Albermarle cans lithium expansion, flags $1.7bn hit as slowdown bites

The world’s largest lithium producer has swung the axe on expansion plans at its Kemerton site in WA, and will sack hundreds of workers.

Albermarle has announced that it shelve expansion plans at its Kemerton lithium processing facility in WA. Picture: Bloomberg

Labor will consider accelerating its $7bn tax credits package to boost the critical minerals sector after the industry took a fresh hit, with the world’s largest lithium producer slashing jobs and shutting part of a processing facility in Western Australia.

The US-headquartered Albemarle will cut about 300 Australian jobs to “proactively respond to ongoing industry headwinds” and cease building a production unit at Kemerton, south of Perth.

It will also look to stop construction of the third production unit at the facility near Bunbury, and mothball its second unit.

It’s the latest blow for a mining sector that has already shed thousands of jobs due to the downturn in the nickel industry, following BHP’s decision to mothball its West Australian nickel division after the metal’s price fell amid rapid growth in Indonesian output.

Federal Resources Minister Madeline King said the Labor government would consider bringing forward production tax incentives for critical minerals announced in the May budget to support downstream refining and processing of Australia’s 31 critical minerals and to protect the sector.

“It would be more helpful to more operations, and we’re going to look into bringing it forward,” she told ABC Radio Perth on Thursday.

It would not have helped Albemarle at this point, because the international price differentiation is so different.

“I’m going to keep talking to them about what they can do to work with the production tax incentive to bring on more lithium processing here in this country and this state in particular.”

Lithium prices have plunged nearly 90 per cent from highs in late 2022 on concern that demand for electric vehicles has not been as strong as expected in Western economies, at a time when a flurry of additional capacity has been added.

Benchmark lithium carbonate prices in China are currently at their lowest point in three years at 83,500 yuan/tonne ($17,593), down by 85 per cent from a record high of 598,000 yuan/tonne achieved in late 2022.

Albemarle’s Kemerton manufacturing plant is a major lithium producer and manufacturer in Australia, and produces technical and battery-grade lithium hydroxide for use in energy storage and other industrial applications. It told investors that it would instead focus manufacturing efforts on Train 1.

“The company is taking these steps to proactively respond to ongoing industry headwinds, particularly in the lithium value chain, so it can preserve long-term competitiveness,” the company told investors.

Lithium prices have been under pressure amid demand expectations for electric vehicles not being as strong as previously expected, at the same time a stack of supply has entered the market. Picture: Bloomberg

“The long-term growth potential for our end markets remains strong, and we plan to leverage our core capabilities while ensuring we remain competitive,” Albemarle chairman and CEO Kent Masters said. “Given the dynamics of the global markets we serve, we must be able to pivot and pace as necessary to maintain our leading position.”

Ms King said that the government had no other indication that any other miner was in the kind of trouble that Albermarle was, but it underlined the need to provide significant support to our critical minerals sector amid global volatility within the sector.

The decision comes after BHP announced it would mothball its nickel operations in WA.

“Current conditions in lithium markets highlight the importance of policy support for Australia’s critical minerals sector to help address distortions in global markets and secure opportunities for Australia to be a key supplier of high quality refined critical minerals.”

Albermarle told investors that it expected to recognise a charge in the range of $US900m-$US1.1bn ($1.3bn-$1.7bn) as an exceptional item in the company’s third-quarter 2024 results, attributed to the Kemerton slowdown.

Albemarle reported a net loss of $US188m for the second quarter on Thursday, which included an after-tax charge of $US215m related to capital project asset write-offs and associated contract cancellation costs, primarily at Kemerton.

The decision by Albermarle has had a flow-on effect across the industry.

Engineering company Monadelphous told investors that its involvement at the Kemerton site, which had been estimated to generate revenue of $75m-$85m this financial year, had been term­inated.

Monadelphous was contracted to construct the front-end pyromet works associated with two new lithium processing trains and a multidisciplinary package for the utilities and reagents scope.

The company estimates that its contracted construction works are currently less than 20 per cent complete and the termination reduces its current construction work in hand by $200m.

Albemarle was last year forced to walk away from a $6.6bn takeover deal for Liontown after mining billionaire Gina Rinehart stymied the deal with an on-market spending spree.

In late July UBS analyst Levi Spry downgraded lithium carbonate prices between 2024 and 2028 by a further 5 to 16 per cent, saying lithium markets remain “oversupplied” amid continued weakness in Western adoption of EVs.

“With increased uncertainty on the long-term demand outlook ex-China and continued opaqueness on near-term supply additions from China/Africa, we remain underweight the sector,” he said in a broker note. “On the supply side, we continue to see new growth and have added significant new supply (recently).

“We continue to think downside risk remains and prices are unlikely to trend higher soon.”

A number of other mines have closed in the past year, including Core Lithium’s Grants mine near Darwin, while Mineral Resources announced its Yilgarn iron ore operations will close by the end of the year. Shares in Albemarle have fallen 55 per cent in the past year to $US93.67 and were lower in after-hours trading on the New York Stock Exchange following the announcement.

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Originally published as Albermarle cans lithium expansion, flags $1.7bn hit as slowdown bites