I thought I would take a day and gather my thoughts before posting.
China's dominance
I have consistently posted on these threads that western economies need to break China's dominance in term of downstream chemicals capacity/batteries etc etc to grow their own economies and get EV capacity back into their own countries. Having a country dominate the EV market and its inputs can only lead to price manipulation and/or that dominance used for 'political purposes' (i.e. just look at what China did to Japan in the rare earths supply market). I posted the graph below a while back, and to be clear China is becoming more vertically intergrated in upstream to downstream markets, as for example it actually controls the cobalt supply in the DRC, so breaking that dominance is getting harder.
Taking the above:
Positive of the Announcement:
1. LTR has secured a short term supply contract for the ramp up stage. 100,000 tpa is a fair chunk of LTR's production capacity at 3mtpa input feed. At 3mtpa input feed, resource grade say 1.56% and recovery rate of 78% the plant is capable of producing 600,000 tonnes per annum of 6% grade spodumene concentrate. So in effect if the contract extends beyond 10 months, they essentially have contracted around 17% of LTR's production capacity.
2. Taking point 1 above, obviously in a ramp up stage output for the first year will be less than nameplate, so that percentage is much higher, so should provide some solid revenue, although that depends on the price received, noting my own personal view that prices in China for feedstock are manipulated.
3. It is a short term contract so I doubt they will seek to manipulate the price paid to LTR short term, if the underlying objective of the contract is to extend it beyond 10 months so a time will tell comment here.
4. Production ramp up is occurring on schedule.
Negatives of the announcement:
1. It is China, a country that can manipulate price. Although if prices are too low long term, this will impact other lithium upstream producers coming onstream and at some point prices will take off again and have the same instability in price growth and fall as we saw back in 2021 - 2024. (Which will be a short term advantage to LTR as it is in production).
2. It is clearly obvious too me that western governments are not walking the talk and/or the rate of diversification of downstream capacity away from China is happening more slowly than anticipated. That is a big negative here.
Obviously going forward, when the likes of LG and others enact their supply contracts etc etc and/or ramp them up that will be a positive in that LTR longer term will be less China reliant than other producers, however, breaking China's dominance is a key to functioning markets in the EV space IMO.
I actually find the announcement a little disappointing to be frank, not because LTR has signed a contract with China, but because of the comments above.
My further viewpoints are summarised in the following posts in relation to LTR, nameplate capacity, price manipulation etc etc
1. China's dominance in EV markets -
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2. Nameplate:
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3. Price manipulation:
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4. Lepdolite:
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All IMO
(20min delay)