Livent Delivering Lithium Demand Concerns From China Damages the Lithium Story

February 13, 2019 by Jon C. Ogg

Thematic investors go after trends that they expect to lead the next major growth wave. One such theme around the current time is the expected growth of lithium and the related products around that growth. That’s not just for consumer electronics driving the demand — it’s the endless number of electric and hybrid cars coming down the pipe in the years and decades ahead.

One company set to benefit from the secular demand trend of lithium is Livent Corp. (NASDAQ: LTHM). Unfortunately for its new investors, Livent isn’t feeling like a secular growth play at the moment.

The problem was not just the company’s earnings report. Excluding one-time items, Livent reported $0.23 in earnings per share. That matched the Thomson Reuters (Refinitiv) consensus. Livent now expects its earnings per share in the first quarter to be $0.11 to $0.14 on revenues ranging from $95 million to $105 million.

Livent’s 2018 revenue of $443 million also came in at the low end of its $440 million to $450 million forecast. Its fiscal year 2019 forecast calls for revenues of between $495 million and $525 million. This is still growth, but it’s less stellar growth than some might have hoped for from a leader.

What was driving the negativity here is that China is pushing back on its international lithium orders. This matters as China happens to be the largest lithium buyer in the world. There have been some recent concerns about pricing and supplies of lithium and other commodities used for electric car batteries, and this new forecast is likely going to curb some absolute car sale forecasts in China.

Livent has said that some of its Chinese customers are now unwilling to make firm commitments for price and volume at acceptable levels. And even after the Chinese buyers have been pressing for lower prices, in some instances they appear to have ceased communications.

Replacing the world’s largest buyer is not just difficult to do. Technically, it’s impossible. Livent has sought out lithium buyers in South Korea and Japan, but despite being large sources of demand they just don’t add up to China or come anywhere close. Livent also has an issue ahead for its finances as the company’s costs are projected to rise in 2019 as it expands its Argentina production facilities.

As a reminder, FMC Corp. (NYSE: FMC) owns more than 85% of Livent now that the company has broken off the lithium play. FMC is planning to distribute the remainder of the stake to its shareholders by March. FMC shares were down 2.9% at $82.28 on Tuesday with an $11.1 billion market cap.

Nomura/Instinet had downgraded Livent and lithium rival Albermarle Corp. (NYSE: ALB) to Neutral from Buy with a $16 target price back on January 15 when shares were trading at $14.05. The call for a downgrade was right, but this is now looking even “less growthy” than when that downgrade was made ahead of earnings season.

Livent’s stock had been down as much as 10% in the post-earnings reaction on Monday, but on last look it was trading down less than 6% at $12.38 late on Tuesday. Livent’s post-debut trading range is $11.55 to $19.90, and the consensus analyst target from Thomson Reuters was $19.36.

Albermarle shares were last seen trading down 0.55% at $80.42 on Tuesday, in a 52-week range of $71.89 to $118.83. It has a consensus target price of $110.80.

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