Lithium prices fall in China
Lithium prices took a turn to the upside at the end of 2020, and prices have continued to soar for the last two years. However, 2023 has seen Chinese lithium prices fall from their all-time highs.
Since hitting a record high last November, Chinese lithium carbonate prices have fallen about 30 percent. Market watchers are focused on the phase-out of the country's electric vehicle (EV) subsidies, as well as potential new supply.
Aside from that, Goldman Sachs (NYSE:GS) called a lithium price crash again earlier this year on the back of what it sees as a supply surge; meanwhile, ARK Invest's Cathie Wood has said that the “odds are high that lithium will be in excess supply.”
Additionally, battery maker giant CATL (SZSE:300750) is said to be offering discounts to Chinese automakers on the assumption that lithium prices will fall, which has fueled the negative sentiment in the market.
Even reports about China investigating illegal mining in Yichun, the country’s lithium hub, have been unable to support Chinese prices so far this year. Production has now resumed in "Asia’s lithium capital," according to Chinese media.
Some analysts anticipated a price correction and believe it's needed for all battery metals. "'All-time price highs’ are necessary shocks to the system, but not good for the long-term EV buildout,” Simon Moores of Benchmark Mineral Intelligence said.
Keeping the focus on Chinese lithium spot prices, Benchmark Mineral Intelligence believes there is an expectation now that restocking activities may resume before the end of the quarter. “While this softening is happening in China, as always it's really important to note that there is not one price for lithium. The spot market impact elsewhere outside of China has been much softer so far,” Daisy Jennings-Gray, the firm's senior price analyst, said in a webinar.
Lithium producers still optimistic about demand
Despite all the talk around lithium prices, lithium producers remain positive about the need for lithium this year.
Albemarle (NYSE:ALB), which saw its lithium sales increase in 2022 on the back of high lithium prices, said it expects sales volumes to be up 30 to 40 percent in 2023 compared to 2022. The company, which has lithium brine assets in the US and the Salar de Atacama in Chile, is expecting global lithium demand to hit 3.7 million metric tons (MT) by 2030.
"(Lithium) pricing needs to remain elevated in order to support the incentives required to take on those investment risks," Eric Norris, head of Albemarle's energy storage division, said during the company's 2023 strategic update in January. "The (lithium) market is tighter than it was last year. There's significant supply coming on, but the demand growth is more significant."
Chile’s SQM (NYSE:SQM) is also expecting strong demand growth in coming years, and is forecasting that demand will reach almost 1.5 million MT by 2025. “These strong demand growth expectations give us confidence as we remain focused on expanding our lithium production capacity,” CEO Ricardo Ramos said.
The lithium miner, which also operates its primary lithium business in the Salar de Atacama, posted a more than 770 percent revenue increase from its lithium business in 2022.
Similarly, Argentina-focused Livent (NYSE:LTHM) saw its revenue almost double last year on the back of higher prices, and it is expecting its lithium sales to thrive in 2023 as well. The company, which operates its lithium business in the Salar del Hombre Muerto in Argentina, said it remains on track to deliver all previously announced capacity expansions.
Australian producers also positive results as lithium spodumene feedstock prices hold on to record high levels. Western Australia’s Pilbara Minerals' (ASX:PLS) average realized sales price increased over 300 percent in the first half of the financial year 2023 compared with the same period last year. The improved pricing was a result of price review negotiations with major offtake customers, said the company, which owns the Pilgangoora project.
Another hard-rock producer, Mineral Resources (ASX:MIN,OTC Pink:MALRF) — which has interests in Mount Marion in partnership with Ganfeng (OTC Pink:GNENF,SZSE:002460) and in Wodgina together with Albemarle — achieved record earnings from strong pricing and increased volumes in the first half of the 2023 financial year.
Meanwhile, ASX-listed Allkem (ASX:AKE,TSX:AKE,OTC Pink:OROCF) is forecasting a positive year for lithium, saying customer demand in the spodumene market remains robust, driven by strong lithium hydroxide requirements. “Pricing in the March quarter is expected to be 5 percent above the December quarter,” the company said in a statement.
EV makers’ sign lithium deals with juniors
For car manufacturers from Tesla (NASDAQ:TSLA) to General Motors (NYSE:GM), the past few years have seen the race to secure steady supply of lithium pick up. This trend has accelerated further in the past year as prices climbed and geopolitical tensions exposed the vulnerabilities of the global lithium supply chain.
Speaking with the Investing News Network (INN) at the end of 2022, Moores of Benchmark Mineral Intelligence said original equipment manufacturers (OEMs) have to take control of their supply chains.
“A lot of deals have been done with development-stage junior mining, but a lot of them are very weak deals,” Moores said to INN. “Reality is these companies, these developers, need hard cash to get things up and running.”
It's no surprise that in 2023 OEMs continue set their eyes on juniors that have yet to bring supply online.
A deal that was inked in January grabbed the attention of investors and industry analysts alike — Detroit-based GM (NYSE:GM) will make a US$650 million equity investment in Lithium Americas (TSX:LAC,NYSE:LAC) to develop the Thacker Pass asset in Nevada. This represents the largest investment ever by an automaker to produce battery raw materials.
“The rush for lithium has just started. It is a land grab,” Moores told CNBC after the deal was announced. “This land grab will last the next decade. I don’t think this is a two- or three-year thing. I think this is a decade-long process.”
US EV pioneer Tesla has also been making moves in the lithium world this year. In January, the carmaker amended its lithium deal with North America-focused Piedmont Lithium (ASX:PLL,NASDAQ:PLL), which will supply spodumene concentrate from its Quebec operations starting later this year. Multiple aspects of the deal have been changed, including an adjustment from fixed pricing to variable pricing based on the market, a shorter time period with a renewal option and an increased amount per year.
In February, Sigma Lithium (TSXV:SGML,NASDAQ:SGML) made headlines when talks about a potential Tesla takeover hit the market. Sigma is developing a hard-rock lithium mine in Brazil, which is aiming to open in April.
This year, expectations about more EV makers stepping up their involvement in the sector are high.
“These types of deals are a must for battery manufacturers and OEMs given the market dynamics (majority of the market operates within the constraints of private contracts),” Paola Rojas of Synergy Capital Resources told INN via email. “I expect these deals to become more aggressive though (i.e. either better prices, longer commitments or other covenants) as competition for near-term production / production becomes fierce.”
On top of carmakers making moves into the lithium industry, the US government also showed its support for the development of domestic supply early this year by lending Ioneer (ASX:INR,OTC Pink:GSCCF) up to US$700 million to build its Rhyolite Ridge lithium project in Nevada. The company has also signed deals with Ford (NYSE:F), as well as Toyota Motor (NYSE:TM) and Panasonic’s (OTC Pink:PCRFY,TSE:6752) joint venture — Prime Planet Energy & Solutions.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Ioneer is a client of the Investing News Network. This article is not paid-for content.
The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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Figure 1: Junior Lake location relative to the Seymour Project
Figure 1: Drilling underway at 100% owned Greenbushes South Lithium Project
Figure 2: Drone photo over the drill target area