Shares of lithium miner Albemarle took another hit on Tuesday following yet another analyst downgrade. The past year has been particularly challenging for the lithium mining sector and Wall Street is feeling the pressure.
Piper Sandler analyst Charles Neivert downgraded Albemarle shares from Hold to Sell and lowered his price target from $140 to $128.
As a result of the downgrade, Albemarle stock dropped 4.2% to $114.90 on Tuesday. In comparison, the S&P 500 and Dow Jones Industrial Average experienced slight declines of 0.1% and 0.4% respectively.
Over the past year, Albemarle’s stock has plummeted 55%, while the S&P 500 witnessed a 16% increase during the same period.
This recent downgrade adds to the numerous negative catalysts that have pushed Albemarle’s shares down. According to Neivert, it reflects the acknowledgment of the significant decline in global lithium markets, and he doesn’t anticipate a rebound for a few more quarters.
The main factor contributing to the decline in stock prices for lithium miners is the weakening lithium pricing. Benchmark lithium pricing has dropped by approximately 80% over the past year.
There are several factors responsible for this decline. Firstly, a year ago, lithium prices soared to an incredible $80,000 per metric ton. However, in 2022, before the surge in electric-vehicle sales worldwide, lithium was priced at around $7,000 per metric ton.
High Prices and Decreased Demand: The Struggles of the Lithium Industry
The lithium industry has faced its fair share of challenges recently, with high prices leading to reduced purchasing from lithium users, including EV battery makers. This downturn in demand has forced many companies to rely on their existing inventories rather than making new purchases. This decline in demand is particularly significant for EV battery makers, as lithium is a crucial component in the lithium-ion batteries that power electric vehicles like Teslas.
In addition to the decrease in demand, another factor impacting the lithium industry is the increase in capacity due to the growing sales of electric vehicles. While higher sales may seem like a positive development, the reality is that the rate of EV sales growth has slowed down. This combination of increased capacity and decreased growth in sales has resulted in a challenging year for the lithium industry.
Many experts share this pessimism about the future of lithium miners. For instance, in September, the average analyst target price for Albemarle, one of the largest lithium producers, was approximately $261 per share. However, this target price has since decreased to around $184.
It is worth noting that earlier this year, there were indications that the lithium market was poised for a turnaround. Wall Street appeared hopeful, and analysts’ optimism reflected this sentiment. About a year ago, around 56% of analysts covering Albemarle rated its shares as a Buy. By September, this figure had increased to about 80%, before settling at 72% presently.
Comparatively, the average Buy-rating ratio for stocks in the S&P 500 is approximately 55%.
Sadly, the expected turnaround in the lithium market never materialized. The slide in lithium prices has persisted, albeit temporarily. However, it is important to remember that commodity prices are cyclical, and a rebound is bound to occur at some point. Although lower prices may result in delayed capacity expansions and incremental inventory reductions, Wall Street and investors will inevitably seek signs of an industry recovery.
While the challenges facing the lithium industry are indeed significant, it is essential to remain hopeful for the future. The demand for electric vehicles and lithium-ion batteries is expected to rise steadily in the long term, offering potential opportunities for growth and resurgence.
