Lithium prices trend higher, FY22 production to take a hit: Allkem

Mon 06 Jun 22, 9:54am (AEST)
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Key Points

  • June quarter lithium carbonate prices exceed prior guidance by 14%
  • FY22 spodumene production to fall 2-4% short of guidance due to covid and labour shortages
  • Argentine reference price will not have a material impact on earnings

Lithium investors will have some numbers to chew on after a pricing update from Allkem (ASX: AKE)

Lithium carbonate tops guidance

Realised lithium carbonate prices for the June quarter is expected to be approximately 14% higher than the company’s prior guidance at US$40,000/t.

This represents a 47% increase compared to March quarter prices of US$27,246/t.

“Customers continue to value security of supply which is reflected in a fully committed order book for the remainder of the calendar year,” the company said in a statement. 

Spodumene production takes a hit

Allkem flagged that FY22 spodumene production is expected to miss guidance by approximately 2-4% due to production delays. 

Full-year production is forecast to come in between 192,000 to 196,000 dry metric tonnes (dmt) compared to the company’s previous guidance of 200,000 to 210,000 dmt.

Factors including a delayed reopening of the WA border, covid-related challenges and a highly competitive resources labor market were to blame. 

Encouragingly, spodumene prices continued to trend higher, with Allkem expecting realised prices in the June quarter to hit US$5,000/t

No impact from new reference price

Allkem noted that Argentina’s Customs Agency recently set a reference price for lithium carbonate at US$53,000/t.

The company said that the price is not used for calculation of taxes, royalties or duties, and will not have any material impact on product exports, realised prices or profitability. 

Credit Suisse: Riskier pricing outlook calls for profit taking

Credit Suisse was Neutral rated on Allkem with a $14.70 target price last Wednesday, 1 June.

"Compared to a few months ago, it is now far more difficult to have conviction in ongoing macro lithium strength given global economic/demand risks," said the investment bank.

Credit Suisse analysts forecast Allkem to deliver roughly 13% free cashflow yields in FY23-24, with a potential 7% dividend yield on the cards.

However, flagged that Allkem upside may be limited if recent lithium price levels can't be sustained. The stock would have a "long way to fall" if or when the down cycle develops.

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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