Lithium over supply narrative is not true
What we were talking about for a long time has now proven to be true;
Lithium over supply narrative is BS and not true because the Chinese producers were making LCE production at loss from their own lepidolite resources as well as from their Zimbabwean resources.
We first saw the big Chinese Zimbabwean mine owners and producers Yahua and Sinomine have done offtake agreements respectively with PLS and LTR.
We were also saying for months that the dirty lepidolite mines were making production at lost as well. We were aware that the majority of those mines which were non integrated (only mine but no refinery to produce LCE attached to that mine) was also shut down over the months since the beginning of this year.
I said before that CATL and BYD owned and/or financed those lepidolite mines even at loss just to lower the price of the lithium they were buying abroad both from Australia as spod concentrate and LCE from South America (mainly ALB and SQM). Also the Chinese central and local governments were subsidising those dirty lepidolite mines.
Btw, why lepidolite is "dirty" we say because its waste after processing is huge. Even Chinese can't cope with that amount of waste. Chinese invented different techniques for processing the lepidolite ore for lowering the cost as much as possible, but each single one of them has different disadvantages while the huge waste comes out in any of them.
Then we got the news today as below;
UBS gave this news but it doesn't give the real and whole picture.
All of lepidolite mines in China must be producing at loss and must be shut down.
Because CATL's lepidolite mine is integrated and its cost is very low in comparison to other lepidolite mines, then this comes to mind; if CATL suspends its largest lepidolite production mine and plant then there should be no other lepidolite mine operating in China.That leaves a huge deficit in lithium supply because lepidolite production covers nearly the 13%-15% of all world production in recent times.
As you can see on UBS's news above it says "
CATL's suspension of lithium operation in Jiangxi will lead to 8% or 5-6kt LCE production cut of China MONTHLY Li2CO3 (lithium carbonate) production,..)
We know from China's own sources (SMM) that the monthly
lithium carbonate production from lepidolite is around 15kt in July 2024 (was down 12.5% from previous month). (See the data on my post
#:75186170 on Aug 13).
CATL is now cutting off 6kt of that 15k monthly LCE production from lepidolite.
That is about 40% of LCE production from lepidolite production in China.
That implies to ~70kt LCE production per annum is going to be cut off from world LCE production.
That is a huge number because it implies to nearly 6% of world LCE demand. (Market demand will be around 1,250kt in 2024 according to my and other forecasters' data)
UBS says CATL 5-6kt LCE production cut implies to 8% of lithium carbonate production in China. According to my calculation it can go up to 10%. See below.
See the analysis and news of
SMM (Shanghai Metals Market).
News from the Chinese owned company;
"
" Aug.12, 2024
According to SMM statistics (not mine though. I'm still suspicious about all numbers given by Chinese sources), the total domestic production of lithium carbonate (including
recycling) was 65kt in Chin in July. (The lithium carbonate imported from South America is not included in this volume of course.)
From January to July, the cumulative domestic production of lithium carbonate was 363kt.
The July 65kt lithium carbonate production includes;
- Chinese lepidolite: 15,600t (12.3% down MoM)
- Overseas and some Chinese spodumene: 30,300t (1.7% up MoM)
- Chinese slat lake brine: 13,300t (2.5% up MoM)
- Recycling: 5,760t (1.1% up MoM)
If all lepidolite mines are to be shut down then 15% deficit will occur at the supply side.
15kt LCE monthly or 180kt LCE annually will be withdrawn from the supply side.
(180kt / 1,250kt) (I assume supply and demand in balance atm).
Numbers never lies...
And this is just the beginning.
We can see from UBS's data that CATL's cash cost (not even including all-in-cash cost) was USD 11,000/t. The spot sales is well below this amount atm (USD10,400/t at RMB 75,000/t). Now it's obvious that CATL don't want to make any more loss. Maybe the central and local governments don't want to subsidise the lithium business anymore as they have to subsidise their bigger problems like banks and property sectors which are very problematic atm.
LITHIUM PRODUCTION COST CURVES WON'T ALLOW LCE PRODUCTION FROM LEPIDOLITE ORES
I also gave those info below regarding to the COST CURVES AND INCENTIVE PRICE CURVES on my post #:
75157186 on Aug.11, 204.
I'm posting them again to help us to see the reality. but consider that I wrote all these before CATL's decision to production cut off.
My post #:75157186 on Aug.11, 204.
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Both the LCE production from Chinese lepidolite ore and Zimbabwean petalite/spod ore are being done at cost and/or loss as you can see from the cost curves below. That is not sustainable indeed.
It's clear that the
production of lithium from lepidolite ore in China is being done at loss
. Who pays for that loss? The current price of LCE (or lithium carbonate) clearly shows that on the cost curve of producing lithium carbonate from lepidolite ore.
It's also clear from all data that the cost of spod concentrate (on SC6 basis) of Chinese mines in Zimbabwe is US$800/t (CIF China). Now that is nearly going to be the sales price of Australian spod (on SC6 basis which is around US$850/t in Chinese spot market now).
Here is the cost curve of Chine lithium mines in Zimbabwe;
At US$800 spod price they are all finished. Actually most of them are already finished and they are now buying from from Australian spod producers as you know, that includes LTR's new offtake buyer Sinomine.
The current LCE incentive price is too low to support the opening of new lithium production plant.
When we look at the LCE incentive price curve made by Wilson. The analysts at Wilsons Advisory have approached the current pricing situation by developing an Incentive Curve that considers what price levels are necessary to justify the CAPEX spend for development companies along the cost curve.
Here it is. (I modified it by the current lithium price and added some notes on it).
According to this LCE incentive price curve, there can't be any more investment in lithium production, and most of the projects producing will go offline.
Is that going to happen?
Probably because Chinese government wants to do that and our western governments are sleeping.
If it happens then what going to happen?
We will see very high lithium prices later on indeed.
We can look at the cost curve as well.
And we will see the same thing.
This cost curve graphic was made by SMM (Shanghai Metals Market) which is the Chinese company provides an integrated internet platform of benchmark prices, analysis, news, consulting and conferences of the metals & mining industry. Headquartered in Shanghai.
"
" 12/10/2023 SMM (Shanghai Metals Market)
I modified the graph to today's LCE market prices.
What we see here is this;
More than half of the LCE production capacity should have been lost but it's not the case.
Yes, many of the LCE producing non-integrated lepidolite mines have already been closed but the Australian spod producing mines are working on full capacity without any production cuts and closing the production gap of closed lepidolite mines in China.
They are stupidly selling their precious spod concentrate (it is precious for Chinese spod conversion plants, they know it well because producing lithium carbonate from spod concentrate is less costly and much more convenient for the Chinese conversion plants) at very low prices.
As you can see on that graph, Chinese brine, Chinese spodumene production and Chinese integrated lepidolite production capacities are still profitable
but their capacities are very low
in comparison to Australian spod production capacity and of course its coceniency.
That means Chinese needs Australian spod like crazy.
But we are selling our spod very cheap like crazy as well.
Btw, this is what SMM says on that article report on the above link; (they know what they are doing!)
"SMM expects that lithium resource oversupply situation will gradually weaken in 2025 and a tight balance could be reached in 2026"
"As ore supply increases from new lithium resource projects, mining companies' profitability will come under intense pressure. The increase in lithium ore will significantly reduce the cost of producing lithium carbonate from spodumene concentrate and lepidolite concentrate sourced externally. As manufacturing costs fall significantly, its support for lithium carbonate prices will also weaken".
"Due to years of technology accumulation and equipment improvements, the cost of Australian mines will also remain relatively low".
"The cost of mining in Africa is affected by a variety of factors including road conditions that affect the use of mining equipment, high hidden costs and additional costs at ports. The cost of mining is much higher than in other mainstream regions. Under the influence of current lithium prices, some African mines plan to reduce or suspend production in the near future due to excessive hidden costs... If demand for lithium carbonate continues to be lower than expected in the second half of this year,
supply in Africa may continue to decrease, which may alleviate the overall resource oversupply problem"
.
OK, we know that the African spod production is already dead. The Chinese also know that.
The Chinese non-integrated lepidolite production is also dead.
But why are the Australian spod producers have to keep their prices low?
Why can't they reduce the production and wait for the right time?
These are the questions to be answered by the industry of Australia.
I'm not talking about price fixing but talking about reducing production for their own sake.
There is a huge demand to lithium. Everybody agrees about that. The Chinese offtakes from Australian only in this year clearly shows that as well.
Lithium resource is not that abundant at all. The existing hard rock and brine resources were there for hundreds, even millions of years. It's not possible to find another Greenbushes, it's not possible to find another Atacama desert which are sitting at the lowest portion of cost curves.
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Yes there may be 'almost-unlimited' lithium units on the ground but what sets the price is the actual quantity of units that reach the market relative to (very high) demand
" BMI - Benchmark Mineral Intelligence -
"
OPINION: What most major mining houses have got wrong about lithium
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Other than those two very low cost resources all of the other lithium resources need much higher incentive prices. It's clear on the graph above as well.
It all comes to one point that the current lithium price is not real and artificially created.
(20min delay)