Lithium contract structures changing on deficit concerns: Albemarle

Albemarle and its customers are continuing to shift towards long-term and variable price lithium contract structures as the market adjusts to concerns of higher prices and long-term supply, company executives said May 5.

"With the significant commitment that automotive manufacturers are making towards electric vehicles and the excitement that brings with it, there's a concern whether the industry can spool up quickly enough to meet that demand," Eric Norris, the head of Albemarle's lithium business segment, told analysts during an earnings call. "It's just a fundamental concern in that regard, and that's leading to long-term partnership discussions."

Norris said Albemarle has favored a long-term approach to contract agreements for years because it allows the company to develop stronger partnerships with customers, commit to further lithium capacity investments and modify its output to meet specific applications and performance requirements.

"One of the benefits of the customer partnership approach is to leverage that commitment to us in making [our own] commitment firmly to the product form that they wish," he added. "There's also a discussion around where they want it and increasingly a concern and a desire to have localization of supply."

Albemarle CFO Scott Tozier said the transition to variable price contracts based on indices, rather than fixed price contracts, also provide benefits to both the company and its customers.

"Our segmented approach gives more flexibility to customers while still allowing Albemarle to preserve its upside and returns on our growth investments," he said. "We continue to work with these customers to transition to contracts with variable index reference pricing, and these negotiations are ongoing and progressing well. If we are successful, this could provide additional upside to our current outlook for the lithium business."

Tozier said the company's battery-grade lithium sales are projected to represent between 70% and 80% of its total lithium business revenue in 2022, with half of those sales contracted under variable pricing mechanisms and 30% of those sales contracted under fixed price agreements.

Albemarle's lithium sales in the first quarter reached $550.3 million, accounting for nearly half of its total $1.13 billion in revenue during the period. The company's Q1 lithium sales and total sales rose year on year by 36% and 97%, respectively.

The Charlotte, North Carolina-based specialty chemicals company also produces bromine and catalysts.

Albemarle posted a net income of $253.4 million in Q1, up from $95.7 million in Q1 2021.