There is very important issues concerning the ATO and Australian national interest about artificially created low lithium prices. Interestingly lithium prices are low when there is huge demand as said by all lithium producers of Australia and that is proven by many offtake agreements done by the major Chinese lithium producers (Sinomine/LTR, Ganfeng/PLS, Yahua/PLS, etc) with the major Australian producers.
How the low lithium prices created artificially, and by who?
It's clear from EU commission investigation (concluded recently) that the Chinese government subsidises all of its Lithium-Battery-EV supply chain.
It's clear that that is not a free trade either.
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.
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Global Battery Material Supply & Demand Outlook, Global Lithium Oversupply Will Ease In 2025 And Shift To A Tight Balance By 2026" 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"
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.
It is my opinion that I said this on my post
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IS GREENBUSHES MINE WHICH IS UNDER CONTROL OF CHINESE TIANQI BEING USED TO FLOOD THE MARKET WITH LITHIUM AS MUCH AS THEY CAN?
The Greenbushes mine JV partners know very well that they will run out of high grade ore soon in 7-8 years, then why they are producing and selling as much as possible atm?
...
In Q1, they only sold 183kt to China. They produced 280kt in Q1 but they increased their production to 332kt in Q2 although they said they would reduce the production in Q2 if the sale price wouldn’t recover in Q2.
Here it is; what they said on their report on Oct 2023;
But they did the opposite.
(IGO has no control over this. They are just waiting Tianqi's decision like a puppet)
I don’t believe it’s because they were scared of losing revenues. Because the control of GB mine is under Tianqi’s control, Tianqi has got the power to increase or decrease the production.
Because Tianqi is a Chinese company and Chinese government is controlling the lithium price atm, then increasing the production in GB is the decision of Chinese government IMO, just to lower the prices more.
Btw, there is very important issues concerning the ATO and Australian national interest in artificially created low lithium prices when there is huge demand as said by all lithium producers of Australia and proven by many Chinese offtake buyers' agreements with the major Australian producers.
Australia lose a lot of tax income by those artificially created low lithium prices. Greenbushes ave. spod sale price was;
2023-Q2 US$5,431/t
2023-Q3 US$3,740/t
2023-Q4 US$3,016/t
Big decline here now-->
2024-Q1 US$1,034/t
2024-Q2 US$1,020/t
Bid decline from US$3,016 to US$1,034, nearly two third of price is disappeared.
What has made Tianqi to make that decision?
Selling the spod one third price of last quarter!
Especially when it's reported that they will reduce the production for better pricing!
The 50% of that spod concentrate goes to China Tianqi company at that price. Australia losing revenue and income tax from that revenue.
ATO investigated Talison JV in 2018 for their similar behaviours (selling at low price to their overseas companies in 2015 and 2016 when their revenues were not high) as far as remember. Here are some documents about it.
"Lithium giants Albemarle, Tianqi in Australian Tax Office price review"
After 2 years of investigation the result was this; Settlement
Tianqi paid: $18m
ALB paid; $17.3m
These settlement amount were quite high considering their revenues were not that high in 2015 and 2016.
(20min delay)