We recently compiled a list of the 11 Biggest Lithium Stocks to Buy Right Now. In this article, we are going to take a look at where Albemarle Corporation (NYSE:ALB) stands against the other lithium stocks.
Despite challenges like pricing and demand headwinds in 2023, the U.S. and Canadian lithium sectors are set to make progress in 2024, with several construction projects potentially starting to boost domestic lithium supply. According to an S&P Global report, while the lithium market has seen slow activity and falling prices, especially in Asia, long-term demand fundamentals remain strong due to the global transition toward electric vehicles (EVs) and energy storage.
Even though lithium prices dropped in 2023 after reaching record highs in 2022, the long-term outlook for the EV market remains promising. According to the report, EV sales are expected to reach 30.81 million units by 2027, and lithium prices are expected to stabilize between $20,000 and $25,000 per metric ton in the coming years. Despite the industry’s cyclical nature, current pricing remains strong enough to attract investment, especially with regulatory support driving the EV transition in countries like Canada.
According to industry experts like Rahul Sen Sharma, setbacks are common in large-scale industry transformations, and the lithium market is no exception. Jean-François Béland of Ressources Québec compared lithium’s importance in the 21st century to that of coal and oil in previous eras, which shows the crucial role of lithium in electrifying transportation.
Long-Term Outlook for Lithium
According to the International Energy Agency (IEA), lithium demand is projected to rise tenfold in the Net Zero Emissions scenario and could reach 1,700 kilotonnes (kt). The market is further supported by developments in battery storage, with lithium demand for storage expected to grow more than ten times by 2050.
While alternative technologies like sodium-ion and vanadium flow batteries may slightly impact lithium demand, the metal’s role in battery production remains dominant. Moreover, solid-state batteries could create a new demand for lithium metal by 2040.
On the supply side, lithium production has significantly increased, with current global output at 190 kt, mainly from Australia and Latin American countries like Chile and Argentina. By 2030, global supply is projected to rise to 450 kt in a base scenario, but further investments will be necessary to meet future demand, especially in meeting climate goals.
Dealing With Supply Shortages
According to Benchmark Mineral Intelligence, lithium-ion battery demand is projected to nearly quadruple by 2030, reaching 3.9 terawatt-hours. The market intelligence firm forecasts lithium surplus till 2029, but despite that, the firm says that the supply of environmentally and socially responsible lithium is currently insufficient to meet demand.
Sustainably sourced lithium is not enough to meet growing demand. By 2026, only 45% of lithium demand is expected to be met by recycled or sustainably mined lithium, dropping to 35% by 2030.
In light of that, Direct Lithium Extraction (DLE), is gaining traction as a more efficient and sustainable alternative. According to BloombergNEF, DLE is expected to contribute significantly to lithium supply by 2030 and could potentially rival the output of evaporative methods, if commercialized successfully.
Lithium can be sourced from hard rock deposits like spodumene and lepidolite, as well as from brine. The main challenge with the evaporative method is its slow processing time, taking up to 18 months to extract lithium. On the other hand, DLE can reduce this timeframe to two weeks while using land and water more efficiently. Despite a decline in lithium prices, investments in DLE continue, as it offers faster and more sustainable extraction from brine sources.
According to Benchmark, DLE is a promising technology that could help prevent future lithium supply shortages by efficiently extracting lithium from brines. It is expected to contribute 14% of the global lithium supply by 2035, especially from brines, geothermal, and oil fields. However, DLE faces challenges such as high costs, scalability issues, and inflation, which have increased project expenses.
DLE offers higher recovery rates (80-90%) compared to traditional evaporation methods (20-50%). Major oil companies like Exxon are investing in DLE due to its similarities with oil extraction. Despite its potential, DLE alone won’t solve the lithium market’s structural deficits in the short term.
Our Methodology
For this article, we scoured through ETFs and stock screeners to find the 25 biggest players in the lithium and lithium battery industry that are listed on the NYSE or NASDAQ. We then narrowed down our list to 11 stocks most widely held by institutional investors. We listed the stocks in ascending order of their hedge fund sentiment which was taken from Insider Monkey’s database of over 900 elite hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A team of scientists in a laboratory observing the sophisticated engineering of specialty chemicals.
Albemarle Corporation (NYSE:ALB)
Market Capitalization as of September 5: $9.038 billion
Number of Hedge Fund Holders: 32
Albemarle Corporation (NYSE:ALB), a key player in the specialty chemicals sector, is making significant strides in the lithium market, a critical component for the EV industry and energy storage solutions. The company is among our best lithium stocks to buy right now.
As one of the largest global producers of lithium compounds, the company has extensive operations that span across Western Australia, North America, and South America. The company is focused on increasing its production of lithium hydroxide and lithium carbonate, essential for manufacturing lithium-ion batteries.
By 2025, it plans to double its lithium carbonate production capacity from 5,000 to 10,000 tons per year, which is a sign of its commitment to meeting the growing demand in the battery market.
A key development for the company is the Kings Mountain lithium-spodumene mine in North Carolina. This mine is set to become a significant source of lithium-bearing spodumene concentrate, with an expected output of around 420,000 tons annually. This project is vital not only for establishing a domestic supply of lithium in the U.S., but also for supporting sustainable transportation and defense applications, further strengthening the company’s role in the lithium supply chain.
In the second quarter, 32 hedge funds had stakes in Albemarle (NYSE:ALB), with total positions worth $485 million. With 2 million shares worth $91.3 million, D E Shaw is the top investor in the company as of Q2.
The company’s partnerships with major automotive manufacturers such as Ford and BMW highlight its integral role in the EV industry. The company has committed to supplying over 100,000 metric tons of battery-grade lithium hydroxide to Ford for approximately 3 million future EV batteries over the next five years.
Similarly, its long-term agreement with BMW Group will provide battery-grade lithium hydroxide for BMW’s electric vehicles, which is evidence of the company’s integral position in the global EV market.
Although the company has faced a decline in profitability due to lower lithium prices and a slowdown in EV demand, Albemarle (NYSE:ALB) has managed to generate a positive operating cash flow of around $461 million in the first half of 2024. The demand for EVs and utility-scale energy storage is expected to remain strong, with projections indicating a 29% annual increase in U.S. lithium demand through 2030, as per Fastmarkets data.
Despite the current downturn in lithium prices, the company’s established presence and long-term expertise in the industry suggest that the company is well-positioned to navigate these fluctuations. We talked about how lithium demand can surge in the future in our article about, 10 Best Battery Stocks To Buy Now According to Short Sellers. Here is the excerpt:
“According to BP’s Energy Outlook 2024, the transition to a low-carbon energy system will require a substantial increase in the use of critical minerals, such as copper, lithium, and nickel, essential for supporting the infrastructure and assets needed for this transition… Lithium demand could grow 8 to 14 times by 2050, mainly driven by its use in EV batteries, which will account for about 80% of total lithium demand by 2050.”
Management has maintained its forecast for lithium prices to range between $12 and $15 per kilogram this year, which indicates a steady outlook amidst market volatility.
Overall ALB ranks 2nd on our list of the best lithium stocks to buy. While we acknowledge the potential of ALB as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ALB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
