Lithium: Chinese refinery delays weigh on Australian concentrate shipments

Australian upstream lithium players have pulled back on chemical-grade concentrate shipments and/or production schedules in a response to Chinese customer circumstances. Two announcements in as many weeks have seen established pillars Pilbara Minerals and Galaxy Resources curb shipments into future quarters, with the former to moderate production quantities through July accordingly.

This comes off the back of slower than expected construction, commissioning and ramp-up periods of conversion facilities in China, including respective off-take partner companies. Although significant new conversion capacity in China is due to come online, it has been outpaced by miners in an effort to establish ‘first mover advantage’ and position themselves for longer-term growth. But lacklustre refined compound demand from precursor manufacturers may also be playing a part (even if not directly reported) as EV subsidies in China are wound down.

Roskill View

The chemical-grade concentrate market is in oversupply in 2019. This has resulted from ramp-up rates of new hard rock projects outpacing that of the downstream industry plant build outs in China. Although Pilbara and Galaxy have partnerships with leading lithium compound producers, this shows even experienced players are not immune to the complexities of executing such facilities.

An abundance of mineral concentrate feedstock for Chinese converters has also led to declining prices over the previous 18 months. Despite such converters in China taking advantage of lower pricing, some producers have been unable to construct new or ramp-up existing capacity at an equal rate to that of concentrate availability. However, Roskill considers the status quo to be actively managed by miners as softening prices will impact their bottom lines. Such an oversupply may orchestrate an extended period of production curtailment in a shift by producers to return to being ‘demand responsive’, versus the current ‘demand anticipation’ state of play. Aspiring developers access to capital could also be impacted as suppressed prices will drive down feasibility study economics. Consequently, established miners may prove the swing player in dictating the opportunity/necessity for new market entrants in the short-medium term in how they manage the oversupply.

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