Lithium producer
Livent
is ending a rough year on a high note. Shareholders of Australian lithium maker
Allkem
have voted in favor of a merger of equals with Livent.
On Tuesday, Allkem said more than 70% of its shareholders voted to combine with Livent. Livent shareholders vote on Tuesday as well, and that result is likely to be another yes.
Livent stock was up 1.4% in midday trading while the
S&P 500
and
Dow Jones Industrial Average
were up about 0.4% and 0.6%, respectively. Allkem stock fell about 0.6% in overseas trading.
The merger will create a top-four global lithium producer.
Albemarle
and
SQM
are the largest, while China’s
Ganfeng Lithium
is another top producer. Along with scale, the merger provides geographic and raw material balance. Allkem has hard rock assets in Australia, and Livent has brine-based assets in Argentina.
About 35% of lithium is mined in Chile and Argentina combined. About 45% is mined in Australia. That’s the raw material, and then lithium is refined elsewhere. The largest refiner of lithium is currently China.
The combined market values of Livent and Allkem will be just under $8 billion, including debt. Albemarle, in comparison, is worth some $20 billion.
All three companies were worth more a year ago. Their share prices have followed lithium on its way down, with benchmark lithium prices plummeting about 80% over the past year. Livent stock has fallen about 16% over the past 12 months, while Allkem is off about 10%. Albemarle shares have dropped 36%.
Lithium
prices are down for a few reasons. More electric vehicles are being sold around the globe, but the rate of growth has decelerated, creating an imbalance between supply and demand. It’s always hard for a commodity industry to bring on new supply just as it is in demand. Capacity tends to come on in large blocks, while demand changes little by little. What’s more, high prices a year ago prompted lithium buyers to work off inventories instead of buying more, another factor in weakening demand.
Lithium prices today amount to about $14,000 a ton. That means a
Tesla
has—very roughly—$500 worth of lithium in it. The drop in lithium prices has removed about $2,500 from the cost of an all-battery electric vehicle.
That’s a silver lining for Livent, Allkem, and the entire EV industry. Cheaper cars will lead to more EVs sold, and more EVs means more demand for lithium. The cycle will turn eventually—it always does.
Write to Al Root at [email protected]
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