Lithium carbonate has entered a downward cycle, and the brief price rebound in the second quarter did not completely stop the downward trend in prices.

On June 25 of this year, the price of battery-grade lithium carbonate fell below 90,000 yuan/ton, and fluctuated repeatedly around the 90,000 yuan/ton mark over the next period.

1. The price of lithium carbonate falls below the core cost line, which means that most manufacturers face the risk of losses

Since last year, the price of lithium carbonate has successively fallen below the 150,000 yuan/ton and 120,000 yuan/ton mark (corresponding to the cost of extracting and own lithium mica), and now it has dropped to 90,000 yuan/ton, which is the key cost line for manufacturers of lithium salts extracting lithium concentrate from outside.

Based on the latest CIF price of lithium concentrate of 1,100 US dollars/ton and average lithium carbonate processing cost of 17,500 yuan/ton, the cost of battery-grade lithium carbonate is at least 89,500 yuan/ton. For lithium salt manufacturers that do not have a high self-supply rate, the situation is extremely urgent.

It has fallen below the cost line of lithium salt manufacturers that extract lithium concentrate from external lithium salts, which means that most lithium salt manufacturers will face the risk of losses.

Salt Lake lithium extraction manufacturers, such as Salt Lake Co., Ltd., still have profit room due to lower costs (30,000 to 50,000 yuan/ton). Tianqi Lithium and China Mining Resources have high-quality lithium resources, and the lithium concentrate self-supply rate is high, so the cost remains at 60,000 to 80,000 yuan/ton, which is also relatively safe.

However, lithium salt manufacturers with low self-supply rates, such as Shengxin Lithium Energy and Tianhua Xinneng, are in a serious situation and may face the risk of operating losses. Previously, when lithium prices fell below an important cost support line, lithium salt manufacturers usually reduced supply and raised prices through production line maintenance, environmental protection inspections, production pace adjustments, and storage of reserves.

This time was no exception. On the day the price of lithium carbonate fell below 90,000 yuan/ton, Zhicun Lithium, a major lithium salt manufacturer, announced the launch of a summer maintenance plan to shut down the lithium carbonate production line in an orderly manner.

2. There is still some room for price reduction on the lithium mine side, which is expected to give lithium salt plants a respite

Reducing supply alone cannot solve the problem of loss of profits caused by falling lithium salt prices for a long time. In a situation where the increase in middle and downstream demand is limited, lithium salt manufacturers can only hope to reduce prices on the lithium mine side if they want to maintain profits. Looking at it now, lithium ore still has some room for price reduction.

Since this year, most Australian lithium producers have agreed to change the pricing mechanism for lithium concentrate from the Q-1 model to the M+1 model (based on the lithium salt price one month after lithium concentrate is delivered), and Thalison lithium mine even agreed to use the M-1 model.

The change in the pricing model has shortened the price transmission time between lithium concentrate and lithium salt, and the cost support line for extracting lithium concentrate will also fall back to the mining cost on the lithium mine side.

According to the cost guidelines of major Australian lithium mining manufacturers, with the exception of the Finniss project, which costs more than 900 US dollars (mining operations have been suspended due to cost pressure), the cost of most Australian lithium mines is concentrated in the range of 500-650 US dollars, and the maximum cost equivalent to battery-grade lithium carbonate is 68,000 yuan/ton.

The supply of lithium concentrate will continue to increase until the lithium concentrate supply clean-up cycle arrives and results are achieved. In particular, a new supplier, African lithium ore, will be put into operation this year. In a situation where supply exceeds demand, the lithium mine side is expected to continue to cut prices, giving lithium salt manufacturers a chance to take a break.

3. Replay the previous clearance cycle. This clearance cycle may have just begun

The beginning of the last lithium mine clearance cycle was that the Bald Hill lithium concentrate project announced bankruptcy and restructuring in August 2019 due to excessive costs; the end signal was that Altura manufacturers announced bankruptcy and discontinuation of production in October 2020, and the entire cycle lasted 14 months.

However, the current clearance cycle has probably just begun. In January of this year, the Finniss lithium concentrate project stopped mining due to excessive costs. There are similarities between the two clearance cycles, but there are also differences. These differences may cause this round to have a longer clearance cycle:

commonalities

(1) Before the start of the two clearance cycles, both experienced sharp price reductions for lithium salt and lithium concentrate, and the decline in lithium salt was higher than that of lithium concentrate.

Before the last cycle, battery-grade lithium carbonate fell from 168,000 yuan/ton to 38,000 yuan/ton, a decrease of 77.4%; lithium concentrate fell from 980 US dollars/ton to 385 US dollars/ton, a decrease of 61%.

Before this cycle, battery-grade lithium carbonate fell from 630,000 yuan/ton to 87,000 yuan/ton, a decrease of 87%; lithium concentrate fell from 6550 US dollars/ton to 1,100 US dollars/ton, a decrease of 83%.

(2) The first lithium concentrate shutdown project in two cycles was due to excessive costs, and once started, there were more followers to reduce production.

In the previous cycle, within half a year after the Bald Hill project was discontinued, the Wodgina project announced maintenance (production resumed in October 2021), and Mt Cattlin manufacturers reduced mining volume.

In this cycle, Mt Cattlin and Greenbushes manufacturers both cut production volumes within half a year after the Finniss project was discontinued.

Differences

(1) The supply of lithium concentrate in the previous cycle mainly came from Australia. African lithium mines were added in this round, and other suppliers also increased production.

Argentina's four new lithium concentrates will all be put into operation this year, increasing its annual production capacity by nearly 80%.

The Zimbabwean SabiStar, Bikita, and Kamativi projects in Africa have stable production in the first half of this year. These projects are supported by China's Shengxin Lithium Energy, China Mining Resources, and Yahua Group, and the domestic supply of lithium concentrate will continue to grow.

(2) At the end of the previous cycle, it coincided with the rise of China's NEV industry, and sales began showing a three-digit high growth trend in 2021. In this cycle, China's NEV penetration rate had already exceeded 40%, and the growth rate slowed to about 15%, so there was a gap in terminal demand for lithium resources compared to the previous round.

It can be seen from this that although the price of lithium has recovered to more than 90,000 yuan/ton, lithium salt manufacturers will still face difficulties until the clearance cycle is over, and the cold winter is not over yet.