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Morningstar | Albemarle Should Benefit From Low-Cost Lithium Investment as EV Adoption Increases

Albemarle is the world's largest producer of lithium, which generates roughly half of total profits. It produces lithium through its own salt brine assets in Chile and two joint venture interests in Australian mines, Talison and Wodgina. Albemarle's Chilean assets are among the world's lowest-cost sources of lithium. Talison is one of the best spodumene resources in the world, which allows Albemarle to be one of the lowest-cost lithium hydroxide producers as spodumene can be converted directly into hydroxide.As electric vehicle adoption increases, we expect high-double-digit annual growth in global lithium demand. We anticipate that Albemarle will be able to fulfill a sizable portion of incremental demand as it is investing in major capacity expansions at all of its lithium production locations. Albemarle plans to expand its lithium production capacity from roughly 65,000 metric tons in 2018 to 225,000 metric tons over the next decade. It also agreed to purchase a 50% interest in the Wodgina spodumene operation from Mineral Resources. Mineral Resources will retain the other 50% interest and the two will operate a joint venture. The joint venture will begin producing spodumene (lithium hard rock concentrate) and will build two 50,000-metric-ton lithium hydroxide plants in Australia that will use the spodumene as its feedstock. This will bring Albemarle's capacity to 275,000 metric tons including its half of the joint venture.Albemarle is the world's second-largest producer of bromine, a chemical used primarily in flame retardants for electronics. Bromine prices have recently stabilized as increased demand for use in servers and automobile electronics is offset by a decline in demand from TVs, desktops, and laptops as well as lower demand for bromine used in oilfield completion fluids. Despite a fairly tepid demand outlook, we expect Albemarle to generate healthy bromine profits due to its low-cost position in the Dead Sea.Albemarle is also a top producer of catalysts used in oil refining and petrochemical production. These chemicals are highly tailored to specific refineries and most need to be constantly replaced, giving the company a steady cash flow stream.