This Small Company Is Set To Drive Future Of Lithium Batteries

Beyond the most common names associated with lithium batteries, such as Albemarle Corp. NYSE: ALB, Lithium Americas Corp. NYSE: LAC, Livent Corp. NYSE: LTHM, Piedmont Lithium Inc. NASDAQ: PLL and Sigma Lithium Corp. NASDAQ: SGML, there are less well-known companies, such as Orion Engineered Carbons SA NYSE: OEC, set to benefit from supercharged battery demand. 

Orion is incorporated in Luxembourg, although its main offices are in Houston. Its shares have been on a rocket ride since the company’s fourth-quarter report on February 16, advancing 5.38% in the past week and 26.93% in the past month.

The company’s focus is specialty chemicals. It supplies carbon black, a solid form of carbon produced as powder or pellets. Carbon black is used in various applications, including tires, coatings, ink, plastics, and yes, to enhance the performance of lithium-ion and other types of batteries. 

The company has built its business with chemicals used to reinforce rubber in tires and other applications. It also offers specialty chemicals that are performance additives for various industrial uses.

Moving Into Lithium-Ion Market 

However, Orion is moving toward what the market will need going forward, and one clear application is lithium batteries. Last year, the company said it was building the only plant in the U.S. to produce acetylene-based conductive additives, a critical component in the production of lithium batteries, high-voltage cables, and other products key in the global transition to renewable energy.

According to the company, “Orion’s production process turns acetylene into a powder, which is added to lithium-ion batteries, enhancing electrical conductivity and extending the lifetime of the most valuable component of an electric vehicle. The material plays a similar role in high-voltage cables used for wind and solar farms.”

In a statement, CEO Corning Painter said the project was one of the company’s top investment priorities and a major milestone in its growth plans.

Orion already operates a similar plant in France.

According to construction-industry sources, the La Porte, Texas project is expected to break ground in May and is scheduled to open next year.

Among Few Players In the Market

At last year’s investors’ day presentation, the company discussed its technologies for enabling lithium-ion batteries and the market potential. 

Senior vice president Sandra Niewiem outlined the growth projections for the batteries, which she said were exponential. She added, “These batteries require conductive additives. And we are one of the few players who can deliver high-quality conductive additives beyond even our current capacity.”

The capacity expansion at the Texas plant will quadruple the company’s production for acetylene-based conductive additives. 

She added that the company is in contact with operators of the giga-factories producing the batteries. “In fact, we have just signed a long-term agreement with one of the leading players for acetylene-based copper conductive,” she said. 

For investors interested in the company’s potential over the next few years, Niewiem offered a clue. 

Multi-Million Dollar Potential

“By the end of the decade, our capital opportunity just for lithium-ion batteries is around $80 to $100 million EBITDA,” she said, adding that was just the market for batteries, not other products, such as cables and wires, which she estimated at an additional $25 million. 

Another rival in the space, also expanding from the tire business into the lithium-battery supply chain, is Boston-based Cabot Corp. NYSE: CBT. Cabot qualifies as a mid-cap stock with a market capitalization of $4.5 billion. Orion, meanwhile, clocks in at $1.564 billion, qualifying it as a small cap. 

Wall Street expects Orion to grow earnings faster, forecasting growth of 30% this year and another 15% next year.

A look at its chart shows that Orion’s shares are currently extended beyond their most recent buy point above $19.3. The stock is holding 7% above its 10-day moving average, a sign of a stock that’s made a large move, fast.

MarketBeat data show that analysts have a “buy” rating on Orion. While there is certainly a compelling case for a small, nimble company that’s quickly entering a fast-growing industry, it’s best to wait until the stock pulls back to digest some of its recent gains before considering a buy.