Lithium: Some producers anticipate a COVID-19 related 50% YoY drop in Q2 lithium sales prices and volumes

Lithium producers continue to be squeezed by weakening prices as the market weathers lower than anticipated EV demand and material oversupply from hard rock mines in Australia. To date, brine producers have been largely able to endure this weak market, owing to their lower operating cost base compared to their mineral counterparts. However, Orocobre’s recent announcement, about its expected Q2 2020 sales volume and prices, highlights that the brine sector is no longer immune, as market conditions and prices have been further squeezed by the COVID-19 pandemic.

In this recent release, Orocobre outlined an expected sharp drop in quarterly lithium sales. The company is anticipating 1.6kt of lithium carbonate sales in Q2 2020, which would mark an approximate 50% drop YoY and 35% QoQ. Furthermore, its average selling price is expected to register a similar fall to US$4,015/t FOB Argentina in Q2 (a 51% decline YoY and 17% QoQ). The company has cited COVID-19 related supply chain restrictions and apprehension on the part of downstream OEMs to restart or revamp manufacturing capacity, as reasons for the downturn in anticipated prices and sales.

Roskill View

While these figures are only guidance, it is part of a long-term trend for the company, which has seen its realised prices decline since Q3 2018. While the company has been able to lower its cost position somewhat, the nature of brine production does not lend itself to substantive short-term cost reductions.

Orocobre: Historical cost of sales and average realised price

Source:   Roskill, company reports

It is important to note that Orocobre is not the only brine producer being impacted by lower prices. However, other major brine producers, such as SQM and Albemarle in Chile, are in a more resilient position owing to their lower cost positions and pricing terms with major off-take partners. To aid its situation, in partnership with Toyota Tsusho, Orocobre is constructing the Naraha Lithium Hydroxide Plant. This plant will upgrade carbonate feedstock from Olaroz to a battery-grade lithium hydroxide (an important component of high-nickel battery chemistries) for the Japanese market.

Roskill’s NEW Lithium: Outlook to 2030, 17th Edition report will be published in July 2020; Click here to download the brochure and sample pages for the report, or to access further information.

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

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