By Tom Price, Head of Commodities Strategy at Liberum
Things are getting tough for the world’s lithium miners. In just 18 months, prices of their 1 mtpa global commodity trade have utterly collapsed. Down by over 80% in 2023-24, lithium’s various product prices (hydroxide, carbonate) are now marking out unstable, low volatility US$10k/t-floors. We know that these prices have moved below our estimate of the global industry’s marginal cost of production (US$15k/t LCE) – because the miners are now cutting loss-making production capacity.
What’s going on? Basically, the once-unassailable demand growth story of Electric Vehicles (EVs) is faltering. Yes, most consumers still believe that the ESG-related push to electrify the world’s transport systems must be done. Our best strategy to cut their emissions is to replace internal combustion engines with EVs. So why is the global EV-buying rate slowing? We see two reasons consumers are delaying purchases: on the moderating, uncertain economic growth outlook; and, they’re waiting for improved EV ‘value’ (lower costs, longer range, more recharging options).
But for the miners, there is no more time to wait. For over a year now, they’ve been desperately managing the corporate hit of collapsing lithium prices. Until recently, they were largely focused on conventional margin protection. Now, at just US$10k/t for lithium, they’re simply trying to survive.
Survival strategies of the miners
In any commodity market, when its price falls towards the short-term supply function (industry’s ‘cost curve’) – most typically in response to a surprise weakening in demand growth – the miners-processors-exporters all respond in three basic steps, in this particular order: 1. cut operating costs (mining, processing, inputs/stocks, labour); 2. delay/terminate projects; and, 3. cut production and/or close assets.
For most industries, Steps 1-2 typically play out over 6-12 months, depending on the scale and duration of the demand-price downturn. Step 3 is an economic recession strategy. Each successive step incurs a greater operating cost for the producer, undermining its ability to promptly restore overall production capability, if/when demand recovers.
A popular investor view is that a large, collective cut to loss-making output prompts a price recovery. But this alone can only remove a surplus, allowing a draw on supply-chain inventories, and perhaps eventually create new supply-related upside price risk. In a perfect competition market structure like lithium (many producers/consumers, no price-makers, etc.), the price typically only recovers once demand growth does.
Lithium mine supply: key events
Here, we list the significant announcements of the 12-months, reading the supply-side’s responses to declining lithium prices:
Dec 2023: Lepidolite mines of Jiangxi province (China) report multiple mine production cuts (incl. those of CATL, BYD, Zijin-Li).
Jan 2024: Core Lithium places 20ktpa Finniss lithium mine (NT, Aust.) on care & maintenance.
Jan 2024: IGO flags 7% cut to FY24 production guidance for 185ktpa Greenbushes (WA, Aust.).
Jan 2024: Arcadium Lithium announces >20% cut to 30ktpa Mt Cattlin (WA, Aust.) 2024 output.
Jan 2024: Mineral Resources pauses expansion plans at 50ktpa Wodgina (WA, Aust.).
Feb 2024: Piedmont Lithium cuts workforce by 30% at 26ktpa North Carolina (US; startup 2027e).
Feb 2024: Further mine suspensions reported in Jiangxi province (undisclosed mines).
Jul 2024: Liontown Resources sells 100kt spodumene to China-based Sinomine, at odds with its own strategy to sell only to western markets, to secure Inflation Reduction Act-related subsidies.
Jul 2024: Albemarle announces cuts to growth projects in Australia; holding Kemerton’s output capacity at 25ktpa; Phase 2 (+25ktpa) paused, responding to EV/battery demand weakness + Q2’s 40% revenue slide.
Aug 2024: US-based lithium major, Albemarle, urges western governments to challenge China’s dominance of global EV/battery/raw materials trades.
Aug 2024: Arcadium Lithium announces more operating cost reviews across all assets; halting investment in Galaxy (Canada); staggering deployment of its Argentinian assets (Salar del Hombre Muerto, paused).
Sep 2024: CATL reported its closure of 60ktpa mine, and 1-of-3 of its LCE conversion lines, all located in Jiangxi Province.
Sep 2024: Arcadium Lithium announces that Mt Cattlin will be placed on C&M by mid-2025.
Mine supply hits, summarised
Since the start of lithium’s spectacular price decline of 1Q23, we have continually pared our quarterly forecast lithium mine supply (by asset/country), to rebalance our global lithium model. Here, we summarise our supply-side revisions for each major mining centre, Australia-Chile-China.
Australia: Of these miners, three key cuts have been made: 1. Core Lithium (C&M, 20ktpa Finniss); 2. IGO (6-7% cut for 185ktpa Greenbushes = 10ktpa); 3. Arcadium Lithium (20-30% cut for 30ktpa Mt Cattlin = 10ktpa max.). Total estimated cut = 50ktpa; for 2024, we forecast Australia’s total output to fall to 450kt (-2%; 7ktpa net-cut; i.e. the growth has been cut).
Chile: This year there are no significant reports of production cuts at Chile’s mines. Still, we do forecast a pullback in national output to 257kt (-15%YoY; 43ktpa), reflecting how at least some of its lower cost brine-sourced lithium (vs. Aust./China ores) is also exposed to relatively low US$10k/t prices.
China: First mine output cuts announced (Dec-23), in response to lithium’s price collapse, occurred in China. At the time, about 60% of China’s total local supply (vs. 175ktpa of 2023’s total contained-Li output = 15% global supply) was derived from high-cost (>US$20k/t), low-grade lepidolite ores (Li-bearing micas, Jiangxi) + lacustrine salts (Qinghai; Tibet). Individual asset details are unavailable, but if global Li-prices remain at US$10k/t-level, we expect China’s total local mine supply to shrink to pre-2022’s level of 60-70ktpa (7-8% of reduced global supply). For 2024, we forecast China’s total output to fall to 97kt (-45%; 79ktpa cut).
Given these mostly supply-side changes, we summarise our demand-supply-price forecasts below, starting with the state of EV demand. For now, most mined lithium worldwide ends up in the relatively new global EV battery industry (78% total demand, 2024 vs. 2017’s 45%). Other end-uses (remaining 22%) include e-bikes, consumer goods’ batteries, primary batteries, glass, ceramics, greases, polymers, etc.
Global electric vehicle sales
For guidance on risks to total lithium demand growth, we track monthly-reported EV sales. Latest 2024 EV sales data (Jan-Jul) totals 8.4m, up 21%YoY (China, +31%; EU/UK, -8%; North America, +7%, Rest of World, +41%). And, of these total sales, 65% are battery electric vehicles (BEVs) and 35% are plug-in hybrid electric vehicles (PHEVs). Note, sales data this year confirm a China-led lift in demand for PHEVs (combination battery/conventional engine) over battery-only BEVs, on a rising preference for power optionality (given a lack of recharging points) and long-range outperformance.
For 2024, we now forecast global EV sales of 17 million vehicles (+20%yoy vs. 2023’s 14.2m; 19% of total auto). Short-term, we forecast a slowing in the EV/inputs demand growth rate, on subdued global auto demand. Longer-term, our EV growth rate also moderates on multiple constraints (industry’s access to raw materials; rising costs of implementing EV infrastructure; investment rate in EVs, etc).
Lithium’s demand-supply-price outlook
For 2024’s corresponding global lithium demand, we forecast a sharp slowdown in growth to +5%YoY, for total demand of 919kt (vs. 2023’s +23%YoY to 873kt). Of this total, EV demand is 717kt (78% of total), also expanding 5% YoY, and still dominating total growth. For 2025, demand growth lifts 30% YoY to 1,193kt, on a forecast recovery in EV demand.
Meanwhile, 2024’s global supply is expected to shrink 8% YoY to 968kt. This accounts for on-going cuts at mines across Australia, Chile, China – again, a cost-cutting response to persistent demand and price weakness. For 2025, we forecast an industry-wide recovery, as demand growth stabilises, up 19% YoY, totalling 1,150kt.
What does our revised demand-supply balance say about lithium’s price outlook? Short-term, even with a very large collective cut to our forecast total mine production rate this year, forecast supply overwhelms moderating demand, delivering a price-dragging surplus for 2024. But prices then recover in 2025, on stabilising EV sales growth. This subtle demand shift is sufficient to expose stalled supply growth – lifting prices back above US$20kt-level.
Beyond this, longer-term bull factors for lithium’s price include the delay of projects on lower spot prices (retards total supply growth), and the emerging geo-political push to secure strategic lithium reserves.
