The lithium downturn could \u2018shake out the fluff\u2019 and put the sector on a road to longer term stability: GL1\u2019s Ron Mitchell
\nLow prices could see more projects curtailed: ANZ
\nDownstream demand shines a light on the long-term outlook for the EV metal<\/p>\n
Some people want to do you slowly, as Paul Keating famously told ill-fated Liberal challenger John Hewson in 1992.<\/p>\n
Instead, Chinese battery makers have been doing lithium investors very, very fast.<\/p>\n
Prices for Aussie spodumene crested at over US$8000\/t in the final quarter of 2022, falling to US$850\/t in early 2024 as supply outpaced demand growth from the electric vehicle sector.<\/p>\n
But one of the WA lithium sector\u2019s leading voices suggests this could be lithium\u2019s recession it had to have, to pull another phrase from the Keating playbook.<\/p>\n
In 14 years in the lithium sector including 10 as an executive at the Greenbushes mine and its Chinese co-owner Tianqi Lithium, Global Lithium Resources (ASX:GL1)<\/a> managing director Ron Mitchell says he\u2019s survived three bear markets.<\/p>\n This one could bring the shakeout that will return confidence and correct volatility in the market, he believes.<\/p>\n \u201cYou needed to shake out a lot of the fluff because if you look at you look at the trigger of an $8000 all time high spodumene price, it just triggered this wave of investment into raw material projects,\u201d he said on the sidelines of the RIU Explorers Conference in Fremantle.<\/p>\n \u201cProjects that ordinarily would never have a chance in hell of being sustainable on a long term basis, everything made sense at $8000 bucks a ton.<\/p>\n \u201cNow we\u2019re in a situation where the reality is kicking in, I think investors are far more sophisticated, the market\u2019s more sophisticated and the reality is an incentive price somewhere between, say US$1500 and US$1750\/t \u2026 allows enough projects to get up but not too many. <\/p>\n \u201cSo the market is going to continue to mature from a pricing perspective.<\/p>\n \u201cI probably agree it\u2019s a shake-out absolutely, we needed to have. <\/p>\n \u201cAs hard as it\u2019s been in terms of equities being hammered, in the long term maybe we\u2019ll look back two, three years from now and say, well, what happened in 2023 and 2024 is exactly what the market needed.\u201d<\/p>\n \u00a0<\/p>\n <\/span>\u00a0<\/p>\n \u00a0<\/p>\n Since the start of 2024 multiple lithium mines have run into trouble, with Core Lithium (ASX:CXO) <\/a>halting mining at its Finniss mine in the NT, Liontown Resources (ASX:LTR)<\/a> seeing support from bankers for a $760 million funding package at its Kathleen Valley mine dissipate and the world\u2019s largest lithium operation at Greenbushes in southern WA slowing production.<\/p>\n Tim Robertson, the junior resources relationship manager for WA at ANZ \u2014 one of the banks in the Liontown consortium \u2014 said more mines would likely be curtailed with supply expected to run ahead of demand growth in 2024.<\/p>\n \u201cTo give you a sense of this lithium supply has nearly doubled in the last couple of years and this year ANZ is forecasting that production of lithium will increase by 40% but demand will only increase by 25%,\u201d he told delegates.<\/p>\n \u201cAnd so whilst lithium still remains long term in demand as part of the decarbonisation journey, in the short term, at least we\u2019re seeing producers whacked with this double whammy of profit margins coming down in a market that\u2019s already over supplied. <\/p>\n \u201cSo we may unfortunately see further lithium projects being deferred or existing projects curtailed.\u201d<\/p>\n He said more new projects were also being pushed up the cost curve.<\/p>\n \u201cWe\u2019re seeing many mining operations put under severe stress when prices are deflated for long periods. And so we\u2019re looking to fund projects where there\u2019s fat in the game,\u201d Robertson said.<\/p>\n \u201cWe\u2019re looking to fund projects where there\u2019s capacity to meet additional cost overruns during construction, or at the very least, we\u2019re looking for projects where we can put in place some structural enhancements that can reduce the cost risk. <\/p>\n \u201cThings like hedging, or projects that are lowly geared will have a lower cost base to begin with.\u201d<\/p>\n \u00a0<\/p>\n One of a number of local explorers and developers with Chris Ellison\u2019s Mineral Resources (ASX:MIN)<\/a> prominent on its share register, Global Lithium hosts a resource of 36Mt at 1.13% Li2O at its Manna project east of Kalgoorlie.<\/p>\n Mitchell views 2027 as the rough date for when it will be ready for the market, leaving plenty of water to run under the bridge in terms of the structure of the lithium market.<\/p>\n He attributes much of the price volatility to the way Chinese purchasing managers operate, pushing prices lower by holding off when prices are going down and buying up in surplus when prices are rising in fear of copping higher costs down the line.<\/p>\n \u201cIt\u2019s raw materials, spodumene, it\u2019s looking chemicals, its cathode, its battery cells. At the moment. It\u2019s all hand to mouth because in China, if the purchasing manager thinks they can buy a product cheaper next week, they won\u2019t order this week,\u201d he said.<\/p>\n \u201cBut then conversely, when the market moves the other way, and they think the price is gonna go up next week, instead of ordering one unit, they order two.\u201d<\/p>\n With prices having recently fallen through US$1000\/t and on a downward trend since late 2022, Mitchell thinks the upside is ahead for lithium explorers given the history of previous bear cycles which have run for around two years.<\/p>\n He said we will see more supply discipline, whether that is further curtailment from incumbents or delays for developers like GL1, who were able to raise substantial quantities of cash to underpin exploration and study work during the bull market.<\/p>\n \u201cDefinitely (I see) more discipline from the incumbents. They\u2019re not in the situation they were four or five years ago where they had to make sales,\u201d he said.<\/p>\n \u201cI think they\u2019ll be a bit more prudent in terms of how they put units to market and no one\u2019s going to be selling below their cost base.\u201d<\/p>\n Longer term, Mitchell said downstream demand from OEMs and lithium investments from international majors like Wesfarmers (ASX:WES)<\/a> and Rio Tinto (ASX:RIO) <\/a>showed the outlook remained positive in the EV supply chain.<\/p>\n \u201cThey don\u2019t particularly care what the lithium price is doing today. It\u2019s 5, 6, 10 years from now is when those projects are going to be in place,\u201d Mitchell said.<\/p>\n \u201cThe second part to answer that is just the interest we\u2019re receiving from the downstream and it\u2019s a combination of the OEMs, direct end users in terms of converters, cathode, battery traders, and globally as well. <\/p>\n \u201cJapan, Korea. Of course there\u2019s strong interest in China, there always will be. <\/p>\n \u201cEven for the Chinese, it\u2019s getting harder to put big amounts of capital into Africa. It\u2019s easy to put the money in, the question is getting it back out. That\u2019s where the challenge comes. <\/p>\n \u201cAnd of course, Europe and North America. So if anything, this pullback in the market is making some of those buyers even more concerned because they know the next wave of development stories are going to be pulling back.\u201d<\/p>\n <\/span><\/p>\n The post The Big Shake-out: Is this the lithium recession we had to have?<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"Global Lithium Resources (ASX:GL1) share price today<\/h2>\n\n
Further lithium projects to be curtailed: ANZ<\/h2>\n
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