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Lithium producer Albemarle faces steep earnings slide

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2024-02-15

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Albemarle, the world's largest lithium producer, showcased a mixed performance in the final quarter of 2023, revealing a $2.3 billion slide in earnings over the six-month period ending in December. This substantial loss marked a stark contrast to the profits seen in the same period of 2022, painting a somber picture for the company's financial health.

While some analysts noted an adjusted profit for the quarter ending in December, it was evident from the overall tone of the report and the company's outlook that Albemarle faced significant challenges. In response, the company initiated cost-cutting measures and job reductions in mid-January, aiming to bolster cash flow by up to $750 million. These measures included slashing approximately half a billion dollars from capital expenditure and nearly $100 million from operating costs, underscoring the impact of the dramatic 80% decline in lithium metal prices throughout 2023.

This price slump, which has persisted into 2024, has prompted widespread cuts across the lithium industry. Factors such as sluggish electric vehicle (EV) adoption, particularly in the US and parts of Europe, oversupply of lithium in China, and a surplus of mining projects in countries like Australia, have collectively contributed to the downward pressure on lithium prices, inflicting financial strain on Albemarle and its competitors.

Numerous projects in key regions like Australia, South America, and the US have been postponed, suspended, or abandoned as companies tighten their belts to weather the storm, with notable exceptions like Wesfarmers and SQM continuing development on their Mount Holland spodumene mine and associated hydroxide refinery at Kwinana.

"We are taking actions to enhance our financial flexibility," stated Kent Masters, Albemarle's spokesperson, in a press release on Wednesday.

In the fourth quarter of 2023, Albemarle reported a net loss of $617.7 million, a sharp contrast to the net profit of $1.13 billion recorded in the same quarter of the previous year. Excluding one-time items, the company's profit for the quarter amounted to $289 million, down from over $1.2 billion in the final quarter of 2022.

Despite a strong performance in the first half of the year, the company's full-year profit figures masked the challenging conditions experienced in the latter part of 2023. Adjusted EBITDA for the year ending December 2023 totaled $2.766 billion, down from $3.746 billion the previous year, while net income declined by 42% to $1.573 billion from $2.690 billion.

A deeper analysis of the second half of the year reveals the true extent of the downturn, with Albemarle recording a net loss of $380 million for the six months ending December 2023, compared to net earnings of over $1.97 billion during the same period in 2022. This represents an earnings collapse of more than $2.3 billion attributable to the price slump.

Overall revenue for the company fell by approximately 10%, with sales in its refinery catalyst division showing an increase, providing a slight cushion against the broader downturn in the lithium market.

Looking ahead to 2024, Albemarle anticipates that lithium prices will remain stagnant, indicating that the challenges faced by the company and the industry are likely to persist in the near term.

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