Lithium: Galaxy’s Mt Cattlin latest to scale back production in a sluggish spodumene market

Mt. Cattlin mine

In recent months it has become more and more commonplace to see scale backs and production suspensions at spodumene mineral operations as producers look to combat weak market conditions during this period of market oversupply. Now Galaxy Resources has become the latest operation to announce a reduction in planned production going forward. The company had previously flagged the likelihood of a reduction in spodumene production at its Mt Cattlin operation in Western Australia in November last year. In its December quarterly conference call, the company reiterated its commitment to a scale back, which began in November 2019.

During the call, CEO Simon Hay stated that the Mt Cattlin operation would reduce spodumene concentrate production from approximately 50kt (dry) per quarter, to between 14kt and 20kt (dry) in Q1 2020, with the operation remaining at approximately 50% capacity for the first half of 2020. Galaxy has cited the need to conserve positive margins at the operation in a weak market brought about by mineral oversupply and lower than anticipated Chinese EV uptake.

Since it’s re-start in 2016, Mt Cattlin has seen quarterly sales generally in line with quarterly production, though this changed in 2019. While the company produced 40-55Kt of spodumene material per quarter in 2019, sales were generally lower than this and over the course of the year, the operations produced approximately 30% more concentrate than it was able to sell. Compounding this was the announcement that, of the 29.8kt of sold material in Q4 19, 15kt had not been shipped, with only 65% of the 15kt shipment pre-paid.

Mt Catllin: Spodumene production vs sales 2017–2019

Graph: Mt Catllin: Spodumene production vs sales 2017–2019

Source: Roskill

Roskill View

In 2019, further reductions in the spodumene price were caused as downstream refineries in China were, in turn, affected by the slowdown in EV uptake. Galaxy has stated that it expects Chinese spodumene prices to rally in the latter half of 2020, citing a recovery by anticipated stock drawdowns in Chinese refineries, which it estimates will take between 3 and 6 months dependent on the refinery. Roskill expects the price of chemical-grade spodumene to remain bearish going into 2020, with prices only rallying in 2021 as oversupplied refineries begin to erode inventory stocks built up over the preceding 2 years.

In July 2019, the Chinese government rolled back on planned EV subsidy cuts after significant reductions in nationwide EV sales. While this move has been met with positivity from Chinese auto-manufacturers and, in turn, spodumene mineral producers, the speed at which refineries utilise stockpiles will determine how long producers must endure the current low-price market. Until then, the effects of industry oversupply will still be present throughout 2020.

The Roskill Lithium Cost Model Service provides a comprehensive and in-depth analysis of the lithium supply chain, from upstream supply to downstream processing. The service contains detailed profiles of the industries main operations, highlighting the key data of each asset, it’s historic production, cost analysis and Roskill’s own outlook of the operation through to 2040.

For more information on Roskill’s Lithium Cost Model Service, click here.

Contact the author

This article was written by Dominic Wells. Please get in touch below if you wish to discuss further:

Contact the author