Ann: Production and Sales Update, page-249

From Sjlasx on Gxy thread . Yup, it looks like we are all being screwed by the Chinese....in light of the recent US Senate classification of Li as a 'strategic mineral' maybe Mgmt of the main Oz spod producers should be looking to the US to secure future supplies, even accepting their currentl of any processing capability . Didnt take the US long to figure out shale oil when the Arabs started to threaten supply flow...

'Some simple information on Chinese converters...

They aren't actually profitable at the moment.

They've been caught between a need to purchase high grade Australian spodumene (and they consider all operating Australian producers "high grade") to meet high standards being set by international BG Li purchasers and falling LiOH & Li2CO3 pricing.
They cannot compete with the final product pricing being set by South American brine producers.
The independent non-integrated Chinese converters are really struggling.
China has taken the long term view that they must dominate the BG Li market and will not stop bringing converter capacity online and are prepared to operate at losses going forward.
Australian hard rock spodumene flooded the Chinese market in the past 18 months which has led to recent greater bargaining power.
They are trying to tie spodumene pricing to a ratio of LiOH & Li2CO3 sales prices to make their converters profitable in the future. However sales contracts are negotiated individually.

The Chinese have now taken the opportunity to put a squeeze on certain Australian producers. Those identified as new mines with high debt and high operating costs that as a result have less bargaining power. Those operations are receiving significantly lower pricing for their spodumene regardless of grade.

They know that those producers who haven't reduced their costs will face the risk of going under. With short term spodumene oversupply they are prepared to let that happen.

There's some masterful trickery at play too. Given their converters are operating at losses, they have even dressed up offtake agreements as Converter JVs in order to further put the squeeze on at least one of those at risk operators. It's all about further linking spodumene acquisition costs to converter operating losses.

There are three obvious Australian hard rock companies that are at risk - those fitting the high debt / high operating cost identity.

There are some very serious questions retail holders should be asking the management of these companies and any company that buys into a Chinese converter without getting the bargain of the century. '