Lithium: Initial Q3 producer results point to continued mixed market environment

Lithium processing, Australia

Albemarle’s preliminary Q3 results show lithium revenue up 22% y-on-y to US$330M with adjusted EBITDA up 12% to US$128M. Sales volume was impacted by Typhoon Tapah affecting China-Japan shipments, while continued use of tolling in China—despite operating rates in Chile improving, a write-down of inventory—and lower prices in China impacted returns. Overall, however, lithium pricing was flat to slightly up in Q3 y-on-y in a positive sign.

Albemarle’s JV partner at its Wodgina spodumene project, Mineral Resources, reported that construction of the three-stage 750kdmtpy (dry metric tonnes) plant and associated non-process infrastructure is over 99% complete with train 1 commissioned and producing spodumene concentrate at design capacity specification—at or above 6% grade. Q3 output was 22kdmt with 3kdmt shipped to Albemarle. Spodumene concentrate production at its Mt Marion JV with Ganfeng was 28% higher than Q2 at 115wmkt (wet metric tonnes) with sales of 95wmkt.

Fellow Australian spodumene producer Galaxy Resources reported production of 50kdmt at a cash cost of US$387/t with shipments of 58kdmt. Despite record monthly processing in August recovery was similar to Q2 at 57% with higher head grade and basalt impurity impacting plant throughput. Galaxy has taken the decision to scale-back mining by 40% in 2020, although with available stockpiles concentrate output will be 75% of 2019 rates enabling fulfilment of 2020 contracts. Along with other cost initiatives Galaxy aims to maintain positive operating margins going forward.

Orocobre’s Q3 lithium production from its Olaroz brine operation was a quarterly record at 3,093t, up 35% on Q3 2018 following a strategy of managing brine quality, new pond preparation and tailoring production to seasonal conditions. Sales volume was down 8% q-on-q to 3,108t in Q3 and sales revenue down 21% to US$22.1M, with a realised average price achieved of US$7,111/t FOB Argentina due to current market softness, resulting in cash margin (excluding export tax) of US$2,226/tonne down 40% q-on-q. Cash costs for the quarter were US$4,885/t, up 9% on excluding the export tax of US$420/t applicable since September 2018. Construction of Olaroz Phase 2 is underway while the Naraha lithium hydroxide facility broke ground during the quarter.

Worst affected by the price decline in China was Tianqi Lithium, slumping to its first net loss in 5½ years losing US$7.6M in Q3 versus profit of US$54M in Q3 2018 and US$12M in Q2. Q3 revenues were down 17.8% y-on-y at US$171M. Tianqi blamed a foreign exchange loss and lower than expected ore supply from its Greenbushes mine in Australia for the weak Q3 performance, while financial expenses—largely related to the US$4.1Bn acquisition of its stake in SQM—rose more than 500% y-on-y.

Roskill View

Demand and prices remain strongest for battery-grade material in Asia (excluding China), benefiting incumbents like Albemarle, Livent and SQM (the last two yet to report Q3 numbers) shipping from operations in South America, the USA and China. However, they are not immune to the weaker demand and pricing environment in China due to the impact of the cut in domestic subsidy on NEV sales and oversupply, as noted by Albemarle. Those producers in China selling or shipping all or the majority of their feedstock or finished product to China, such as Tianqi, Orocobre, Galaxy and Ganfeng, are worst affected by the slump. Without restoration of better producer or consumer EV financial incentives—which are currently due to be phased out completely, although Roskill considers a change or boost possible in 2020—conditions for lithium producers more exposed to China are expected to remain challenging and the two-tier market witnessed in 2019 is likely to continue into 2020. However, with current prices pressuring costs/margins and growing feedstock and refined product cut-backs as a result, the Chinese lithium market is forecast to bottom over the next six to twelve months.

Roskill’s Lithium: Outlook to 2028, 16th Edition was published in July 2019. Click here to download the brochure or access further information.

Roskill’s Lithium Cost model service provides an in-depth analysis of the lithium supply chain, from the discovery of new mineral resources through to the production of battery grade material. This analysis is critical in the evaluation of new lithium supply, as well as in accessing the security of supply from existing sources.

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

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