By Micah Maidenberg
Tesla's surge has helped lift shares of lithium producers to double-digit gains in 2020, powered by investors' bets that demand for the electric-car battery component will outpace a recent supply glut.
Shares of Livent Corp., which has a lithium-extraction site in Argentina, have moved up 19% this year, while the stock for Albemarle Corp., a major producer with facilities in Chile and elsewhere, is up about 16%. American depositary receipts for Chile-based Sociedad Química y Minera de Chile SA, or SQM, have risen 12%.
The increases show how investors' enthusiasm for Tesla has spread to companies and industries tied to the electric-vehicle market. Tesla's stock is up around 84% so far in 2020, fueled in part by many investors' belief that the company and Chief Executive Elon Musk stand poised to upend the automotive industry.
"I think whenever you have something like that going on, generating renewed excitement around electric vehicles and around batteries, you have people looking around and saying, 'Who else could benefit from this?'" Seaport Global Securities analyst Michael Harrison said.
Lithium prices, weighed down by excess supply, have fallen 22 consecutive months through January, according to an index maintained by research firm Benchmark Mineral Intelligence. While the metal has industrial applications and other uses, producers have pitched the link to electric vehicles explicitly, saying the projected adoption of such cars and trucks will support long-term growth.
"Once the sticker price of an EV becomes at or below that of a combustion engine, the whole conversation changes," Albemarle's top technology executive for its lithium business, Glen Merfeld, told investors in December. The Charlotte-based company at the time projected lithium demand to rise 24% on a compound annual basis between last year and 2025.
There are other factors supporting stock-price gains among lithium producers. China has indicated it will stick to its target of 2 million electric-vehicle sales this year, which would be up from 1.2 million last year, according to Andrew Miller, product director at Benchmark. Panasonic Corp. last week said automotive battery sales increased in its latest quarter and the battery factory in Nevada it funded with Tesla turned profitable in the period.
Electric-vehicle adoption is still in its infancy, however. Last year, 2.2 million light-duty electric vehicles were sold around the world, a fraction of the 78.2 million total car and light-truck sales, according to S&P Global Platts. This year, analysts forecast electric vehicles sales to rise to 2.5 million as total light-duty sales move lower.
"The supply side has overshot where the industry is today," Mr. Miller said. Benchmark's lithium price index fell 39% between January and the year earlier.
Some producers have considered cutting back on adding more capacity, as prices hover near 2016 levels for two types of lithium, according to Benchmark. In January, lithium carbonate cost $7,508 a ton on average, while lithium hydroxide prices stood at $9,619 a ton. Both grades can be used in batteries.
SQM said in January the company and a partner had deferred making a final investment decision on moving ahead with a lithium development in Australia called Mount Holland until the first quarter of next year. The companies said over the coming months they will look for ways to potentially improve operations at the development and reduce capital spending there.
Livent last month cut its financial outlook for the fourth quarter and for 2019, citing in part lower prices for lithium. The company also disclosed it was reviewing current capacity expansion plans due to what Chief Executive Paul Graves described as challenging market conditions.
"In an oversupplied market, things turn rapidly," Eric Norris, Albemarle's president overseeing lithium, said in December.
Write to Micah Maidenberg at email@example.com
(END) Dow Jones Newswires
February 11, 2020 11:26 ET (16:26 GMT)Copyright (c) 2020 Dow Jones & Company, Inc.