Interesting night on the US markets last night with most Lithium stocks suffering big sell downs.
This all following a Reuters report that China's CATL - the world's largest battery maker - has offered discounts to some Chinese automakers it supplies, reflecting a downturn in the price of lithium.
This is the same CATL that scared the markets last December (when many Li contract prices were being reset) talking up the future of Sodium Ion batteries - don’t hear much about that now, or all those mines in Africa that were going to create an oversupply as reported by BYD last May.
Despite the above statement apparently from CATL, the truth is, what they are presently paying for lithium is significantly higher than last year.
Most of CATL’s Lithium supply is on long term contracts either directly themselves (eg PLS) or through their converters, these contracts lag the spot prices.
If you look at prices received by Greenbushes for example.
In 1HCY22 it was $1770/t, in 2HCY22 it was $4187/t so averaging around $3000/t for 2022.
IGO are now getting $5957/t for this current Quarter, almost double what they received last year.
So CATL are offering discounts to Chinese automakers because of the price downturn, yet they are probably presently paying almost double what they paid last year.
Another blatant attempt to talk down prices, the Chinese have a history of this.
CATL has supposedly asked its suppliers to reduce the raw material costs, end of the day lithium prices will be determined by supply & demand.
You can’t blame them for trying to cap prices. These high prices have finally caught up with them & they don’t want them to go any higher.
Most lithium producers are valued at lithium prices closer to half the present price, EBITDA multiples in some cases below 5x instead of the longer term 10x
Then we had the Reuters report Tesla was looking at taking over Sigma.
With the predicted supply shortfall, M&A will increase as evidenced by some of the auto OEMs taking positions in Lithium producers. This is further evidence those working inside the industry are aware of the supply shortfall - economics 101 when demand exceeds supply, prices go up.
https://www.reuters.com/technology/tesla-considering-bid-sigma-lithium-bloomberg-news-2023-02-17/
Finally, an article in the West Australian today about MinRes’ hydroxide plant - a few pastes below
I wonder if the Goldman Sachs analysts took this sort of thing into account in their predictions
“The first of two 25,000-tonnes a-year production trains at Kemerton is producing product but commercial sales are still subject to customer certification of the lithium hydroxide”
“The initial plan was to have the second train commissioned simultaneously, but as Albemarle chief executive Kent Masters told investors on Thursday, “we struggled with labour during the pandemic and still, frankly, struggle with labour at Kemerton” .”
“He said that subsequently, train 2 was probably six months behind the first lithium hydroxide plant, which typically take two years to ramp up to full capacity.”
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