Lithium stocks continued their recent hot streak early Monday, fueled by continued pricing strength for the indispensable EV battery metal and passage of the Inflation Reduction Act, with a long-term expansion of EV tax credits. Top performer SQM stock reports earnings on Wednesday afternoon, providing another potential catalyst. The only question is whether lithium stocks are coming too far, too fast.
SQM Earnings Due
Analysts see lithium giant Sociedad Quimica y Minera de Chile posting a 10-fold EPS increase to $3.12. The revenue target of $2.28 billion is triple year-ago levels, amid a surge in lithium prices and higher output.
Investors also will get an update on SQM’s lithium production ramp, which has been much faster than peers like Albemarle and Livent.
SQM has said sales volumes should reach 140,000 metric tons of lithium carbonate and lithium hydroxide in 2022, up from 101,000 in 2021. By the end of this year, SQM’s annual run rate should reach 180,000 tons. An additional 70,000 tons of capacity is seen coming online in Chile and via an Australian joint venture in 2023 and 2024.
Also of major interest will be any update on relationships with auto and battery makers. Livent announced a $198 million advance payment from GM to reserve U.S.-based lithium processing capacity starting in 2025. Albemarle’s huge boost to guidance came amid more contract restructurings to more closely reflect market prices.
SQM isn’t just a lithium play. It’s also the largest producer of potassium nitrate, used for fertilizer, and a leading producer of iodine. But SQM’s lithium revenue exploded by 970% from a year ago to $1.446 billion in Q1, accounting for 72% of the total and that share keeps rising.
Lithium stocks jetted higher over the past week. SQM was featured as IBD Stock Of The Day just a week ago when it was just below an early entry point. SQM stock has since charged ahead 20%. That includes Monday’s 2.5% gain to 111.41.
Now SQM stock is only 4% below a 115.86 buy point from a cup base, 10 cents above its May 27 record high. Still, SQM has already advanced 20% off its 50-day moving average. A near-term breakout to a new high could leave the stock looking extended and possibly prone to a pullback.
Albemarle was featured as IBD Stock Of The Day last Wednesday as it cleared a 250.25 handle entry point. ALB stock, part of the IBD Leaderboard portfolio of elite stocks, surged 18.3% last week. On Monday, ALB stock added 0.9% to 284.08.
Piedmont Lithium has surged 49% month to date, after rising 24% in July.
Lithium Americas Corp., which is awaiting a final court ruling this fall before it can start work on its Thacker Pass, Nev., mine, is up 21% this month.
EV Tax Credits
The newly approved Inflation Reduction Act allows for a $7,500 tax credit to purchase a new EV. Unlike the law it replaces, which phased out the credit for purchase of electric vehicles made by Tesla and General Motors, there is no ceiling on how many vehicles can be purchased per manufacturer.
However, there are new requirements for automakers to qualify for the tax credits. Final assembly has to occur in the U.S. In addition, the law requires that the bulk of key EV materials such as lithium be produced domestically or in a country that has a free-trade agreement with the U.S.
Chile and Australia, both key lithium producers, are free-trade partners with the U.S. Argentina, an up-and-coming lithium supplier, is not. Nor, of course, is China.
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