Albemarle down by 20% in December
Albemarle (ALB), the world’s largest producer of lithium, fell 20% in December and underperformed the broader market S&P 500 (SPY), which declined by 9.2%. The stock is trading 19.5% below its 100-day moving average price of $95.77 and has moved closer to the “oversold” position.
Why ALB declined
The continued tussle with the Chilean government about production quotas, pricing, and the environmental authority of Chile’s refusal to provide a license has delayed progress in Chile. The latest development suggests that Chile is likely to delay the arbitration with ALB in expectation of a new offer to be in compliance with the 2016 contract. As per the contract, ALB has agreed to provide 25% of its annual lithium production at a discount to those companies producing battery metals within Chile. The stock is likely to be under pressure until the matter settles with the Chilean government.
However, on the other side, ALB entered a definitive agreement with Mineral Resources Australia to form a joint venture. As per the terms, ALB will acquire a 50% interest in Mineral Resources’ Wodgina hard rock lithium project in Western Australia. Albemarle has invested $1.15 billion in this joint venture. ALB has already received environmental approval from the Australian federal and state government for its Kemerton plant. The earthwork for this plant has begun.
Investors can indirectly hold Albemarle by investing in the Global X Lithium ETF (LIT). The fund also provides exposure to FMC (FMC), Tesla (TSLA), and Johnson Controls (JCI) with weights of 27.9%, 4.7%, and 2.4%, respectively, as of December 31.