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Lithium boom falters: Chilling 2023 prospects after Albemarle's Q3 disappointment

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2023-11-02

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Australian lithium companies and investors face grim tidings as Albemarle, the world's largest lithium group and a major presence in Australia's lithium industry, reports a sharp earnings slump in the third quarter of 2022. This weak quarterly performance prompts the company to downgrade its outlook for 2023.

In just three months, Albemarle has shifted from a bullish outlook to a bearish one, with concerns that the current fourth quarter may witness an even steeper decline in performance due to significantly lower lithium prices compared to the record levels seen a year ago (peaking at over $US80,000 per tonne).

The September quarter results paint a bleak picture, with adjusted EBITDA plummeting 62% to $US453 million from $US1.190 billion, and net income slumping 66% to a mere $US302 million from $US897.2 million a year ago. This downturn is in stark contrast to local lithium groups like Pilbara Minerals and IGO, which have not reported such dramatic declines.

Albemarle's earlier forecast for a robust EBITDA rise in 2023 has now been revised to a flat to 5% decline for the year. Their previous optimistic outlook envisioned a substantial increase in net sales and adjusted EBITDA, driven by the growing global adoption of electric vehicles. However, their recent outlook acknowledges the challenges posed by lower Energy Storage pricing and higher spodumene pricing in costs of goods sold from their joint venture-owned mines.

Furthermore, Albemarle's projection for net cash from operations has been halved for the year, now ranging from $US600 to $US800 million, down from the initial forecast of $US1.2 billion to $US1.8 billion. This sharp decrease in cash generation and declining margins was evident when the company withdrew its $A6.6 billion $3 per share bid for Liontown three weeks ago, citing the unfavorable market conditions and pricing.

Albemarle's shares have already fallen by 42% this year, and the disappointing Q3 results and revised outlook are likely to exert even more pressure on the company's stock.

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