a subsidy of up to CNY 10,000 (about $1,381) to reduce the purchase price through the end of 2024.

Arcadium Lithium reported its first earnings following the company's creation in early 2024 as a result of the Livent-Allkem merger. Management's outlook for 2024 is in line with our view for the company. With our forecast largely unchanged, we're maintaining our $14 fair value estimate and narrow moat rating.

Arcadium Lithium is a pure-play lithium producer created in the Livent-Allkem merger in early 2024. The company is a top five lithium producer globally by capacity on a lithium carbonate equivalent basis. Arcadium's two lithium carbonate production resources in Argentina are among the world's lowest-cost lithium sources on an all-in sustaining cost basis.

Lithium spot prices fell over 80% in 2023. As prices reached all-time highs in 2022, new, higher-cost supply brought the market to balance, sending prices plummeting. Bears say oversupply conditions will occur in 2024 amid rising supply and slowing demand as battery electric vehicle, or EV, sales falter.

We initiate coverage on Arcadium Lithium with a $14 per share fair value estimate. Arcadium is a pure-play lithium producer that was created in January 2024 as a result of the Livent-Allkem merger. The company is a top five producer globally by volumes sold on a lithium carbonate equivalent, or LCE, basis. We award Arcadium a narrow economic moat rating based on its cost-advantaged Argentina lithium production, which generates 80% of volumes on an LCE basis. We rate Arcadium with a standard Morningstar Capital Allocation Rating and Very High Morningstar Uncertainty Rating.

Arcadium Lithium is a pure-play lithium producer created in the Livent-Allkem merger in early 2024. The company is a top five lithium producer globally by capacity on a lithium carbonate equivalent basis. Arcadium's two lithium carbonate production resources in Argentina are among the world's lowest-cost lithium sources on an all-in sustaining cost basis.

Livent announced that its planned merger with Allkem closed and the two firms formed a new company, named Arcadium Lithium. Arcadium will trade on the New York Stock Exchange under the ticker ALTM and on the Australian Stock Exchange under the ticker LTM. We plan to initiate coverage of Arcadium in the near future.

Lithium producer stocks fell on ExxonMobil's announcement that the company is planning to enter the lithium production industry through the development of a lithium project in the U.S. state of Arkansas. While Exxon provided little details on its plans, the company said it aims to begin lithium production in 2027 and produce around 100,000 tons per year by 2030.

On Nov. 6, shares of lithium producers Albemarle, Livent, and SQM fell on a broker downgrade. After reviewing the note, we see no reason to change our fair value estimates for the three narrow-moat companies. At current prices, we view all three lithium producers as materially undervalued relative to our base-case fair value estimates. Albemarle and Livent both trade at roughly 40% of our $300 and $38 fair value estimates, respectively, and in 5-star territory. SQM trades at a little less than 50% of our $95 per share fair value estimate. Along with Lithium Americas and Lithium Argentina, we view these five stocks as the most undervalued among our specialty chemicals coverage.

Our key takeaway from Livent's third-quarter results is the company's decision to delay its volumes growth in 2023. We updated our model to assume lower volumes throughout our 10-year forecast period. We also updated our model for higher capital expenditures and lower near-term lithium prices. As a result, we reduce our Livent fair value estimate to $38 per share from $42. Our narrow moat rating is unchanged.

Spun out of FMC in late 2018, Livent is a pure-play lithium producer. The company's lithium carbonate production in Argentina is among the world's lowest-cost lithium sources. Livent is planning to merge with another pure-play lithium producer, Allkem, in an all-stock transaction where the two companies will merge into a new entity. In this deal, Livent shareholders will receive 44% of shares in the new company, while Allkem shareholders will receive the remaining 56%. We think the deal will close by the end of 2023. The new company should have a top-four lithium production capacity globally.

On Oct. 18, lithium stocks plummeted following a sell-side broker's downgrade for Albemarle and SQM. The downgrade is due to the outlook that the lithium market will move into a supply surplus in 2024 and 2025, leading to lower lithium prices. We disagree and continue to forecast a price rebound as strong demand growth outpaces supply leading to a supply deficit in 2024.

In 2022, battery electric vehicles represented nearly 10% of global auto sales, up from a little less than 6% in 2021. Much of the growth occurred in China, which has been a leader in EV sales over the past decade. However, with national EV subsidies in China expiring in 2022 and far lower sales in the U.S. and Europe, the market questions if EV sales can continue to grow without subsides.

Spun out of FMC in late 2018, Livent is a pure-play lithium producer. The company's lithium carbonate production in Argentina is among the world's lowest-cost lithium sources. Livent is planning to merge with another pure-play lithium producer, Allkem, in an all-stock transaction where the two companies will merge into a new entity. In this deal, Livent shareholders will receive 44% of shares in the new company, while Allkem shareholders will receive the remaining 56%. We think the deal will close by the end of 2023. The new company should have a top-four lithium production capacity globally.

Livent's second-quarter results exemplified our near-term outlook for the company and lithium producers in general. Adjusted EBITDA grew 42% versus the prior-year quarter driven primarily by higher prices. This is in line with our view that, despite lower lithium index prices in 2023 versus 2022, producer contract prices would rise. With our outlook for Livent intact, we maintain our $42 per share fair value estimate and narrow moat rating.

Shares of lithium producers plunged in 2023 as falling spot prices leave investors worried the 2022 boom turned bust. However, we see no reason to panic. For investors, the selloff creates an attractive opportunity to invest in lithium.

We raise our Livent fair value estimate to $42 per share from $38 following the announcement of Livent's proposed merger with lithium peer Allkem. Our narrow-moat rating is unchanged. Under the deal, Livent and Allkem will merge into a new company by the end of 2023. Allkem and Livent are currently the fifth- and sixth-largest lithium producers, respectively. As such, we see little antitrust concern and think the deal is likely to close as proposed.