Livent Secures $10.6B Allkem Merger: Why A Livent Analyst Recently Turned Bearish

Australian lithium producer Allkem‘s AKE shareholders voted in favor of a $10.6 billion merger with U.S. lithium giant Livent LTHM, marking the creation of Arcadium Lithium — the world’s third-largest lithium company.

Approximately 72% of voting shareholders approved the deal proposed in May.

The newly-created entity will have a substantial global footprint, operating across important commodity hubs like Australia, Argentina and Canada.

Allkem shareholders will get one share for each of their shares, ultimately owning 56% of the new entity. Meanwhile, Livent shareholders will receive 2.406 shares for each share owned. Livent's President & CEO Paul Graves will assume the top job at Arcadium Lithium.

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Piper Sandler Downgrade

Piper Sandler recently downgraded Livent from Neutral to Underweight, reflecting the significant deterioration in the global lithium market. The research firm cut the price target from $18 to 15, attributed to the accelerated slide in lithium prices. Over the last month, spot prices of battery-grade Lithium Carbonate dropped over 40% on the Shanghai Metals Market.

Analyst Charles Neivert noted that China's spot market sentiment is a historically reliable indicator of near-to-mid-term sentiment. He anticipates challenging conditions for Livent and Albemarle ALB, another major lithium company. With a prolonged slump in lithium prices, contract structures could put pressure on both companies in the coming quarters.

The lithium market is struggling with a profound shift from supply shortages and high demands to the opposite — an oversupply and weakened demand, resulting in sharp price drops.

Analysts predict further drops, with Goldman Sachs forecasting oversupply to continue in 2024. Yet, long-term prospects for lithium remain positive, driven by the green energy transition and increasing demand for electric vehicles (EVs).

Ignoring the short-term challenges, Fitch Solution's research unit BMI forecasts a 20.4% year-on-year annual growth in China's lithium demand from EVs until 2032, according to Mining Newswire, significantly outpacing the expected 6% growth in lithium supply.

Deutsche Bank’s Corinne Blanchard told CNBC she believes in an eventual lithium shortage, anticipating a deficit of 40-60,000 tons by the end of 2025, growing to 768,000 tons by 2030. The rising demand for EVs, expected to reach over 30 million by 2030, coupled with supply challenges, could lead to regional supply imbalances and potential shortages in the global battery supply chain.

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