Lithium stocks Albemarle (ALB -8%) and Sociedad Química y Minera de Chile S.A. (SQM -2%) are trading lower today on apparent supply concerns.
Chilean miner SQM reached an agreement with Chilean authorities yesterday, which will allow the company to apply for a significant increase in production of lithium out of the Salar de Atacama mine, one of the largest lithium mines in the world. The company had been in dispute over royalties but that now appears to be in the rear view mirror, which opens the door for SQM to increase lithium production. Chile is a close second behind Australia in terms of lithium production.
Lithium prices rose some 60% in 2017. The commodity is in high demand as every big automaker has plans to ramp up production of electric vehicles in the coming years. Lithium ion batteries are the most expensive component for an electric vehicle and lithium is the raw material. Many believe that electric vehicles will supplant the combustion engine over the coming decades.
Earlier this week, Toyota (TM) took a 15% stake in Australian Lithium/potash miner Orocobre (OROCF).
Deutsche Bank upgraded SQM to Buy this morning in the wake of the new agreement with CORFO -- the Chilean government agency.
However, Morgan Stanley said there is risk to the downside for lithium prices on the potential for higher production.
Lithium and advanced materials accounted for 46% of Albemarle's sales and 62% of its profit in the third quarter.
SQM is a more diversified agriculture and mining company that saw ~30% of sales come from lithium in the third quarter.