Lithium producers ramp up output as demand rises

Lithium is heating up, with the price globally on the rise following higher demand.

The U.S. geological survey (USGS) estimates lithium production last year increased 12% due to a spike in demand in lithium-ion batteries. That demand will likely stay strong as automakers, such as Tesla plan massive roll outs of electric cars in the coming years.

Meanwhile, lithium producers are ramping up capacity to meet that increased demand, while other companies are racing to the finish line. This has caused a noticeable uptick in activity in South America&rsquo s lithium triangle, which hosts more than half of the world&rsquo s lithium reserves.

According to the USGS, output in Argentina alone jumped 60% in 2016, owing to a new brine operation and a leading Argentine producer bulking up its output. A producer in Chile bumped its output by 20%.

The USGS notes despite available capacity, spot lithium prices last year rose 40% to 60% around the world, excluding China, where prices jumped 300% partly due to a temporary shortage of imported spodumene from Australia.

The three major producers in the lithium triangle &mdash Albemarle (NYSE: ALB),  Sociedad Quimica y Minera  (NYSE: SQM) and FMC (NYSE: FMC) &mdash registered average share price gains of 53.5% in 2016 and 21% year-to-date as of May 4, 2017.

Albemarle

North Carolina-headquartered specialty chemicals company Albemarle joined the coveted lithium triangle after taking over Rockwood Holdings in early 2015. It now has lithium operations in Chile, the U.S., and Australia.

In January 2017, Albemarle revised its lithium production rights with the Chilean Economic Development Agency (Corfo) to both extend the term of the agreement and the company&rsquo s lithium production at its facility in the Salar de Atacama. The new agreement allows Albemarle to produce over 80,000 tonnes a year of battery-grade lithium salts over the next 27 years at its expanding battery-grade manufacturing facilities in La Negra.

Two months later, Albemarle reported plans to double lithium concentrate production at its 49%-held Greenbushes spodumene mine in Australia to more than 160,000 tonnes a year. Commissioning of the expansion should start in the second quarter of 2019.

In May, the company reported its first-quarter net sales in 2017 jumped 10% to US$722 million from a year ago. Of that total, Albemarle&rsquo s lithium and advanced materials segment contributed net sales of US$284.4 million, up 31.5% from the earlier year.

The stock closed May 4 at US$108.71, up 24% year-to-date. Last year, Albemarle shares appreciated 56.2%.

SQM

Santiago-based SQM produces lithium carbonate and lithium hydroxide at its Salar del Carmen facilities, near Antofagasta, Chile.

It recorded revenues of US$515 million from its lithium segment in 2016, up 131% from 2015. The segment accounted for 55% of the company&rsquo s gross profit for the year.

Last March, SQM inked a joint-venture with Lithium Americas (TSX: LAC) to develop the Cauchari-Olaroz lithium project in Argentina, marking its first venture outside of Chile. The project has a total annual capacity of 50,000 tons. The first stage, estimated to cost US$425 million, should produce 25,000 tons a year. SQM intends to invest US$100 million in Cauchari-Olaroz, with production starting in 2019.

Last September, SQM said it would increase its lithium hydroxide capacity from 6,000 tonnes to 13,500 tonnes a year, by increasing efficiencies and building a 7,000 tonne plant.

Despite ongoing problems with Corfo over leases related to its brine operations in the Salar de Atacama, SQM shares increased nearly 58% over 2016 to US$28.54. It recently closed at US$33.30, up almost 16% year-to-date.

FMC

FMC operates in Argentina&rsquo s Salar del Hombre. It reported its lithium segment in 2016 generated revenues of US$264 million, up 11% from 2015. Segment earnings were US$70 million, more than triple the earnings from the prior year.

In 2017, FMC expects lithium revenues of US$315 million to US$355 million, with full-year earnings of US$90 million to US$110 million. That increase is driven by the company&rsquo s hydroxide expansion and higher prices for its hydroxide products.

Last year, FMC invested in a lithium hydroxide unit in China to help boost its capacity. FMC estimates its annual hydroxide production capacity should increase from 10,000 tonnes to 18,000 tonnes by mid-2017. It should reach 30,000 tonnes a year by 2019.

Last October, FMC inked a deal with Nemaska Lithium (TSX: NMX), which was amended in March 2017. Under the revised terms, the Quebec-focused junior will provide FMC 8,000 tonnes of lithium carbonate a year, starting in April 2019 instead of mid-2018. FMC also agreed to pay a lump sum of US$10 million to Nemaska by April 7, 2017.

For 2016, FMC shares rose nearly 47%. Year-to-date its shares are up 24% to US$70.73.