Aug 6 (Reuters) - Arcadium Lithium posted a 5% drop in quarterly profit on Tuesday, matching Wall Street's expectations and sending its shares up 11%, as cost cuts and favorable supply contract terms helped partly offset a stark drop in prices for the metal used to make electric vehicle batteries.

The lithium industry has seen spot prices plunge more than 75% in the past year due in part to Chinese oversupply and concerns about the pace of the energy transition, a drop that has fueled layoffs and a fresh round of cost cuts across the industry, including last week at

rival Albemarle.

Arcadium, which was formed in January by the merger of Livent and Allkem, had already planned to cut $60 million to $80 million in costs this year. Executives now say they plan to hit the top end of that range by renegotiating contracts with its vendors, among other steps.

The company's strategy, though, of signing customers of its lithium - including Tesla - to longer-term supply contracts that are better shielded from short-term fluctuations helped partly offset the market turbulence.

"This approach helped us to achieve higher realized pricing in the second quarter than we would have under a fully market-based pricing approach, and to deliver strong underlying profitability," Arcadium CEO Paul Graves said in a press release.

The company posted second-quarter net income of $85.7 million, or 7 cents per share, compared to $90.2 million, or 18 cents per share, in the year-ago quarter. Excluding one-time items, Arcadium earned 5 cents per share, matching what analysts expected, according to IBES data from LSEG.

The Philadelphia-based company's revenue of $254.5 million topped the $248.6 million expected by analysts.

Arcadium forecast a 25% increase in sales of two main types of lithium this year compared to 2023, partly due to new projects coming online.

Still, Arcadium said it would pause development of its Galaxy lithium project in Canada and look for a joint venture partner, as well as slow expansion plans in Argentina. In all, the company plans to cut its capital budget by $500 million over the next 24 months.

"The market is clearly indicating that the industry does not need to add supply at the same pace as previously expected," Graves said. (Reporting by Ernest Scheyder Editing by Chris Reese)