Australian Lithium Producers May Curtail Output Amid EV Sales Slowdown and Price Drop
Australian lithium producers are facing a potential setback this reporting season, mirroring trends in the nickel industry, as analysts point to slower-than-expected electric vehicle (EV) sales causing a drop in raw materials prices. However, the impact on the lithium sector is expected to be less severe than in nickel, with a quicker market recovery anticipated due to its short-term oversupply issues.
In contrast, nickel miners are grappling with a longer-term market shift, primarily driven by a surge in supply from Indonesia, leading to price drops and a series of writedowns. This change in market dynamics, as per First Quantum, could persist for up to three years.
Reg Spencer of Canaccord in Sydney notes that prolonged periods of depressed pricing could lead to further capacity curtailments or delays in lithium projects. However, he emphasizes that the energy transition drive hasn't halted, but merely faces a period of slower demand growth.
Instances of adjustments in the lithium sector are already surfacing. Core Lithium announced job cuts and suspended mining at its Finiss operations in the Northern Territory earlier in January. Similarly, Liontown Resources had to restructure its debt, resulting in a significant drop in its share prices.
Despite these challenges, some lithium miners like Pilbara Minerals have a financial buffer from the price surge in late 2021, which could offer some resilience against the current downturn. Glyn Lawcock of Barrenjoey points out that even these cash-rich miners might reduce lithium ore production if demand from customers wanes, given the glut in existing inventories of chemicals with a limited shelf life.
Signs of potential production adjustments are being closely watched. For instance, Greenbushes in Western Australia, the world's largest low-cost lithium mine, has previously halted production, and IGO Ltd signaled possible cuts in September. Tianqi Lithium, IGO, and Albemarle, partners in Greenbushes, reported a production of 1.49 million tonnes of spodumene in the 2022-2023 financial year. However, their Kwinana Lithium Hydroxide Refinery is operating below its full capacity.
Mining services mogul Chris Ellison's Mineral Resources, which operates three lithium mines and reports this Thursday, is also under observation. Its Mt Marion mine, in partnership with Ganfeng Lithium, and the Wodgina mine, shared with Albemarle, have substantial spodumene production capacities. The recent acquisition of Bald Hill adds to its production capability.
IGO, facing additional writedowns at its Cosmos nickel project, is also drawing attention for its lithium segment and plans for a battery chemicals plant near Perth. New developments and strategies are anticipated in its report under new CEO Ivan Vella on January 31.
The current scenario in the Australian lithium industry reflects a critical balancing act between market responses to EV sales trends and strategic positioning for future growth in the burgeoning EV and energy sectors.
