Albemarle Corp. (ALB)

Albemarle has top-tier lithium assets through its brine operations in Chile and spodumene operations in Western Australia, which are among the lowest cost globally. The company has tremendous upside to electric vehicle growth through lithium batteries. Its Talison joint venture is one of the few large operations that can significantly ramp up production over the next few years to meet incremental demand. Albemarle also has low-cost bromine production through its highly concentrated brines in the Dead Sea and Arkansas.

Company profile

Albemarle became the world's largest lithium producer following the January 2015 acquisition of Rockwood. 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 mid-double-digit annual growth for global lithium demand, one of the best growth profiles among commodities. We anticipate that Albemarle will be able to fulfill a sizable portion of incremental demand, as Albemarle 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. Albemarle 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 JV is currently building a spodumene conversion plant and will build two 50,000 metric ton lithium hydroxide plants in Australia. This will bring Albemarle's capacity to 275,000 metric tons including its half of the JV.

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 oil field 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 petrochemicals production. These chemicals are highly tailored to specific refineries and most need to be constantly replaced, giving the company a steady stream of cash flows.

Lithium and its uses

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