The downward trend of lithium carbonate has been briefly reversed in the second quarter, but the downward trend cannot be completely stopped.

On June 25th this year, the price of battery-grade lithium carbonate fell below 90,000 yuan/ton, and in the following time, it fluctuated around the 90,000 yuan/ton mark.

1. The decline in the price of lithium carbonate below the core cost line means that most manufacturers face the risk of losses.

Since last year, the price of lithium carbonate has successively fallen below the thresholds of 150,000 yuan/ton and 120,000 yuan/ton (corresponding to the cost of external procurement and self-owned lithium mica), and now it has fallen to 90,000 yuan/ton, which is the key cost line for lithium salt manufacturers to procure lithium concentrate from salt lakes.

Calculated based on the latest lithium concentrate price of 1,100 US dollars/ton and the average processing cost of lithium carbonate of 17,500 yuan/ton, the cost of battery-grade lithium carbonate is at least 89,500 yuan/ton. For lithium salt manufacturers with low self-supply rate, the situation is extremely urgent.

Breaking through the cost line of lithium concentrate procurement from salt lakes means that most lithium salt manufacturers will face the risk of losses.

Lithium extraction from salt lakes companies like Qinghai Salt Lake Industry still have profit margins due to low costs (30,000-50,000 yuan/ton). Tianqi Lithium Corporation and Sinomine Resource Group have high-quality lithium resources and high self-supply rate of lithium concentrate, so their costs remain at 60,000-80,000 yuan/ton, which are relatively safe.

However, lithium salt manufacturers with low self-supply rates such as Chengxin Lithium Group and Canmax Technologies are in a serious situation and may face the risk of operational losses. Previously, when the lithium price broke through the important cost support line, lithium salt manufacturers usually reduced supply to support prices through production line maintenance, environmental inspections, production rhythm adjustment, and reserve release.

This time is no exception. On the day when the price of lithium carbonate fell below 90,000 yuan/ton, giants like Gansu Jinchuan announced the launch of a summer maintenance plan and orderly closure of the carbonate production line.

2. There is still some room for price reduction at the lithium mining end, which may give lithium salt factories a breathing room.

Reducing supply alone cannot solve the problem of profit damage caused by the price decline of lithium salt in the long run. In the case of limited downstream demand growth, lithium salt manufacturers can only hope for a reduction in lithium mining costs to maintain profitability. At present, there is still room for price reduction in the lithium mining industry.

Since this year, most Australian lithium mining companies have agreed to change the pricing mechanism of lithium concentrate from the Q-1 model to the M+1 model (using the lithium salt price one month after the delivery of lithium concentrate as the basis for settlement), and even Talison Lithium Mine has agreed to adopt the M-1 model.

The change in pricing mode shortens the price transmission time between lithium concentrate and lithium salt, and the cost support line for the procurement of lithium concentrate from salt lakes will also fall back on the mining cost of lithium mines.

According to the cost guidelines of major Australian lithium mining companies, except for the Finniss project, whose cost is above 900 US dollars (which has suspended mining operations due to cost pressure), the costs of most Australian lithium mines are concentrated in the range of 500-650 US dollars, equivalent to a maximum cost of 68,000 yuan/ton for battery-grade lithium carbonate.

Before the lithium concentrate supply clearance cycle takes effect, the supply of lithium concentrate will continue to increase, especially with the new supply of African lithium mines this year. In a situation of oversupply, the lithium mining industry is expected to continue to reduce prices, giving lithium salt manufacturers a breathing room.

3. Reviewing the previous cycle of supply clearance, this cycle may have just begun.

The start signal of the lithium mining industry supply clearance cycle in the previous cycle was the bankruptcy and reorganization of the Bald Hill lithium concentrate project in August 2019 due to high costs; the end signal was the bankruptcy and shutdown announcement of the Altura lithium concentrate project in October 2020, with the entire cycle lasting for 14 months.

However, this cycle of supply clearance may have just begun. In January of this year, the Finniss lithium concentrate project stopped mining due to high costs. There are similarities and differences between the two supply clearance cycles, which may result in a longer supply clearance cycle this time:

Similarities

(1) Before the two supply clearance cycles began, there was a significant drop in the prices of both lithium salt and lithium concentrate, with the price drop of lithium salt being higher than that of lithium concentrate.

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

Before this cycle, the price of battery-grade lithium carbonate dropped from 630,000 yuan/ton to 87,000 yuan/ton, a decrease of 87%; the price of lithium concentrate dropped from $6,550/ton to $1,100/ton, a decrease of 83%.

(2) The first lithium concentrate stoppage projects in the two cycles were both due to high costs, and once started, more reductions and stoppages followed.

In the last cycle, after the Bald Hill project stopped production for six months, the Wodgina project announced maintenance (to resume production in October 2021), and the Mt Cattlin producer reduced its mining output.

In this cycle, after the Finniss project stopped production for six months, both Mt Cattlin and Greenbushes producers lowered their production levels.

Differences

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

Four new lithium concentrate mines in Argentina will be put into operation this year, increasing its annual production capacity by nearly 80%.

In the first half of this year, the Zimbabwe Seabiscuit, Bikita, and Kamativi lithium mines in Africa have maintained stable production, supported by Chengxin Lithium Group, Sinomine Resource Group, and Sichuan Yahua Industrial Group of China. The supply of lithium concentrate in China will continue to increase.

(2) At the end of the last cycle, the rise of China's new energy auto industry was in full swing, and sales began to show a high triple-digit growth trend in 2021; in this cycle, the penetration rate of China's new energy autos has exceeded 40%, and the growth rate has slowed to about 15%, so the demand for lithium resources by end users has grown less than in the previous cycle.

It can be seen that despite the price of lithium rebounding to more than 90,000 yuan/ton, lithium salt manufacturers will still face difficulties before the clearing cycle ends, and the cold winter is not yet over.