Lithium: Over 50% of spodumene supply marginal in Q2 2020

Current soft market conditions for lithium chemicals are undermining the profitability of several major spodumene producers. In addition to low prices, weak demand and sizable material stockpiles have meant some producers are having to implement campaign mining and processing schedules, with the resultant under-utilisation of their operational capacity having a negative impact on their cost base.

As shown by the chart below, the weighted average spodumene import price into China has been in precipitous decline since mid-2018 and, during Q1 2020, averaged US$504/t. However, this average is slightly misleading due to the higher price received for material from Greenbushes, owing to the integrated nature of the operation; excluding Greenbushes, the average spodumene import price into China was just US$436/t in Q1.

China: Average chemical-grade spodumene import price (US$/t)

These weak market conditions are having a significant impact on the profitability of several major spodumene producers. The cost curve below shows the all-in sustaining cost (CIF China) structure for spodumene concentrate during Q2 and highlights the precarious position of a significant portion of spodumene supply. When carrying forward each producer’s average import price for concentrate during Q1, over 50% of the supply was marginal to loss-making on an all-in sustaining basis during the quarter.

Spodumene cost curve, Q2 2020

With Roskill forecasting spodumene prices to remain subdued for the next 12-18 months, many producers look set to remain under pressure. Collectively, they face the dilemma of upping production (and utilisation rates) to generate the economies of scale needed to lower their cost base, while not exacerbating an already oversupplied market and deepening and/or prolonging the situation.

Roskill’s NEW Lithium: Outlook to 2030, 17th Edition report was published in August 2020 and includes full analysis of the impact of COVID-19 on supply, demand and prices, as well as profiles of the main producers. Click here to download the brochure and sample pages for the report, or to access further information.

Roskill’s Lithium Cost Model Service is designed to provide miners, financial institutions, governments, and other industry stakeholders with an in-depth understanding of the costs involved throughout the lithium supply chain; for more information, click here.

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

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