With a market backside doubtlessly approaching, what different elements have been at play within the lithium sector throughout Q1? Learn on for a have a look at key occasions throughout the quarter and what consultants see coming heading additional into the yr.
January: Lithium market calm amid stock saturation
Lithium oversupply from 2023 continued to saturate the market at the start of 2024, dampening costs. Production in 2023 got here in at 180,000 metric tons (MT) of contained lithium, 34,000 MT larger than 2022’s output.
“Indications have been that stock was fairly robust each on the completed cell degree and upstream with miners/brine producers,” Adam Megginson, analyst at Benchmark Mineral Intelligence, informed the Investing Information Community. “As such, procurement exercise on the spot market was pretty subdued. Patrons in Japan and South Korea opted to attract from stock or volumes already being procured underneath contract relatively than procure further on the spot market.”
Buying and selling exercise was additionally muted in January as market individuals anticipated China’s Spring Competition.
“Expectations have been that demand and in flip costs would decide up afterwards,” defined Megginson. “This restocking exercise did not instantly materialize after the Spring Competition, which led to some gloomier sentiment in China.”
Notable lithium offers from the primary month of the yr embrace two transactions by Chinese language chemical and battery producer Ganfeng Lithium (OTC Pink:GNENF,SZSE:002460,HKEX:1772).
The primary, between Ganfeng and Australia’s Pilbara Minerals (ASX:PLS,OTC Pink:PILBF), amended an existing offtake agreement, rising short- and medium-term provide of spodumene focus. The revised settlement will see Pilbara provide Ganfeng with as much as 310,000 MT yearly in 2024, 2025 and 2026, in comparison with the earlier 160,000 MT.
“The long-term outlook for the {industry} stays extremely thrilling. Each Ganfeng and Pilbara Minerals stay targeted on extending our respective positions as main, low-cost producers within the burgeoning lithium market,” mentioned Dale Henderson, Pilbara’s managing director and CEO, within the announcement.
Subsequently, Ganfeng penned a supply agreement with South Korea’s Hyundai Motor Group (KRX:005380). The deal — which is efficient from January 1, 2024, by means of December 31, 2027 — will see Ganfeng provide an undisclosed quantity of battery-grade lithium hydroxide to Hyundai.
February: Lithium producers react to market strain
As downstream gamers sought offers amid low costs, producers started revising manufacturing tallies.
“We additionally started to see some provide response to the persistent cheaper price setting, with the announcement of delays to growth plans and layoffs at some lithium producers or aspirants,” Megginson mentioned. “I solely count on this to palpably influence the provision image in 12 to 18 months, as that’s when these expansions have been deliberate to ramp.”
In mid-January, Albemarle (NYSE:ALB) introduced it was trimming capital expenditures by US$500 million year-over-year.
“The actions we’re taking enable us to advance near-term progress and protect future alternatives as we navigate the dynamics of our key end-markets,” CEO Kent Masters said. “The long-term fundamentals for our enterprise are robust and we stay dedicated to working in a secure and sustainable method. As a market chief, Albemarle has entry to world-class sources and industry-leading expertise, together with a collection of natural initiatives to seize progress.”
Just a few weeks later, the US-based firm entered into a long-term partnership with BMW Group (ETR:BMW) to offer the automaker with battery-grade lithium for its high-performance EVs.
ASX-listed Liontown Assets (ASX:LTR,OTC Pink:LINRF), which plans to open its Kathleen Valley lithium mission mid-year, famous the precarious lithium market in a January update.
“The latest materials decline in spodumene costs has triggered important reductions briefly and medium-term lithium value forecasts,” it reads. “In consequence, we’ve got commenced a evaluation of the deliberate growth and related ramp-up of Kathleen Valley to protect capital and scale back the near-term funding necessities of the mission.”
Whereas the corporate is reviewing potential methods to chop total prices, it did word that there won’t be any adjustments to its plant design, which has a deliberate capability of three million MT per yr and is presently underneath development.
Given this setting, some market watchers are calling for consolidation within the lithium sector.
“As lithium initiatives wrestle to remain above water, analysts additionally count on M&A exercise to extend as main producers with optimistic money circulate attempt to discover offers out there whereas junior corporations attempt to promote initiatives in a market the place personal capitals are scarcer than earlier years,” a February 12 report from S&P Global states.
March: Evolving provide and demand elements help lithium costs
The start of March introduced some restoration in lithium costs as each carbonate and hydroxide made beneficial properties.
After beginning the month at US$14,977.15 per MT, lithium carbonate costs registered a 5 month excessive of US$16,109.48 on March 14. Costs for lithium hydroxide additionally moved northward on the London Steel Alternate, hitting a excessive for the primary quarter of US$13,425 per MT on March 11.
For Megginson, these strikes have been in keeping with a market that is coming again into equilibrium.
“We forecast a reasonably balanced market in 2024,” the Benchmark value and information analyst mentioned. “Whereas the low value setting has brought on some mission expansions to be pushed again barely and among the marginal, higher-cost provide has come offline — this has been largely counterbalanced with bigger producers producing extra.”
He went on to stipulate the elements that possible introduced on the March value rallies.
“On the demand aspect, cathode producers in China introduced that they’d considerably enhance manufacturing in March, some by as a lot as 30 p.c month-over-month — albeit in comparison with a really low degree in February as Spring Competition was going down,” Megginson mentioned. The drivers on the provision aspect are just a little extra nuanced.
“Environmental inspections at lepidolite producers in Jiangxi province led to some issues about provide from the area,” he defined. “Transgressions have been discovered when it comes to the dealing with of lithium slag, and a few individuals thought that provide may change into constricted. Ultimately, the influence of those inspections was comparatively restricted with two corporations being informed to take motion, with the rest recommencing regular manufacturing (as of April 5).”
Megginson went on to notice that there at the moment are “rumblings” that brine producers in the identical area may bear comparable environmental inspections. “Though downstream demand is ticking up notably for the time being, ample provide total is prone to restrict the extent of value rises within the quick time period,” he concluded.
Along with value spikes, March additionally introduced main developments for US-focused Lithium Americas (TSX:LAC,NYSE:LAC). The corporate, which is creating its Thacker Move mission in Nevada, acquired conditional dedication for a US$2.26 billion loan from the US Division of Power.
The mortgage is earmarked for the development of the processing amenities at Thacker Move, which Lithium Americas states has the largest-known measured and indicated lithium useful resource in North America.
The money injection is designed to additional strengthen the North American battery metals provide chain.
“The USA has an unbelievable alternative to steer the subsequent chapter of worldwide electrification in a method that each strengthens our battery provide chains and ensures that the financial advantages are directed towards American staff, corporations and communities,” Jonathan Evans, president and CEO of Lithium Americas, said.
What elements will transfer the lithium market in 2024?
Towards the top of Q1, there was extra important information for the lithium market.
Chile, a key participant within the world lithium market, unveiled the full details of its complete plan to boost lithium manufacturing and entice funding. The nation defined that operations and initiatives in its Atacama and Maricunga salt flats will must be majority managed by its state operators, which is able to maintain a 50 p.c plus one share stake.
Chile additionally introduced that it has opened up over two dozen salt flats within the nation for personal funding.
The brand new lithium coverage goals to advertise sustainable growth whereas guaranteeing truthful participation amongst {industry} stakeholders. Chile intends to streamline the allowing course of for lithium initiatives, encouraging larger funding and boosting manufacturing. Moreover, the federal government plans to determine a lithium consortium to supervise analysis and growth initiatives, facilitating technological developments in lithium extraction and processing.
“The aim of the nationwide technique is to spice up Chile’s lithium manufacturing, which is presently anticipated to rise by 20 p.c to 270,000 tonnes in 2024 from 225,000 tonnes in 2023,” Fastmarkets analyst Jordan Roberts wrote. “Low manufacturing prices within the nation imply producers have been going through much less strain from the latest weak spot in lithium costs.”
For his half, Megginson suggested watching lithium output from Africa.
“Though the standard of fabric is extra variable than comparable materials from, for instance Australia, and the continent nonetheless makes up a small proportion of total world provide, provide of hard-rock lithium concentrates from Africa is rising quickly, particularly from Zimbabwe and Namibia,” he mentioned. “Presently, Chinese language converters are accountable for almost all of the initiatives which might be at extra superior levels. It’s value noting that many of those initiatives usually are not economical when lithium chemical substances costs are considerably under RMB 150 per kilogram.”
Lastly, Megginson is monitoring gross sales exercise. “Now we have seen an rising variety of public auctions and pre-auctions for spodumene focus,” he mentioned. “That is positively one thing to look out for, and I count on to see extra auctions for the rest of the yr, and a few comparable auctions going down for lithium chemical substances as effectively.”
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Securities Disclosure: I, Georgia Williams, maintain no direct funding curiosity in any firm talked about on this article.
Editorial Disclosure: The Investing Information Community doesn’t assure the accuracy or thoroughness of the data reported within the interviews it conducts. The opinions expressed in these interviews don’t mirror the opinions of the Investing Information Community and don’t represent funding recommendation. All readers are inspired to carry out their very own due diligence.