FMC – Q3 Earnings Update

FMC hosted it’s 3Q earnings call and we’d like to review with our readers what we learned from the call.  In addition to being one of the larger lithium producers, by being the first to report earnings, FMC’s results and commentary are important because they provide some read through to other lithium producers like Albemarle and SQM.  Below are some key takeaways from the quarter.

Tight Supply/Demand: Most importantly, something which we’ve repeated often, supply and demand are still very tight. As we mentioned on twitter, see below, one of the first items which FMC reported on was the imbalance between supply and demand in the marketplace.

Hydroxide: The company also reported up front, in it’s 3Q investor presentation, that there’s been minimal additional hydroxide produced this year.  This is important since much of what we have heard is that battery makers are “craving” hydroxide more so than other types of Lithium (ex: vs. Carbonate).  Consequently, investors should increasingly be looking at producers that are producing Hydroxide or Spodumene which can be converted to Hydroxide directly.

Lithium Q&A: Moving forward, we find that many of the most interesting and insightful points come from the Q&A.  It was very interesting to see that of all the analysts on the call, Goldman Sachs was one of the few to only focus their questions on the Lithium side of the business.  FMC’s Lithium business currently only makes up about 12-13% of their overall revenues.  Goldman’s focus on Lithium vs. any other area of its business, is a clear indicator to us that Lithium is a secular trend, and the new gasoline, as they dubbed it less than a year ago.

Battery producer anxiety: Furthermore, Goldman asked about if FMC is seeing any “anxiety on part of the battery supply chain.”  What in effect Goldman was saying was that they have heard this and they would like to confirm if FMC has heard it too.  We feel this way since many of the conversations we have had this year has pointed towards companies in China expressing an interest in “any Lithium that they can get their hands on.”  Much of this must be fueled by the great increases in demand enthusiasm which is going on worldwide.

Favorable 2018 pricing: Another interesting point that FMC mentioned was that they “expect prices to go up next year.”  We had previously said that the 2018 marketplace should continue to be tight and that investors should continue to take advantage of near term oncoming producers.  This is why several months ago we looked at Altura as being so severely undervalued since they were coming online in Q1 of 2018 and were overlooked so very often.

Lithium Contracts: Another question came in surrounding future contracts and the prices which they have locked in at FMC for these contracts.  Based on the company’s answer, it was hard to understand what contracts they have in place for 2018. Regardless, this is important to keep in mind moving forward with regards to FMC’s potential spinoff of its Lithium business and for other producers.  Since the price for Lithium is at all time high, investors will want to look for those producers who can fully take advantage of these record prices.  Moving forward, this will be something which we will closely monitor with FMC and the rest of the producers in the Lithium marketplace!

Read through to other companies’ results: Finally, FMC should be looked at potentially as a bellwether for the next Lithium companies to report earnings.  All indications are that ALB, which reports on Wednesday (today), should have had a really strong quarter. Similarly, the same should be said about SQM when they report in a few weeks time. Needless to say, we’ll keep you posted on all the companies that are up to report next!

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