Shares of lithium producers have recently experienced a downturn due to slowing demand growth for electric vehicles and plummeting lithium prices, a vital component in EV batteries. This has led to a new phase of challenges for the industry, with layoffs and reduced spending becoming the norm.
Albemarle, the world's largest lithium miner, recently announced that it is "reducing head count" without providing specific details about the number of affected employees. Additionally, the company plans to reduce capital spending in 2024 to approximately $1.7 billion, down from $2.1 billion in 2023.
In a news release, CEO Kent Masters stated, "The actions we are taking allow us to advance near-term growth and preserve future opportunities as we navigate the dynamics of our key end-markets. The long-term fundamentals for our business are strong, and we remain committed to operating in a safe and sustainable manner."
Despite these challenges, Albemarle's stock showed a 1.6% increase during premarket trading on Wednesday, reaching $128 per share. However, S&P 500 and Nasdaq Composite futures were down by 0.4% and 0.5% respectively.
While it may seem counterintuitive for shares to rise amidst what appears to be bad news, the decline in lithium prices has already taken a toll on the market. Albemarle's stock has dropped nearly 50% over the past year.
The slide in shares can be attributed to benchmark prices for lithium falling approximately 80% to $14,000 per metric ton. This decline coincided with a significant increase in sales of all-battery electric vehicles in the U.S., Europe, and China, reaching approximately 8.7 million units, a 33% increase from 2022.
However, simply having growth in demand is not sufficient for commodity producers. It is equally important to maintain a balance in supply. In the case of lithium, supplies and inventories have surpassed demand, leading to the current situation. In contrast, back in 2022, lithium prices peaked at around $81,000 per ton in November, and Albemarle's stock traded at approximately $285, more than double its current price.
The past year has been challenging for lithium producers. Investors are now looking to see how companies respond to the current reality.