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with final quarter Li Chemicals output that always leaves my...

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findinggems

3,072 Posts.

911

16/10/19

22:26

Post #: 40919825
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Originally posted by Sjlasx ↑

I think it is too early to call it a major problem.
First off there has been some confusion about what is required in Q4 to reach approx 180ktpa for the calendar year.
By my count around 75kt is required for the December quarter to meet full year guidance. 15kt has already been shipped.
Lets put that in perspective for the year.
We were advised early on that shipments would be skewed to H2 due to major customers being offline in H1 upgrading their processes - Yahua in particular. (Also GXY had pushed for greater shipments at the end of CY2018). When these converters come back online it takes time for them to ramp back up to full production. It's a process that takes many months. Many however had interpreted the guidance that as soon as we got July we would be back to a consistent shipping schedule.
Personally I took it at the time, and posted - no abuse of hindsight here, that Q4 CY2019 shipping would logically be higher than Q3 due to ramp up of those converters.
Reality is that September Qtr was a very strong period given the spodumene oversupply in the industry.
Without getting into too much detail there is also a very high degree of cyclical production in the Chinese market with final quarter Li Chemicals output that always leaves my head scratching as to why they choose to produce such large quantities, to only have prod numbers fall dramatically in January February each year.
We have already seen 15kt shipped in first half of October, which leaves two more shipments of 22.5kt and one of 15kt for year end.
This is still absolutely achievable and not a monumental challenge as some would have you believe.
Others have speculated there will be a devastating quarterly report out soon despite having shipped approx 60kt during that qtr.
Yes pricing is likely to be down again, however costs of production decreased dramatically at the end of Q1 and that should now start to be reflected in Costs of Goods sold as inventory from prior to the YOP is sold down. Much of the analysis I have read uses H1 Costs of Goods sold for H2 financial forecasts instead of H1 Costs of Production.
For those looking to understand why production costs increased substantially late 2018 and very early 2019 it is not difficult to go through the company reports and assertain the legitimate reasons.
In my view it will be an interesting quarterly for a couple of reasons. On the one hand you will have high shipments and lower corresponding COGS. On the other there will be a focus on sales pricing, questions regarding SDV development progress and costs, and the big unknown of A40.
So plenty of good news for Longs to get excited about while a healthy dose of FUD inspiration for Shorters. And we all know who has the biggest pulpit when it comes to the lithium market currently.
There are a few items that could surprise to the upside.
Costs of production could continue to fall slightly along with increasing material processed and a higher grade concentrate as a result of the YOP changes implemented.
Many believed production costs will rise again as they attributed strong performance recently to a higher feed grade while ignoring the laundry list of mining and processing improvements carried out early this year.
Other upside opportunities remain SDV progress and shedding light on the technical path forward. Negotiations for an equity stake in a Chinese converter.
Refining plants are also available in the distressed Chinese market to repurpose lower quality Li Chemicals to battery grade to take advantage of the glut of low quality chemicals currently. This has not been discussed on these threads as far as I understand.
Yes I understand it's all doom and gloom for many GXY pundits however being cashed up at the bottom of a commodity bust cycle - and spodumene concentrate SC6 is the closest product of the Li supply chain to a commodity.
Cash is king. Development costs of world class resources that will be non marginal assets is not burnt cash and whichever way the FUD brigade choose to spin it, Mt Cattlin is profitable as can be seen by the costs of production and of the Juniors it has by far the lowest costs of production. Along with the highest shipping rates. Although that's not difficult when A40 and PLS are offline (PLS still shipping some of their on spec stockpile - much is off spec and impossible to sell) while AJM has been a trooper but still only managed half the shipments of GXY for the Sept Qtr.
Final word for those that believe that GXY has been singled out by Shorters and insinuate it is for company specific reasons, I suggest you take a look at Orocobre that has received its own onslaught from shorters. Keep in mind they are well progressed with their massive expansion plans that were partially funded through financing at jaw droppingly convenient interest rates and terms (coupled with the cash injection from Toyota that was paced at $7.50 per share) along with construction of their 10ktpa Hydroxide refinement plant in Japan that was effectively paid for by the Japanese government through subsidies and near zero interest rate loans and to top it off, they are Chemical producers on the correct side of the cost curve somewhat shielded by massive spodumene oversupply. Despite a stream of very positive news they have been hammered by shorters and sit beside GXY on the top shorted list.
Side note, when I talk about Shorters in this post I mean those that can have a tangible impact on SP movements, not the keyboard warrier parasites that hitch a ride on the moves of those large players.
GLTAH.

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with final quarter Li Chemicals output that always leaves my head scratching as to why they choose to produce such large quantities, to only have prod numbers fall dramatically in January February each year.

Isn't that simply because of Chinese new year? So they try to make up for the lower production during that time by increasing production ahead?
Doesn't it happen for other commodities as well?

GXY Price at posting: 94.5¢ Sentiment: Buy Disclosure: Held
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