Rockwood Holdings Inc., (ROC:US) the world’s largest producer of lithium products, dropped the most in 10 months in New York trading after Credit Suisse downgraded its rating (ROC:US) on the stock because of a competitor’s price cut.
Rival Sociedad Quimica y Minera de Chile SA (SQM/B), known as Soquimich, said yesterday it cut prices by 20 percent for lithium carbonate and lithium hydroxide. John McNulty, an analyst at Credit Suisse, said the reduction increases the risk that investors will be disappointed with Rockwood’s long-term pricing. He cut the shares to “neutral” from “overweight.”
“Pricing will be very dependent on industry discipline given the loose supply/demand balance currently and the producers’ relative ease in increasing capacity to match demand,” McNulty said in a report. “That discipline just lapsed.”
Rockwood fell $3.97, or 19 percent, to $16.60 at 4:15 p.m. in New York Stock Exchange composite trading (ROC:US), the biggest decline since Dec. 1. The shares have climbed 54 percent this year. Soquimich declined or 4.9 percent in New York to $37.20 per American depositary receipt.
Demand for lithium, a metal used in batteries that power laptop computers and electric vehicles, should increase 7.2 percent a year for the next five years and rise faster in subsequent years, McNulty said. The price cut affects 25 percent of Rockwood’s lithium business, “so we don’t expect a big hit to 2009/2010 earnings,” he said.
Rockwood is the world’s second-biggest lithium producer after Santiago-based Soquimich, McNulty said.
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